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Japan stands firm on export curbs as South Korea denies passing chemical to North

Reuters, Bloomberg, Kyodo, JIJI

Japan and South Korea ratcheted up tensions Tuesday in their diplomatic dispute that threatens to disrupt the global supply of smartphones and chips, with Seoul denouncing Japanese media reports that it transferred a key chemical to North Korea.

Tokyo said last week it would tighten restrictions on exports of three materials used in smartphone displays and chips, citing a dispute with Seoul over South Koreans forced to work for Japanese firms during World War II.

Japan is also considering implementing additional measures against South Korea as early as mid-August that would tighten controls on exports of machine tools and advanced materials.

The moves, which could hit tech giants Samsung Electronics Co. and SK Hynix Inc., among others, spotlight Japan’s sway over a vital part of the global supply chain that the government is now using as a bargaining chip.

In some of the sharpest comments yet, South Korean Industry Minister Sung Yun-mo urged Japan to “stop making groundless claims immediately,” an apparent response to a Japanese media report last week.

The report quoted an unidentified senior member of Prime Minister Shinzo Abe’s ruling Liberal Democratic Party as saying some hydrogen fluoride exported from Japan to South Korea had ultimately been shipped to North Korea.

Hydrogen fluoride, a chemical covered by Tokyo’s recent export curbs, can be used in chemical weapons. Japan has said it has seen “inappropriate instances” of South Korea’s export controls but has not elaborated.

Asked about countermeasures, Sung said Seoul was reviewing “every possible plan” but gave no details. The neighbors plan to hold talks Friday, he added.

Earlier in the day, Japanese officials floated the possibility of further measures against South Korea.

“Whether Japan implements additional measures depends on South Korea’s response,” industry minister Hiroshige Seko told a news conference after a Cabinet meeting.

The government was “not thinking at all” of withdrawing the curbs and they did not violate World Trade Organization rules, he added.

“We believe this really depends on South Korea’s response. There is of course a possibility the current restrictions will tighten, but if export controls are firmly managed, things may also loosen. Both are possible,” he said when asked if Japan was considering additional measures.

In Seoul, a government official said a South Korean foreign ministry official was expected to discuss the curbs with his counterpart in Washington. Its trade minister was also considering traveling to the United States, a spokeswoman said.

Seko’s comments were an apparent response to South Korean President Moon Jae-in, who urged Monday that the restrictions be withdrawn. Seoul could not rule out countermeasures for damage inflicted on its firms, Moon added.

South Korea plans to complain to the WTO. According to a diplomatic source, South Korea will likely express its concern at a WTO meeting on goods trade Tuesday in Geneva.

The row shows no signs of abating, with Tokyo threatening last week to drop Seoul from a “white list” of countries with minimum trade restrictions, hitting supply of a wider range of items used in weapons production.

The government’s halt to preferential treatment of the three materials would force exporters to seek permission for each individual shipment to South Korea, taking around 90 days.

The new restrictions could hurt the profits of South Korean firms that rely on Japanese suppliers, such as Samsung Electronics and LG Display Co. Japan has 90 percent of the market for chips used in smartphone displays as well as the etching gas used to make chips. Unless the dispute gets settled, South Korean firms will have to find alternative supplies from Taiwan and China, while Japanese manufacturers will need to divert their production.

The dispute stems from Tokyo’s frustration at what it calls a lack of action by Seoul over a South Korean court ruling last October that ordered Nippon Steel to compensate former forced laborers.

Japan says the issue of forced labor was fully settled in 1965 when the neighbors restored diplomatic ties.

The curbs came just weeks before a July 21 Upper House election, where Prime Minister Shinzo Abe’s Liberal Democratic Party and its junior partner, Komeito, are expected to win a solid majority.

“Japan is making a 100 percent legal argument, but they didn’t show any sincerity over the past 7-8 months,” said one person familiar with the government’s thinking, referring to the years of disagreement over the dispute.

“Unfortunately, the election is coming. … The LDP will do anything to solidify their support base.”

The government plans to exchange opinions with South Korean authorities as early as this week to explain the details of the tightened controls, officials said.

However, the officials stressed that the talks will not be negotiations over the controls, and that Japan will call on the South Korean government to improve its management of exports.

Japanese working-level officials would respond to South Korea’s request for an explanation of the curbs, Chief Cabinet Secretary Yoshihide Suga said, adding that the schedule was being arranged.

The neighbors share a bitter history dating to Japan’s colonization of the Korean Peninsula from 1910 to 1945, which saw forced use of labor by Japanese companies and the use of “comfort women.”

The term comfort women is a euphemism used to refer to women who provided sex, including those who did so against their will, for Japanese troops before and during World War II.