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SEOUL — South Korea said on Monday that it had proposed a resolution to one of its thorniest historical disputes with Japan, in hopes of mending fractured ties between the key American allies.
The government said it had created a foundation that would pool funds from South Korean businesses and use the money to compensate Koreans who were forced into labor by companies in Japan, which then ruled Korea as a colony, during World War II.
The issue sent the two countries’ relations to one of the lowest points in decades after a 2018 ruling by South Korea’s Supreme Court, which said the Japanese companies were responsible for compensating victims of forced labor. Japan has insisted that such matters were settled long ago, under a 1965 treaty that established postwar diplomatic ties.
In a tit-for-tat escalation, Seoul and Tokyo retaliated against each other after the Supreme Court ruling, imposing trade restrictions and boycotting goods. Washington has repeatedly urged the two allies to resolve the dispute and work more closely together to confront regional challenges like North Korea and China.
President Yoon Suk Yeol of South Korea, who took office last May, has made improving relations with Japan one of his top diplomatic priorities. His government said on Monday that it hoped the Japanese companies that used Korean forced labor would also contribute to the fund.
So far, South Korean courts have awarded 15 victims a total of $3 million in compensation since the Supreme Court ruling, though Japanese companies have refused to pay it. Hundreds of other victims are also suing to be compensated.
“Cooperation between South Korea and Japan is vitally important,” Foreign Minister Park Jin of South Korea said at a news conference on Monday announcing the proposal. “We should no longer neglect the deadlock in South Korea-Japan relations and must end the vicious cycle for our national interest.”
In Tokyo, Foreign Minister Yoshimasa Hayashi told reporters that Japan “appreciates” the South Korean proposal, noting that it was “not based on the assumption that Japanese companies will contribute” to the fund.
There was no immediate reaction from Korean forced-labor victims or their lawyers on Monday. But some victims had vehemently criticized the proposed solution after key elements of it were leaked to South Korean news outlets in recent weeks.
Their main concern is that the money would not come directly from the Japanese companies that profited from forced labor during the war, as stipulated by the Supreme Court decision in 2018. Some of those companies include Japan’s most successful, such as Nippon Steel and Mitsubishi Heavy Industries.
Seoul’s announcement came after months of negotiations with Tokyo. So far, according to South Korean news reports, Japan has resisted the idea of contributing to the fund, fearing that it would be tantamount to paying compensation. (Mr. Park on Monday said that the Japanese government would likely not oppose contributions to the fund by Japanese companies, if they were made voluntarily.)
Tokyo has long insisted that all claims arising from its colonial rule of Korea from 1910 to 1945 — including those involving forced labor and sexually enslaved women — were settled when Japan provided South Korea with $500 million in aid and cheap loans as part of their 1965 treaty.
South Korea put some of that money toward building its main highways and key industrial factories, like those owned by the steel-making giant Posco. Such South Korean businesses will be asked to donate to the fund announced on Monday.
The United States sees the sour relationship between Seoul and Tokyo as a weak link in its Asia-Pacific alliances, and it has struggled to boost trilateral cooperation in the face of China’s rise and North Korea’s provocative missile tests. Ned Price, a spokesman for the State Department, said last week that the United States applauded Seoul and Tokyo for their recent efforts to improve their relationship.
Motoko Rich contributed reporting from Tokyo.
