By Kiyoshi Takenaka and Hyonhee Shin
TOKYO/SEOUL (Reuters) - Japan's foreign minister publicly admonished South Korea's ambassador on Friday in a worsening dispute over compensation for Korean forced laborers that has spilled over into their trade in high-tech materials used to make memory chips and screens.
The dispute between the key U.S. allies took a deadly turn when a South Korean man set himself on fire in front of the Japanese Embassy in Seoul in an apparent protest. He died later.
South Korea accused Japan of violating international law with its curbs this month on the export of high-tech materials to South Korean chipmaking giants, which could disrupt global supply chains.
Japanese Foreign Minister Taro Kono summoned South Korea's ambassador, Nam Gwan-pyo, a day after the expiry of Japan's deadline for South Korea to accept third-country arbitration of the forced labor dispute.
Ties been the neighbors have been thorny for decades because of South Korean resentment of Japan's occupation of the Korean peninsula from 1910 to 1945.
The forced labor issue was thrust to centerstage last year when a South Korean court ordered two Japanese firms to pay compensation to Koreans forced to work for them.
Japan says the whole compensation issue was settled under a 1965 treaty.
Kono said South Korea had to take swift measures to correct what Japan calls an improper ruling by its Supreme Court ordering compensation.
"What the South Korean government is doing now is equivalent to subverting the post-World War Two international order," Kono said at the beginning of a meeting with Nam.
Nam responded by saying South Korea was working every day to create an environment in which the lawsuits could be dealt with in a manner acceptable to both sides and not harm ties.
Nam said South Korea had already proposed a plan to resolve the issue, but that drew a blunt interjection from Kono.
"Hold on," Kono said.
"We've already told the South Korean side the South Korean proposal was totally unacceptable, and 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 to compensate South Korean plaintiffs.
Later, South Korea's foreign ministry rejected Japan's arbitration call as arbitrary and said Japan must remember its wrongs committed during colonial rule and try to heal the wound.
An official of South Korea's foreign ministry told Reuters it had expressed regret over Kono's "rude" attitude.
'SERIOUS DAMAGE'
Japan has denied that the compensation dispute is behind the export curbs even though one of its ministers cited broken trust with South Korea over the labor dispute in announcing the curbs.
Japan has instead cited "inadequate management" of sensitive items exported to South Korea, with Japanese media saying some items ended up in North Korea.
South Korea denied that and responded by suggesting Japan had been lax in abiding by international sanctions against North Korea.
South Korea has called the export restrictions "unjust economic retaliation" and its deputy national security adviser accused Japan of violating international law by imposing them.
"It is Japan that violated the WTO free trade regime and ... international law by taking measures that bring serious damage to global value chain by unilaterally imposing export curbs, when diplomatic efforts to resolve the forced labor issue had not been exhausted," Kim Hyun-chong told a briefing.
South Korea could not ignore its Supreme Court ruling ordering compensation, he said.
Its trade ministry repeated calls for Japan to hold serious talks by July 24 over its export controls.
Anger over wartime history can stir nationalistic feelings in both countries.
A Seoul fire official said a 78-year-old man, surnamed Kim, drove up to the Japanese embassy early on Friday, stopped in front of the entrance and set fire to his car while in it.
The man died in hospital, the official said.
The man's father-in-law was said to have been a victim of forced labor during World War Two and the man may have acted in protest against Japan's export curbs, media said, citing police.
Police declined to comment, saying they were investigating.
Many South Koreans are boycotting Japanese products and services, from beer to clothes and travel, disrupting businesses already grappling with the worst economic conditions in a decade.
South Korean trade official Lee Ho-hyeon said Japan's plan to drop South Korea from its "white list" of countries with minimum trade restrictions would have major implications for global supply chains.
South Korea's Samsung Electronics (KS:005930) has sent letters to partners urging them to stockpile more Japanese components in case Tokyo widens its export curbs.