S&P economist warns of fallout from Japan and South Korea dispute
Last Modified: 03:28 AM, Thu Jul 11, 2019

Edward White in Seoul and Robin Harding in Tokyo

FT.com. 11 July 2019
Export controls show technology is being used as a geopolitical tool by governments

Japan’s threat of export controls on South Korean chipmakers risks “large unintended consequences” on the technology supply chain, including for Japanese companies, a top Asia economist has warned.

Tokyo last week announced tighter restrictions on exports of key materials used by South Korea’s semiconductor manufacturing giants, in a move aimed at forcing Seoul to change its position on compensation over wartime forced labour.

Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings, said Tokyo’s export controls were a sign that technology is increasingly being used as a “geopolitical tool” by governments who might not understand the economic cost of their actions.

“Honestly what is concerning is that I don’t think we fully understand the implications of messing around with supply chains,” Mr Roache told the Financial Times in Seoul. “They are incredibly complicated and the negative impact for the country imposing the controls could be much larger than people think.”

Samsung Electronics and SK Hynix are most exposed to Japan’s threat to restrict supplies of fluorinated polyamide, photoresists and hydrogen fluoride etching gas — materials for which Japanese companies have dominant market shares. Any production delays could flow through to South Korean GDP growth, analysts have said.

But because the South Korean groups account for the majority of global memory chip supplies, Japanese companies including Toshiba and Panasonic, would also be affected.

“Politicians are having to make the judgment about whether the cost to growth is worth whatever benefit they think they are getting somewhere else. That is a fair enough trade-off to think about. Our issue is that you really don’t know what the economic cost is, and, if anything, it could be much higher than people think it is,” Mr Roache added.

The warning comes as companies and officials in Seoul on Thursday continued to scramble to respond to the escalating dispute.

Under Tokyo’s measures, Japanese exporters will have to get clearance for each sale of the three chemicals and potentially prove that they are not being used for military purposes.

Japanese officials briefed on the trade measures told the Financial Times on Monday that the country plans to still grant export licences for all “bona fide” civil semiconductor exports, suggesting Tokyo seems more inclined to impose bureaucratic difficulty, uncertainty and delay, rather than fully embargo supplies of the materials.

Lee Jae-yong, the de facto head of Samsung, the world’s biggest memory chipmaker, has been in Tokyo this week with meetings focused on resolving the issue.

But the South Korean groups are still seeking guarantees from the Japanese government about how it plans to implement the controls, according to a person familiar with the situation.

“We have no 100 per cent assurance at this point,” the person said.

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The Financial Times Ltd.
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Publication: FT.com
Organization: Toshiba Corp, Financial Times, Government of South Korea, Hynix Semiconductor Inc, Panasonic Corp, Samsung Electronics Co Ltd
Location: Tokyo, Asia, South Korea, Seoul, Asia-Pacific, South Korea, Japan
People: Robin Harding, Edward White
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South Korean business & finance, Asia-Pacific companies, Semiconductors, Japanese business & finance, Global Economy, Technology, Economy, World, Emerging markets, Japanese business & finance, Companies
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