South Korea – Japan trade dispute intensifies

The rift between South Korea and Japan – who share a colonial history – has widened due to a new spat over trade restrictions.

Japan has begun implementing curbs on export of key materials used in smartphones, evoking a strong response from South Korea which relies on them heavily.

The bilateral relationship has been on a downward spiral for months, largely triggered by court verdicts on the sensitive issue of war-time forced labour.

The lingering tensions spilled over at the G20 summit hosted by Japan last month, when leaders of the two countries did not have a formal meeting.

Japan’s decision – in effect from 4 July – has again raised the temperature between the two countries.

Tokyo has removed preferential treatment for the export of three key materials to South Korean companies – fluorinated polyimides (used in smartphone displays) and photoresist and hydrogen fluoride (which are needed in chips).

Japanese exporters now need to apply for separate licences to ship these materials to South Korea, which could take up to 90 days. Earlier, bulk licences were given for these.

Seoul depends to a large extent on Japan for these materials as memory chips are among South Korea’s main exports.

Context of the dispute

Japan has cited “significantly undermined” trust with South Korea as the reason.

It has mentioned instances of the export of some “sensitive items” to South Korea “with inadequate management by companies”, Japanese news agency Kyodo reported on 10 July.

During a TV show on 7 July, Japanese Prime Minister Shinzo Abe indicated that the move was linked to UN sanctions imposed on North Korea.

Seoul has rejected Japan’s claims that hydrogen fluoride might have found its way to North Korea, calling them baseless.

Local media speculate that Tokyo’s move is an “apparent retaliation” to the South Korean Supreme Court’s decision last year directing Japanese companies to pay compensation to South Korean victims of forced labour during Japan’s colonial rule.

Japan criticised the verdict, saying all relevant issues have been settled under a 1965 deal between the two countries.

Reactions to the ongoing dispute

The spat has received attention from the highest quarters in South Korea.

President Moon Jae-in has termed Japan’s decision “politically motivated” and an “unprecedented crisis”. But he has also expressed hope that the issue does not reach a “dead end” and called for a diplomatic solution.

At a meeting with local business leaders on 10 July, he said the government will prepare for the impact but also urged companies – in the long run – to work to reduce dependency on imports for such supplies.

Foreign Minister Kang Kyung-wha raised the issue during telephone talks with US Secretary of State Mike Pompeo on 10 July, saying the move “could cause damage” to South Korean companies and “have a negative impact on the world trade order, as well as on US firms, by disrupting the global supply system”.

Refusing to withdraw the move, Japan’s Chief Cabinet Secretary Yoshihide Suga on 9 July said it is the outcome of a domestic review which found that export controls needed to be imposed more effectively.

Trade minister Hiroshige Seko also stated that preferential treatment given to South Korea has ended, and asked “is that a problem from the standpoint of the WTO?”

South Korea’s press is highly critical of Japan.

Terming it “truly deplorable for the future of bilateral relations”, conservative paper Chosun Ilbo on 3 July said Tokyo is “no different from China in terms of trade retaliation”.

But liberal paper Hankyoreh on 7 July also saw Japan’s “trade retaliation” as an opportunity to accept the “weakness” of the South Korean economy which “depends heavily” on Japan and raise the “competitiveness” of the local industries.

Japanese papers feel the move could backfire, with the liberal Asahi Shimbun questioning on 2 July if Japan was “joining in the folly of the United States and China” and urged it to end “measures to distort the principle of free trade immediately”.

Look ahead

Trade ministry officials from both countries will hold talks on 12 July – the first of their kind after Tokyo’s new curbs came into force – in which South Korean officials will seek an explanation from Japan.

A top South Korean presidential official, Kim Hyun-chong, is in the US as is a senior Foreign Ministry official Kim Hee-sang who both plan to raise the issue of Japan’s “unfairness” with American officials.

The main worry is about the impact of the curbs.

In South Korea, The Federation of Korean Industries said on 10 July: “If the restrictions last longer than three months, the overall manufacturing process will be affected, as replacing the materials with domestic ones remains impossible.”

South Korea’s liberal paper Kyunghyang Shinmun on 8 July said it was “highly likely” that the situation may continue for a long time and urged Japan to “regain its rationality”.

Japan’s conservative newspaper Nikkei on 1 July warned that both economies would see a “negative impact” and the image of the Abe government – which “has taken the lead in promoting free trade on the world stage” – could be “damaged”.

Share this Post