A Korean court’s action to liquidate seized assets of a Japanese firm involved in wartime forced labor is set to kick off Tuesday, which could aggravate already fragile bilateral relations and prompt Tokyo to retaliate further.

Japan has warned of strong retaliation if Seoul goes ahead with the sales of assets to compensate victims, with its Chief Cabinet Secretary Yoshihide Suga saying that Tokyo is looking at “all available measures” and has a “clear direction about it.”

South Korea’s Foreign Ministry on Monday said it is keeping a close eye on the relevant situation and leaving all possibilities open to review the direction of its response.

The Pohang branch of the Daegu District Court last month began the process of serving Japanese steelmaker Nippon Steel, formerly known as Nippon Steel & Sumitomo Metal, through publishing summons and relevant documentations on its website as the Japanese government and the firm have ignored the court’s ruling to compensate victims. The court has set Tuesday as the deadline on the delivery of public notice -- a legal procedure that considers the relevant documents as having been delivered to a defendant who fails to respond. This means the servicing is considered complete and the court has secured legal grounds to liquidate the assets, under its ruling last year.

Nippon Steel has until Aug. 11 to file an appeal. If it does not appeal, the court can go ahead with the sale of the seized assets to cash them out to give it to the victims.

The assets in question are 81,075 shares, worth around 405 million won ($339,000), in PNR, a joint venture of Nippon Steel and Korean steelmaker Posco. The Pohang court ruled in January last year to confiscate the assets, after Nippon Steel refused to comply with the Korean Supreme Court ruling in October 2018 ordering the Japanese firm to pay 100 million won in compensation to four Koreans for their forced labor during World War II, including Lee Choon-sik, 96, the only remaining survivor among them.

Following the ruling, the court last year sent relevant papers to the Japanese Foreign Ministry to effectuate the process, but the ministry sent back the documents and remained unresponsive to the court, which prompted the plaintiffs to go after its assets.

The Japanese firm has not complied with the Korean court order to compensate the victims, instead heeding Japan’s position that colonial-era reparations were settled by the 1965 treaty that normalized bilateral relations.

But Seoul has argued the 1965 bilateral agreement should not prevent the victims from seeking damages for wartime forced labor and sexual enslavement.

Once the court orders the sale, bilateral ties could worsen further, as the Japanese government will likely retaliate in some form. Earlier last month Suga said Japan will respond to the issue with every option on the table, while Foreign Minister Toshimitsu Motegi also reportedly told Korean Foreign Minister Kang Kyung-wha over the phone in June that the sale of seized assets must be avoided.

While it is not clear what measures Japan could take, some Japanese media outlets have suggested the possibility of economic retaliation, through tariff hikes or seizing Korean assets in Japan, or toughen requirements for visa issuance.

The actual sale of the shares in PNR, which runs steel mills in Pohang, North Gyeongsang Province, and Gwangyang, South Jeolla Province, could take a while though, as it requires holding a hearing, the appraisal of shares and finding a buyer for the sale.

By Ahn Sung-mi (sahn@heraldcorp.com)