Japan has rejected South Korea’s proposal for Japanese businesses named in compensation lawsuits filed by wartime Korean laborers to contribute money to a fund that will provide financial assistance to the aging plaintiffs.

“We cannot accept it,” Foreign Minister Taro Kono said June 19.

Instead, Japan called for the establishment of an arbitration panel as a new step toward resolving the dispute. The panel would consist of one member each from third-party countries.

The request for such a panel came after South Korea failed to appoint a member to a different panel--represented by Japan, South Korea and a third country--by the June 18 deadline set by the Japanese government.

The following day, the South Korean Foreign Ministry said Seoul has already notified Tokyo that it will accept Japan’s request for diplomatic talks on the issue if the sued Japanese companies, as well as South Korean companies, jointly contribute to a fund for the wartime laborers.

The contributions would match the total amount of compensation ordered by South Korea’s top court, according to the proposal.

This was the first time for Seoul to acknowledge that it has offered specific proposals to Japan in connection with court rulings on a string of damages suits brought by the wartime laborers in South Korea. The country’s Foreign Ministry said the proposal was “well balanced and responds to Japan’s request.”

Among the South Korean companies expected to join the proposed effort is steel giant Posco, which benefited from Japanese economic cooperation provided under a 1965 bilateral agreement, sources said.

The agreement, concluded when the two neighbors restored diplomatic relations, covered property and the right to claims stemming from Japan’s 1910-1945 colonization of the Korean Peninsula.

Japan has said the agreement had “settled completely and finally” all wartime compensation issues.

However, the South Korean Supreme Court last year ordered Nippon Steel & Sumitomo Metal Corp. and Mitsubishi Heavy Industries Ltd. to pay about 100 million won (about 9 million yen or $83,534) each to 32 plaintiffs.

With Seoul showing reluctance to attend talks on the wartime labor issue, Tokyo told Seoul that an arbitration panel should be set up based on a clause in the 1965 agreement aimed at resolving such disputes.

(This article was written by Hajimu Takeda in Seoul and Tamiyuki Kihara.)