Business

Japan looks to turn up the heat on South Korea with stricter export controls on more items

Kyodo

Japan is considering imposing stricter export controls on more items bound for South Korea, government sources said Tuesday, in an apparent effort to raise pressure on Seoul to help resolve a bilateral dispute over compensation for wartime labor.

The envisaged plan comes in response to what Tokyo views as Seoul’s failure to address the monthslong dispute properly and prevent it from hurting mutual trust between the two neighbors.

Expanding the list of items, possibly to include electronic parts and related materials that can be diverted to military use, will likely exacerbate bilateral tensions, and some within the government remain cautious about taking further steps, the sources said.

Japan has already announced it will require manufacturers, effective Thursday, to file applications when they export to South Korea three materials used in the production of semiconductors and displays for smartphones and TVs.

Seoul, which regards the move as conflicting with the spirit of free trade, has threatened to launch a complaint against Japan at the World Trade Organization.

Prime Minister Shinzo Abe on Wednesday defended the government’s export controls.

“We cannot give the preferential treatment that has been afforded until now, as the other country has not kept its promise,” he said during a nationally televised debate with leaders of other political parties, a day before official campaigning begins for the July 21 Upper House election.

“This does not go against WTO agreements at all.”

Speaking at a news conference Tuesday in Tokyo, Chief Cabinet Secretary Yoshihide Suga said the export controls on the three items would be enforced for national security reasons, denying it is a retaliatory step over the wartime labor issue.

But the top government spokesman also said that South Korea “did not offer a satisfactory solution over the issue of former workers on the Korean Peninsula before the Group of 20 summit and we cannot help but say the relationship of trust has been severely damaged.” The G20 summit ended Saturday.

The three materials being targeted are fluorinated polyimide, hydrogen fluoride and resists.

They can also be used for military purposes, such as in biological and chemical weapons, according to officials.

The Ministry of Economy, Trade and Industry is also seeking to remove South Korea from its “white list” of countries that are considered as posing no security risk and can receive preferential treatment in export procedures.

All these plans by Japan come despite the pledge Saturday by G20 leaders at the Osaka summit to aim for a “free” and “non-discriminatory” trade environment, amid a tariff battle between the United States and China.

The move also comes ahead of the Upper House election on July 21.

Some officials say Abe’s administration is trying to avoid being perceived as lukewarm by conservatives, a key support base for the prime minister’s ruling Liberal Democratic Party.

“More people within the administration are saying ‘We can’t wait (for response by South Korea) any longer,'” said a source who works at the Prime Minister’s Office.

South Korea’s business community and news media expressed their displeasure with both governments over a potentially damaging blow to the country’s manufacturing sector.

The impact of tighter export controls is expected to be felt by not just South Korean chipmakers such as Samsung Electronics Co. and SK Hynix Inc. but also Japanese exporters.

The two South Korean firms, the world’s largest and second-largest makers of dynamic random access memory chips, respectively, currently have just one month’s supply of the three materials, according to the Chosun Ilbo newspaper.

But thanks to a semiconductor industry downturn, they have stockpiled enough DRAM in their warehouses to last for three months, giving them some breathing room, according to the newspaper.

Relations between Tokyo and Seoul have sunk to their lowest point in years, and Abe, who hosted the two-day G20 summit in Osaka, did not sit down for bilateral discussions with South Korean President Moon Jae-in while he was in the city.

Since late last year, a series of court rulings in South Korea have ordered Japanese firms to compensate people who said they were forced to work during Japan’s 1910-45 colonization of the Korean Peninsula.

Japan has maintained that the issue of compensation has been settled “completely and finally” under a 1965 bilateral agreement.

After the firms refused to follow the court orders to pay compensation, lawyers for the South Korean plaintiffs seized the firms’ assets through local courts and are now threatening to sell them.

At the governmental level, Japan’s initial efforts to solve the dispute through bilateral consultations failed after South Korea did not respond.

Japan then proposed in May to set up a three-country arbitration panel under the 1965 accord, but South Korea let the deadline for selecting a panel member pass.

In June, South Korea proposed that companies from both countries fund compensation for the plaintiffs, but Japan rebuffed the proposal.