Japan Cuts S Korea From Export 'White List' As Trade Tensions Rise (FT)
Last Modified: 12:35 AM, Fri Aug 02, 2019

Kana Inagaki in Tokyo and Song Jung-a and Edward White in Seoul

FT.com. 02 August 2019

Decision escalates dispute over compensation for wartime forced labour

The Japanese government has pushed ahead with a decision to remove South Korea from its export control  “white list” in a move that could roil  global supply chains and sink relations between the two US allies to a new low. 

The decision on Friday came despite a fierce protest from Seoul and US efforts to defuse bilateral tensions that originally stem from a dispute about compensation for forced labour during the second world war.

Seoul has already warned that it would tear up an intelligence-sharing pact in retaliation. 

Japan’s decision, effective from August 28, would remove South Korea from a list of countries with preferential trade status and could require exporters to get specific clearance when they ship a wide range of building materials, chemicals and electronic goods to South Korea. 

Hiroshige Seko, Japan’s trade minister, insisted on Friday that the impact would be limited, saying exports to South Korea would still be approved if appropriate procedures and controls are implemented.

“We don’t anticipate any fundamental impact on global supply chains nor an adverse impact on the Japanese economy as a result of revoking South Korea’s preferential treatment,” Mr Seko said. 

However, Seoul’s presidential office expressed “deep regret” over the Japanese decision and said it would respond “firmly” and set up a task force to address the issue.

South Korean president Moon Jae-in scheduled an emergency cabinet meeting for Friday afternoon, saying he and finance minister Hong Nam-ki would announce countermeasures.

Yoshihide Suga, Japan’s chief cabinet secretary, said Japan wants to continue co-operating with South Korea on certain issues that need to be dealt with despite the sharp deterioration in relations. 

However, applications for approvals by South Korea’s biggest technology companies, including Samsung Electronics and SK Hynix, the world’s two biggest producers of memory chips, have not been approved since the first round of export controls were implemented on July 4, according to people familiar with the matter. 

The lack of progress has raised questions over Japan’s claims that the new measures will not cause major disruptions to the global technology supply chain. 

Japan has already imposed controls on three chemicals crucial to South Korea’s world-leading semiconductor industry: fluorinated polyimide, photoresists and hydrogen fluoride etching gas. Japan has a dominant global market share for each. 

Tokyo insists that its move is a regular, bureaucratic decision on arms control but it is widely regarded as retaliation against a ruling by South Korea’s supreme court last autumn that awarded damages against Japanese companies, including Mitsubishi Heavy Industries, for forced labour during the second world war. 

According to Tokyo, all such claims were “settled completely and finally” by a 1965 treaty under which it paid compensation to the South Korean government. Seoul has so far resisted calls for arbitration, which is required under the treaty, instead urging continued diplomatic talks, leading Japan to declare a breakdown in trust.

Analysts in Seoul were sceptical about whether South Korea could effectively retaliate.

“The Japanese move will inevitably lead to global supply disruptions, putting pressure on South Korea’s export-driven economy,” said Park Jong-hoon, head of research at Standard Chartered in Seoul.

“But there are not many countermeasures that South Korea can take against Japan, other than scrapping the military intelligence sharing pact, which is unlikely to harm the Japanese economy,” he added. 

Mr Park added that it would take time for the two countries to reach a diplomatic resolution of the issue. “At the moment, they are unlikely to back down, given strong public opinion against any compromise,” he said. “But that could change as time goes by, once they start feeling the economic pinch.” 

Analysts at Goldman Sachs also said the supply disruption is likely to be shortlived, but they added: “It is unclear to what extent and how rapidly South Korea would be able to substitute Japanese materials if the need were to arise.”

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Publication: FT.com
Organization: Mitsubishi Heavy Industries Ltd
Location: Tokyo, South Korea, US, Asia, Japan, Seoul, Japan
People: Kana Inagaki, Song Jung-a, Edward White
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Global trade, Global Economy, Asia-Pacific economy, Japanese business & finance, South Korea Politics & Policy, Japanese business & finance