Korea, Japan heading toward trade war

A diplomatic row between Korea and Japan has developed into a trade conflict as Tokyo imposed restrictions Monday on exports to Seoul of high-tech materials and chemicals used in semiconductor and smartphone production.

In response, the Korean government expressed regret, saying the move violated World Trade Organization rules. Minister of Trade, Industry and Energy Sung Yunmo said, "The government will file a complaint with the WTO against Japan."

The restrictions are expected to increase uncertainty among the country's semiconductor manufacturers that are already suffering from falling global demand and prices.

The economic retaliation came about eight months after Korea's Supreme Court ruled last year that Japanese companies, including Mitsubishi, must pay compensation to individual Korean victims forced to work in their factories before and during World War II.

At the time, the Japan reacted strongly to the ruling, saying relevant compensation had already been paid under the 1965 diplomatic normalization treaty signed by the dictatorial Park Chunghee regime. It argued that it therefore had no more liability for compensation.

Japan's Ministry of Economy, Trade and Industry announced it "will apply updated licensing policies and procedures on the export and transfer of controlled items and their relevant technologies" to Korea.

The new export restrictions will be applied to three materials and chemicals ― fluorinated polyimide, resist and hydrogen fluoride (etching gas) ― from July 4.

Fluorinated polyimide is used to make flexible organic light-emitting diode displays for TVs and smartphones, while resists and etching gas are necessary in the semiconductor fabrication process.

The new rules calls for exporters to apply for individual export licenses for each of the three items and their relevant technologies to Korean clients, including Samsung Electronics, SK hynix and LG Display, as the relevant bulk licensing for the items will no longer be applicable.

The requirement would lengthen the export process to about 90 days, according to industry officials here who raised concerns over potential setbacks in production.

The Japanese ministry also said it had begun the public comments process to remove Korea from a list of so-called "white countries" that have fewer restrictions on transfers of technology having national security implications.

"The Japanese government has to state that the Japan-Republic of Korea relationship of trust including in the field of export control and regulation has been significantly undermined," the trade ministry said.

Following the announcement, Park Taesung, an official from the Korean Ministry of Trade, Industry and Energy, told reporters: "We need to carry out an in-depth analysis with companies on how much Japan's export controls will affect the domestic semiconductor industry and exports."

Trade Vice Minister Cheong Seungil held an emergency meeting with officials from semiconductor companies and display makers later in the day to check on their supply and demand situations.

The Federation of Korean Industries (FKI), a major business lobby here, also expressed regret over Japan's decision.

"The business circles of the two countries have continued to expand exchanges since 1965. The Korean side expresses concern that Japan's export regulations could harm the two nations' cooperative economic relations," FKI Executive Director Bae Sanggeun said. "We call on the two countries to resolve their conflict at the earliest possible date."