Business | FOCUS

Japan, 'surprised' by South Korean response to export control, accuses Seoul of trying to make the issue about free trade

by Satoshi Sugiyama

Staff Writer

The government was taken aback by the strong reaction from South Korea to its decision to tighten export controls on some chemicals to the country, a senior Japanese foreign ministry official said, calling it “quite surprising” while also accusing Seoul of unfairly trying to make the issue about free trade.

“These kinds of changes in export controls happen often,” the official, who spoke on the condition of anonymity due to the sensitive diplomatic nature of the situation, said Tuesday. “The change is not something entirely new. … This is not even an embargo, like the one South Korea has imposed on seafood from Fukushima.”

The official’s remarks epitomize the deep divide that remains between the two neighbors, with South Korea arguing the beefed up screening of three chemicals used in the production of smartphones, television screens and semiconductors will deal a blow to its economy.

Tokyo is justifying the implementation of stricter export requirements due to what it characterizes as an erosion of trust with South Korea that stems from historical issues as well as the inappropriate handling of some materials.

Japan is especially indignant at what it characterizes as Seoul’s passive response to a series of South Korean court decisions against Japanese companies that ordered them to pay compensation to plaintiffs over wartime forced labor. Japan maintains the issue of reparations was resolved under a 1965 agreement that normalized diplomatic relations between the two nations.

On the issue of export controls, the Japanese government also says there hasn’t been sufficient communication with relevant South Korean officials for about three years. The trade ministry previously announced, without providing clear evidence, that some of the materials exported to South Korea have been inappropriately handled.

South Korean media reported there is speculation that some of the chemicals could have been illegally diverted to North Korea as well as Iran. Neither country has confirmed the report.

Fuji Television also reported Wednesday that internal South Korean government documents show there were 156 incidents of sensitive materials, including hydrogen fluoride, being smuggled abroad between 2015 and March of this year. Some of the destinations include the United Arab Emirates and Malaysia, according to the report.

“In export control, whether you can trust your counterpart is a very significant element,” the Foreign Ministry official said.

South Korea is considering bringing the trade dispute to the World Trade Organization, arguing the enhanced licensing requirements are illegitimate and politically motivated.

On Tuesday, a South Korean official criticized Japan’s move at a separate meeting at the WTO. The official warned that the Japanese actions could hinder the global supply chain of electronic products, according to Reuters.

The Foreign Ministry official said the grounds South Korea used to lodge a complaint at the WTO was puzzling. The institution is traditionally not a place where individual export controls by countries that are closely related to national security matters are discussed — unlike free trade related disputes.

“The world of export controls is quite unique (in the fields of trade) in that it involves the nonproliferation of weapons,” the official said. “That is on a different level compared with free trade. Export control and free trade are being tangled together here.”

Top South Korean officials have repeatedly demanded Japan scrap the new regulations and threatened to introduce countermeasures.

Describing the situation as “an unprecedented emergency,” South Korean President Moon Jae-in on Wednesday warned his country’s business leaders to brace for a prolonged confrontation with Japan.

Meanwhile, trade minister Hiroshige Seko told reporters Tuesday that Japan is not considering reversing course and dismissed the possibility of holding bilateral talks with South Korea, an idea that the South is now believed to be considering.

There is, however, a working-level meeting slated to take place in Tokyo on Friday. Seko said Japan is willing to explain its decision at the meeting but will not go further than that.

The Foreign Ministry official welcomed the meeting as a “first step” to ultimately resolving their differences.

Under the new rules, exporters must apply for approval of each contract to ship fluorinated polyimide, resists and hydrogen fluoride. The application process could take about 90 days. This has fanned fears that it could cause a delay in supplying goods to South Korea. Before the recent changes, Japan had granted three-year licenses to domestic firms to export such materials to South Korea.

The trade ministry is additionally contemplating removing South Korea from its so-called white list of countries that are deemed to be performing sufficiently in the nonproliferation of both conventional weapons and weapons of mass destruction. That would place additional burdens on exporters to prove that their deals with South Korean clients are legitimate.

Such changes are not extraordinary steps specifically targeting South Korea, said a Japanese trade ministry official who also spoke on the condition of anonymity.

When reviewing an application, the trade ministry official said the government pays close attention to four primary points: Whether the item in question will definitely be shipped to a South Korean client; whether the contract clearly states the item’s purpose is for civilian use only; whether it can be assured that it will not be used in the making of weapons of mass destruction; and whether there is a risk it will be transferred to a third party.

The official said the biggest difference between the old and the new rule is the requirement that Japanese exporters present a written agreement from South Korean clients vowing the materials will not be used in the production of weapons of mass destruction.

South Korea was added to the white list in 2004, making it eligible to participate in the expedited process, the official said. At the time, Japanese officials had concerns about South Korea’s ability to properly handle sensitive materials, but the country became the only nation in Asia on the list with the anticipation that it would adhere to international standards on export controls.

“The evaluation standard hasn’t been altered,” the trade ministry official said. “We are simply taking South Korea off the list of countries entitled to receive preferential treatment, which had been the case until 2003.”

Information from Reuters and Bloomberg was added to this story.