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The dispute took a tragic turn earlier on Friday when a South Korean man set himself on fire in front of the Japanese Embassy in Seoul in an apparent protest and later died from his injuries.
South Korea's ambassador to Japan, Nam Gwan-pyo, was summoned to meet Japanese Foreign Minister Taro Kono a day after a midnight deadline set by Japan for South Korea to accept third-country arbitration of the forced labour dispute passed.
South Korea has rejected third-country arbitration and Kono said Seoul must take swift measures to correct what Japan says was an improper ruling last year by South Korea's Supreme Court ordering two Japanese firms to compensate the wartime workers.
Japan says the issue of compensation was settled under a 1965 treaty which established diplomatic relations between the two nations post World War Two.
"What the South Korean government is doing now is equivalent to subverting the post-World War Two international order," Kono said at the start of the meeting.
Nam responded that South Korea was working every day to create an environment where the lawsuits could be dealt with in a way that would be acceptable to both sides and not harm bilateral ties.
The two diplomats exchanged testy remarks in front of reporters, with Kono interrupting when Nam said South Korea had already proposed a plan to resolve the issue.
"Hold on," Kono said. "We've already told the South Korean side the South Korean proposal was totally unacceptable, and that that is not something that would redress the situation where international law is violated. It is extremely impertinent to propose it again by pretending to not know that."
Neither official specified what that plan was, but last month Japan rejected a South Korean proposal to form a joint fund with Japan to compensate South Korean plaintiffs.
Later, South Korea's foreign ministry rejected Japan's call for third-party arbitration as arbitrary and said Japan must instead remember the wrongs it committed during colonial rule and make efforts to heal the wound.
South Korea's Trade Ministry on Friday repeated calls for Japan to hold serious talks by July 24 over Tokyo's tighter export controls of high-tech materials to South Korean chipmaking giants imposed early this month.
A fire official said the South Korean man who set himself alight outside the Japanese embassy in Seoul died later on Friday at hospital from his injuries.
The 78-year-old man, surnamed Kim, drove up to the building around 3:20am (local time), stopped in front of the gate and set fire to the car while sitting in it, an official at Seoul's Jongno Fire Station said.
The man's father-in-law was said to be a victim of forced labour by Japanese firms during World War Two and he may have acted in protest against Japan's export curbs, South Korean media said, quoting the police.
Police and fire officials both declined to comment on the man's possible motivations, citing ongoing investigations.
Compensation of South Koreans for labour during Japan’s 1910-1945 occupation of the Korean peninsula has soured relations between the United States' closest Asian allies.
When asked about the possibility of taking the forced labour dispute to the International Court of Justice (ICJ), Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura told a regular news conference that Japan has been "considering various measures" but would not comment on the ICJ.
Anger over the South Korea-Japan dispute has prompted a widespread boycott of Japanese products and services in South Korea, from beer to clothes and travel, disrupting businesses already facing the worst economic climate in a decade.
Japan has said it implemented the export curbs over South Korea's "deficiencies" in its export control systems and not in reaction to the labourers dispute, but South Korea has called the restrictions "unjust economic retaliation".
Lee Ho-hyeon, a director general at South Korea's trade ministry, said Japan's plan to remove South Korea from its "white list" of countries with minimum trade restrictions should be based on "clear evidence and facts."
"There are major concerns that such a move would have a grave impact on not only the economies in both countries, but the global supply chain," Lee said at a televised briefing.
South Korea's Samsung Electronics has sent letters to partners urging them to stockpile more Japanese components in case Tokyo expands its export restrictions.
On Thursday, South Korean President Moon Jae-in met major party leaders and vowed to work together to resolve the dispute with Japan.
A senior national security adviser told lawmakers at the meeting that South Korea could reconsider an intelligence sharing pact it has with Japan if the dispute worsens, though a spokeswoman for the presidential Blue House later said they see the two issues as separate.