S. Korea braces for drawnout trade feud with Japan

SEJONG, South Korea is preparing for a protracted trade row with Japan, as Tokyo is set to take additional steps while rejecting Seoul's repeated calls for talks to seek a breakthrough in the weekslong impasse.

Early this month, without any prior notice, Japan imposed tighter regulations on exports to South Korea of three materials resist, etching gas and fluorinated polyimide that are critical for the production of semiconductors and flexible displays. Tokyo remains steadfast in expanding its restrictions to other sectors.

The unprecedented move by Japan is forcing global chipmaker Samsung Electronics Co. and other South Korean firms to struggle to find alternative supplies. At the same time, the restrictions are also a wakeup call for the companies to reduce heavy reliance on Japan for key industrial materials and parts.

Samsung Electronics has been testing nonJapanese etching gas as a possible replacement, while trying hard to secure stock piles of Japanese materials in preparation for Tokyo expanding its export restrictions.

Samsung recently sent letters to local partners in the production of televisions, consumer electronics and smartphones, urging them to secure various Japanese components by the end of July, or before Aug. 15 at the latest.

On the government side, Seoul is working on a broader plan to help boost its industrial materials, components and equipment industries. Seoul's finance ministry plans to unveil a set of measures later this month to boost industrial competitiveness, diversify import sources of key materials, parts and equipment, while pushing for localization of the materials.

Hong Namki, Seoul's chief economic policymaker, said earlier the government is also bracing for Japan's additional plan to remove Seoul from its white list of nations subject to preferential treatment for export procedures, on national security grounds.

Hong said the government is working on how to deal with a possible delisting, which could affect about 1,000 items.

The delisting would require Japanese companies to apply for an individual license to export items to South Korea, a move that could disrupt the supply of such materials.

We narrowed down the list of items that could be affected, and carried out an analysis and came up with a list on how to deal with it, a senior official of the Ministry of Trade, Industry and Energy said. The official said the trade feud between the two neighbors could drag on, and South Korea is bracing for it.

Song Yeongkwan, a fellow at the Korea Development Institute, a state think tank, said Japan's rationale for its planned removal of the preferential treatment is weak as there is no change in South Korea's current export control system.

In an attempt to justify its export restrictions, Japan has claimed that South Korea is inadequate and loose in its management of export controls, a charge dismissed by Seoul.

South Korea said 110 officials handle approval processes of strategic items, and there are 14 other officials who specialized in checking goods that are either exported to North Korea or imported from North Korea.

South Korea joined four multilateral export control regimes between 1995 and 2001.

In 2003, South Korea introduced a situational permit known as a catchall system and has since added relevant regulations on a catchall clause in the Foreign Trade Act to strengthen the system.

The Foreign Trade Act requires exporters to obtain a situational permit for any goods that are not listed as strategic items but may be used in weapons of mass destruction or their delivery systems if exporters become aware that the importer or the end user of the goods intends to use the goods for manufacturing, developing, using or storing WMDs, or suspects that there could be such intent.

South Korea said it is stricter than Japan in applying the catchall system.

Song said South Korea could prevail in a meeting of the General Council, the highest decisionmaking body of the World Trade Organization. The issue has been named a formal agenda item of the General Council meeting scheduled for July 23 and 24.

It won't be easy for Japan to keep intact its export restrictions if other countries support South Korea's argument at the WTO meeting, Song said.

Japan's export curbs can also have a farreaching impact on the global tech industry given tightly interwoven global supply chain.

Samsung Electronics, the world's largest memory chip maker, and its smaller rival SK hynix Inc. are major players in global semiconductor supply chains, accounting for more than 60 percent of the global memory market in 2018.

If restrictions remain, Korean chipmakers' production lines and therefore global semiconductor supply chains are likely to be disrupted, global credit appraiser Fitch Ratings said in a recent report.

Source: Yonhap news Agency

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