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Japan slaps restrictions on tech exports to South Korea

Source: Nikkei Asian Review | July 1st, 2019 | By Junichi Sugihara and Kenichi Yamada, staff writers
Location: South Korea
Industry type: Electronics Industry

Move amid wartime labor row threatens to snarl up supply chains

South Korea’s Supreme Court has ordered Japanese companies to pay compensation for their use of wartime labor, straining the countries’ ties.

TOKYO/SEOUL — The Japanese government on Monday announced it will tighten restrictions on exports of semiconductor manufacturing materials to South Korea, in a move that could hinder Asian supply chains.

Japan’s trade ministry said the decision came in response to what it deemed the “occurrence of an inappropriate matter.” But the ministry did not clarify what that means, and the restrictions at least appear to be a reaction to Seoul’s stance on a dispute over compensation for wartime labor. This could leave Japan vulnerable to accusations that it is abusing international trade rules.

South Korean Trade Minister Sung Yun-mo said the country would respond sternly.

Tokyo is set to introduce a system to examine and approve exports of three types of high-tech materials. It will also remove South Korea from a “white list” of countries that face minimum restrictions on transfers of technology with national security implications.

Starting on Thursday, suppliers will be required to seek approval for individual exports of fluorinated polyimides, used to make organic light-emitting diode displays; resists used in semiconductor production; and hydrogen fluoride, used as an etching gas in chipmaking. Currently, companies are only required to receive approval for multiple exports in a batch.

Combined, Japanese suppliers control about 90% of the global resist and etching gas markets. The new screening process is expected to slow down exports, potentially hurting the South Korean electronics makers that buy the materials.

Removal from the “white list” means all South Korea-bound exports of advanced technologies and electronic parts that have the potential for military use will require Japanese government approval.

The South Korean government held a high-level emergency meeting on Monday to discuss Japan’s move. That afternoon, South Korea’s trade ministry said Seoul would take necessary measures, such as filing a complaint with the World Trade Organization.

In late May, Foreign Minister Kang Kyung-wha had hinted at possible retaliation if Japan imposed sanctions, telling the South Korean legislature that the government “will not sit back.”

In an incident that has soured relations between the two countries, South Korea’s Supreme Court has ordered Japanese industrial groups to compensate South Koreans forced to work for them during World War II. The plaintiffs are in the process of selling assets seized from the Japanese companies as part of the compensation. The sales, if they go ahead, would be damaging to the Japanese businesses.

Despite Tokyo’s protests, the South Korean government has said it respects the independence of the judiciary.

Before South Korean President Moon Jae-in visited Japan for this past weekend’s Group of 20 summit, Tokyo pressed Seoul to resolve the matter. The South Korean side suggested Japanese and South Korean businesses voluntarily contribute funds for a settlement with the plaintiffs, but Tokyo rejected the idea.

Japanese Prime Minister Shinzo Abe did not meet with Moon on the sidelines of the G-20.

*Original article online at https://asia.nikkei.com/Spotlight/Japan-South-Korea-rift/Japan-slaps-restrictions-on-tech-exports-to-South-Korea