Tokyo’s economic aid to Seoul laid the foundations of a new development model – but it had a dark side as well.
Following the end of World War II, Japan and South Korea initiated negotiations to normalize diplomatic relations. However, these talks were complicated by a host of issues, including property claims, fishing rights, territorial disputes, and the treatment of Korean residents in Japan. The historical legacy of Japan’s 36-year colonial rule over Korea also presented a major obstacle, with the two countries holding fundamentally different views on the matter. Japan’s lack of reflection on its wartime actions and colonial rule, combined with the “Syngman Rhee Line” maritime boundary declaration and the Kubota Statement, further fueled tensions and contributed to a five-year suspension of negotiations.
The turning point in this deadlock came when the cabinet of Prime Minister Kishi Nobusuke was established in 1958. Partially due to pressure from the United States, the Japanese side suppressed its hardline stance toward South Korea and withdrew the Kubota Statement.
Then, in 1961, a sudden turning point also occurred on the South Korean side. Amid intense opposition within Korea, claiming that the normalization of diplomatic relations with Japan was a humiliating and traitorous act of diplomacy, South Korean President Park Chung-hee came to Japan at the end of the year and held talks with Prime Minister Ikeda Hayato. At the dinner party held at the prime minister’s residence, Park stated: “We, who have no experience, are eager to build our country with empty hands. We intend to escape from poverty and build a strong and prosperous nation.”
At the time, the view that South Korea’s economy was inferior to that of North Korea was prevalent in the international community. In fact, in the late 1950s, South Korea’s inflation rate exceeded 30 percent, and its GNP growth rate was less than 5 percent, lower than that of North Korea. Park, who was formally elected as president in 1963, after seizing power through a military coup in 1961, aimed to secure the South’s superiority over North Korea. The main task of the Park administration was to eliminate poverty, which had persisted since the Syngman Rhee era, and jumpstart the national economy.
Moreover, it should not be forgotten that the successful normalization of diplomatic relations between the two was due in part to the relationship between Park and Kishi, even though the latter no longer held office. Park and Kishi first met in 1961 when the South Korean leader visited Japan. Prior to that, they had been exchanging letters, and Park had requested that Kishi visit South Korea as the Japanese representative in negotiations to normalize diplomatic relations between the two countries. Kishi’s visit did not happen due to Japanese Prime Minister Ikeda’s disapproval, but after diplomatic relations were normalized, they met frequently. The political-level consultation mechanisms played a vital role in this process.
The Japan-South Korea agreements signed in 1965 were driven by various factors. From Japan’s perspective, supporting South Korea would benefit Japan’s national interests by expanding export markets and investment opportunities. Japan aimed to improve its international status through contributions to the “free world,” and saw development cooperation with South Korea as an opportunity, especially as Seoul faced off against an enemy communist regime. Additionally, Japanese fishermen were suffering due to the Syngman Rhee Line, making the treaty a pressing matter.
For South Korea, the task of the Park administration was to put the country on the track of economic development, with a focus on export-oriented industrialization. In that sense, Japan’s yen loans became a substitute for U.S. aid, and South Korea’s aid needs shifted from supplying reconstruction materials to development cooperation for production and exports.
From the U.S. perspective, the treaty normalizing Japan-South Korea relations was a framework for rear support for the Indochina War. The treaty created a mechanism through which Japan supported Seoul economically, in exchange for South Korea’s military contribution to the war in Vietnam.
The treaty reflected the shared interests of Japan, the United States, and South Korea, intertwining with U.S.-led military considerations and economic cooperation between Tokyo and Seoul. Japan’s funding of South Korea’s economic policy, in other words, was not limited to building economic relations but was also essential from a security standpoint.
The Seoul Subway Line 1 Scandal
In this way, the Japan-South Korea economic cooperation, which was thought to be a win-win for both parties, seemed to be successful, but it had a dark side as well. One such example is the Seoul Subway Line 1 project.
Traffic congestion in Seoul was a source of concern for the Park administration. The increases in automobile traffic in the 1960s hindered the tram system, and urban changes in the 1970s led to a rapid increase in car usage. Japan provided support for South Korea’s heavy chemical industrialization and the construction of industrial parks, housing complexes, and administrative and financial centers. To address issues of congestion and population growth, the Seoul Subway Line 1 was constructed in August 1974, financed by a 27.24 billion yen loan from Japan and built by a consortium of Japanese trading companies led by Mitsubishi Corporation.
In 1973, however, Japan’s development cooperation policy hit a turning point due to a scandal involving corruption allegations in the subway project. The scandal caused a stir in Japan’s Diet, with discussions focusing on the high prices of subway vehicles used in the project compared to those used by the Japanese National Railways. The validity of the prices was investigated by the Fair Trade Commission, and in 1977, members of the Diet alleged corruption in the inflated prices.
Suspicions arose that the South Korean government and Japan’s Korean lobby group had split a percentage of the transaction amount, shifting the focus to allegations of corruption with the South Korean government. The investigation focused on the inflated vehicle prices in Seoul and suspicion that the extra money was used as commissions paid to intermediaries on the Korean side. Executives from related companies of the Seoul Subway Line 1 project were summoned as witnesses.
In November 1978, it was revealed that $2.5 million had been transferred to a bank account in the United States under the name of S.K. Kim, and it was claimed that $1.2 million of it had been used for the Korean presidential election funds. It was also stated that a U.S. investigation report indicated that the rest – $1.3 million – was sent back to Japan, but there has been no confirmation of the publication of the investigation results regarding the recipient of that money.
The Seoul Subway Line 1 incident in the 1970s brought the issue of collusion between Japan and South Korea to the forefront and led to a negative image of ODA taking root. As a result, Japan was pressured by the international community to reassess its development cooperation policy, leading to the promotion of an untied aid policy to improve transparency and put an end to collusion. This led to a change in Japan’s development cooperation model, with a shift toward international cooperation rather than just economic cooperation.
Japan’s support for South Korea in the 1960s and 1970s was a successful model believed to bring economic development to South Korea and lead to poverty reduction, and came to be established as Japan’s unique development cooperation model. It involved Japanese companies creating attractive projects in response to requests from the recipient country, with backing from the Japanese government. However, this model had to be reassessed amid the outcry over the Seoul Subway Line 1 project. This can be seen as a precursor to a major turning point in Japan’s development cooperation policy.
The exposure of collusion between Japan and South Korea provided an opportunity to thoroughly review the development cooperation system, and since then, Japan’s development cooperation has been gradually restructured despite twists and turns, and is now in a more organized state.
The Question of Compensation
It is clear that behind the Japan-South Korea diplomatic normalization negotiations, despite the lingering anti-Japanese sentiment, South Korea had a clear development strategy of export-led industrialization for economic growth and was seeking to transition from grant aid to Japanese loans. Initially, South Korea asserted its right to claim compensation from Japan, but Tokyo argued that it could send money for such a reason. Instead, Tokyo decided to provide support by combining exports and investments by Japanese companies to promote South Korea’s economic development, and further, to reduce poverty under the guise of economic cooperation. For the Park government, the framing of the money was less important than its arrival in South Korea. Thus the issue of compensation was declared “settled completely and finally” through economic cooperation.
The Park government did not necessarily require a noble aid philosophy on Japan’s part, and there was little systematic information gathering and analysis of South Korean voices given the nature of Park’s regime. The normalization process of Japan-South Korea relations, including the conclusion of the 1965 treaty, focused on how to build Japan-South Korea relations and cooperation amid the deepening Cold War situation, rather than addressing the important issue of settling historical issues stemming from Japan’s colonial rule. As a result, Japan’s attitude is sometimes criticized in South Korea as a self-centered one: giving money to buy forgiveness without saying anything. However, it cannot be ignored that the South Korean government at the time was eager to make that bargain. Japan’s approach was to listen to South Korea’s development needs and help move them toward realization.
The current relationship between Japan and South Korea has undergone significant structural changes, and both countries are expected to strategically advance development cooperation with third countries. South Korean President Yoon Suk-yeol, who once said he was learning from President Park Chung-hee’s administration, confirmed the commitment to “promoting mutually beneficial cooperation for Japan and Korea” during a meeting with Japanese Prime Minister Kishida Fumio in March. The Japan-South Korea relationship has entered an era of cooperation that brings benefits to both countries, rather than the pursuit of individual national interests.