Japanese measures to impose tighter export regulations on three chemicals vital to South Korea’s manufacturing sector formally went into effect on Thursday, raising the prospects of the two countries sliding into a protracted conflict — though the severity of the measure’s economic impacts remains unclear.
The enhanced licensing requirements applied by the trade ministry to Japan’s third largest trading partner restrict exports of three chemicals that are integral components in the manufacture of high-tech products such as semiconductors, smartphones and television displays.
South Korea’s economic policy chief said Thursday he would not rule out direct countermeasures against Japan if Tokyo maintains its restrictions on the exports for an extended period.
“Implementing corresponding measures against Japan cannot be ruled out, because it will take a long time for the World Trade Organization to produce a conclusion,” said Finance Minister Hong Nam-ki in a radio broadcast.
Under Japan’s revised controls, exporters must apply for permission to ship fluorinated polyimide, resists and hydrogen fluoride individually for each contract, which could take up to 90 days. The move effectively strips South Korea of its status as the beneficiary of an expedited export process. Previously export permissions were generally granted for three year periods.
Japan’s decision to apply the controls hints at exasperation in Tokyo over what it sees as sluggish responses by Seoul to its attempts to resolve wartime labor issues.
The Japanese government simultaneously kicked off a public consultation period, giving people an opportunity to voice their views on further stripping South Korea of its “white country” status, which would raise additional barriers to the transfer of technology.
All of the measures currently applied or proposed stop short of an embargo or an export quota, and at this stage the extent to which the controls will impact commerce between the two countries remains unclear.
Japan’s share of the global market for those three chemicals is large, especially in the case of hydrogen fluoride for which the nation holds a market share of between 80 and 90 percent, according to the Nikkei business daily. The chemicals are currently shipped to South Korean electronic giants such as Samsung Electronics Co. and SK Hynix Inc.
“In the short term, if the stockpile runs out, there may be some effects,” said Junichi Sugawara, senior research officer at Mizuho Research Institute. In the long term, though, Japanese exporters “may be affected negatively” if South Korea finds alternatives that can be substituted for those chemicals, he added.
The tightened restrictions are not an unprecedented move, said Masahiko Hosokawa, a former trade ministry official and now a professor at Chubu University. South Korea became eligible for the expedited process in 2004 — meaning that until 2003 export licenses had to be issued individually.
“The change is simply going back to a process that had been done until 2003,” Hosokawa said. “From now on, Japan will treat South Korea in the exact same way the European Union treats South Korea.”
An individual export license is within the bounds of international rules and is not an extraordinary measure, Hosokawa added.
Asked about concerns that the revised controls would hurt the South Korean economy, Hosokawa flatly denied the argument, saying that under the new and proposed measures South Korea would simply be subject to regulations based on international rules, like other countries not listed as “white countries,” and that only exports deemed inappropriate would be rejected.
Those chemicals could be diverted for military use, Hosokawa said, so it is important for Japan to make sure South Korea handles the export controls thoroughly.
“As long as South Korea follows the rules, there will be no issues with obtaining export permission,” he said.
Although no details were provided, trade minister Hiroshige Seko claimed this week that the trade ministry has found cases where certain materials exported to South Korea have been handled inappropriately.
Yuka Fukunaga, an expert in international economic law at Waseda University, cautioned that if the number of rejected export requests goes up as a result of the measures, it could be considered in practice as an export ban.
A trade ministry official stressed that the intention was neither a ban nor harming companies.
Either way, South Korea has denounced the tightened regulations, and local media report that Seoul is considering raising a complaint against Japan at the World Trade Organization.
Relations between the two countries have been strained over historical issues, most recently over South Korean court rulings ordering Japanese companies to pay compensation for wartime forced labor. Japan has pushed back by saying the issue of reparations was resolved under a 1965 agreement.
After the companies involved refused to compensate, lawyers representing the former laborers seized the firms’ assets. In response, the Japanese government asked South Korea to participate in bilateral talks to settle the dispute, and urged the country to provide a satisfactory solution by the Group of 20 summit set to be convened in late June. South Korea did not respond to the request for talks or comply with the demand for the issue to be resolved by the summit, Japan says.
“At this point, I don’t think those measures would violate WTO rules,” said Sugawara from Mizuho Research Institute, referring to the export restrictions on the three chemicals. “But rather the issue is political,” he added.
“Japan has asked South Korea for talks and intervention over wartime labor, but South Korea has refused to do this. I think Japan would justify those measures as unavoidable.”
Seko told reporters Tuesday that the decision was not a retaliatory measure against Seoul, but instead is a consequence of an erosion of trust.
“South Korea has repeatedly taken actions rejecting the amicable and cooperative relationship the two countries have built,” Seko said. “The Japanese government can’t help but state that Japan and South Korea’s relationship of trust, including in the field of export control and regulation, has been significantly undermined.”
But Yoo Myung-hee, South Korea’s trade minister, warned Thursday that the newly imposed export limits on high-tech materials would pose a “huge threat” to the global economy and disrupt the global supply chain.
Yoo called for the withdrawal of the measures and bilateral talks to discuss the broader issue of export controls, South Korea’s trade ministry said in a statement.
Staff writer Reiji Yoshida and Reuters contributed to this story.
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