South Korean leader warns Tokyo's tightened controls on high-tech exports could hurt Japan more

AP, Bloomberg

In his strongest comments yet on a growing trade dispute, South Korean President Moon Jae-in on Monday urged Japan to lift recently tightened controls on high-tech exports to South Korea, which he said threaten to shatter the countries’ economic cooperation and could damage Japan more than South Korea.

The dispute between the two U.S. allies has further soured relations already troubled over Japan’s colonial rule of the Korean Peninsula before and during World War II.

Moon accused Japan of abusing its leverage in trade to punish South Korea over their historical dispute. South Korea sees the recent tightening of export controls for specialty materials as retaliation for South Korean court rulings earlier this year that ordered Japanese corporations to compensate South Koreans forced to work for Japanese companies before and during World War II.

South Korea says Japan’s strengthened export controls of photoresists and other sensitive materials mainly to manufacture semiconductors and display screens could hurt its export-dependent economy and disrupt global supply chains.

Its government plans to file a complaint with the World Trade Organization and raise the issue at next week’s WTO General Council in Geneva. Trade officials from the countries failed to resolve the dispute in a working-level meeting held in Tokyo on Friday.

Moon also said South Korea will use the dispute as an opportunity to reduce its dependence on Japan by strengthening its technology industry and diversifying import sources.

“Japan’s export restrictions have broken the framework of economic cooperation between South Korea and Japan that had continued over a half-century based on mutual dependence,” Moon said in a meeting of senior aides at the Blue House, the president’s official residence.

“The shattered credibility of cooperation with Japan in the manufacturing industry will inspire our companies to break out of their dependence on Japanese materials, components and equipment and work toward diversifying import sources or localizing the technologies. I warn that, eventually, it will be the Japanese economy that will be damaged more.”

Analysts say the Japanese measure won’t have any immediate meaningful impact on South Korean chipmakers, which have sufficient supplies of the materials for now, given a slowdown in demand for semiconductors. But there is concern that Japan will expand its export controls to other industries.

Park Ki-young, a spokesman of the Ministry of Trade, Industry and Energy, said Monday that the government is bracing for the possibility that Japan will remove South Korea from a 27-country “white list” receiving preferential treatment in trade.

Its removal from the list would require Japanese companies to apply for case-by-case approvals for exports to South Korea of more than 850 items deemed sensitive, not just the three materials affected by the tightened export controls that took effect July 4. It would also allow Japanese authorities to restrict any export to South Korea when they believe there are security concerns, Park added.

On Monday, a spokesman for Samsung Electronics Co. said it has managed to secure an emergency supply of key materials to sustain its chip-making operations for the time being, averting short-term disruption due to the restrictions.

That temporary lifeline does not represent a “fundamental solution,” the spokesman said, confirming a report by South Korea’s Yonhap news agency over the weekend.

Jay Y. Lee, the corporation’s de facto leader, convened a meeting Saturday with top management and asked them to prepare contingency plans, he added. The Samsung vice chairman ordered them to prepare for various scenarios, for instance should Japan remove South Korea from its so-called white-list of nations — countries deemed not to present a security risk regarding weapons proliferation.

Moon spoke hours after dozens of owners of South Korea’s small businesses rallied in Seoul and called for boycotts of Japanese consumer goods to protest Tokyo’s move to tighten high-tech exports to its neighbor.

Kim Sung-min, president of the Korea Mart Association, urged shop owners to boycott the distribution of Japanese products until Tokyo apologizes over the tightening of export controls for specialty materials and withdraws them. Other demonstrators held up signs that read, “Our supermarket does not sell Japanese products.”

South Korea is concerned that Japan’s strengthened export controls of photoresists and other sensitive materials that are mainly used for manufacturing semiconductors and display screens could potentially hurt its export-dependent economy.

Japan’s measure, which went into effect earlier this month, has stoked public anger in South Korea, where many believe Japan still has not fully acknowledged responsibility for atrocities committed during its colonial occupation of the Korean Peninsula from 1910 to 1945.

Thousands of South Koreans have signed petitions posted by citizens on the presidential office’s websites calling for boycotts of Japanese products and travel to Japan and for South Korea to skip next year’s Summer Olympics in Tokyo. Retailers have also reported modest drops in sales of Japanese beer.

“We will continue boycotting the consumption and distribution of Japanese products until Japan’s government and the Abe administration apologizes and withdraws its economic retaliation,” Kim said, referring to Prime Minister Shinzo Abe.

Tokyo says the materials affected by the export controls can be sent only to trustworthy trading partners. Without presenting specific examples, Tokyo has questioned Seoul’s credibility in controlling the exports of arms and dual-use items that can be used both for civilian and military purposes.

South Korea says its export controls are working just fine and that Japan is retaliating against South Korean court rulings that ordered Japanese companies to compensate aging South Korean made to work for Japanese companies during the occupation of the Korean Peninsula between 1910-1945.

South Korea plans to file a complaint with the World Trade Organization and will raise the issue at next week’s WTO General Council in Geneva, the country’s Trade Ministry said Sunday.

Last week, South Korea’s presidential office proposed an investigation by the United Nations Security Council or another international body to look into the export controls of both South Korea and Tokyo as it continues to reject Japanese claims that the South cannot be trusted to faithfully implement sanctions against North Korea.