Japan has hit South Korea with sanctions on crucial supplies for the semiconductor industry in a significant escalation to their row over compensation for wartime forced labour.
The Ministry of Economy, Trade and Industry in Tokyo said it would impose tighter restrictions on exports of fluorinated polyamide, resists and hydrogen fluoride etching gas — all vital chemicals for use in chipmaking and other industrial processes for which Japanese suppliers have a dominant market share.
METI will also start consulting on whether to remove South Korea from its export “white list”, which would mean Japanese companies were required to seek export licenses for a wide range of high-technology goods.
The sanctions mark a new phase in the clash between the Asian neighbours as Tokyo retaliates against Seoul’s decision to let its courts seize the assets of Japanese companies.
“The export control system is built on international relationships of trust?.?.?.?but there has been a considerable loss of trust between Japan and South Korea,” said METI.
A South Korean trade official said the Japanese measure was “regrettable” and violated World Trade Organization rules.
The restrictions pose a serious threat to some of South Korea’s most important companies including Samsung, the world’s biggest chipmaker, and SK Hynix, the second-largest producer of memory chips.
The escalating dispute threatens to cause chaos in the technology supply chain, warned one electronics industry executive in Seoul. “People didn’t expect this to happen because it is detrimental to Japan and Korea and the global supply chain as a whole,” he said.
Diplomats from Tokyo and Seoul have privately issued warnings to each other that any economic sanctions would be met with tit-for-tat retaliation.
The row began last autumn when South Korea’s supreme court awarded damages to individuals against Japanese companies for forced labor during the second world war. At that time, Korea was a colony of Japan.
Japan insists that all such claims were settled in a 1965 treaty between the two countries. Tokyo paid compensation to the South Korean government and in return all claims between the states and their nationals were “settled completely and finally”. However, South Korean courts ruled that does not apply to individuals.
Tokyo has been demanding arbitration under the terms of the treaty but South Korea has declined to appoint an arbitrator, leaving no obvious path to a settlement. Japanese prime minister Shinzo Abe and South Korea president Moon Jae-in did not hold a bilateral summit at the G20 in Osaka last weekend.
The sanctions will require Japanese companies such as JSR, which has a large market share in photoresists, a material used in several industrial processes, to seek specific licenses for their exports to South Korea. That will require a lengthy bureaucratic process.
Using export restrictions as a trade weapon is a way to remind South Korea of the gains from close relations but it is also a high-risk strategy for Japan. It exposes Tokyo to allegations of hypocrisy on free trade and may encourage the customers of Japanese companies to look for other sources of supply.
“These measures follow the export control system which is based on WTO rules,” claimed Yasutoshi Nishimura, Japan’s deputy chief cabinet secretary. “They are not countermeasures and they do not run counter to free trade.”
A Samsung spokesperson said the company was looking into the matter while SK Hynix did not immediately comment.