Japan Imposes Broad New Trade Restrictions on South Korea

Japan Imposes Broad New Trade Restrictions on South Korea

Japan on Friday moved to increase controls on the export of a broad assortment of products to South Korea, dramatically raising the stakes in a political standoff that has plunged relations between the countries to their lowest point in decades and that has caused worries in Washington.

Japanese officials said they would remove South Korea from a “white list” of countries that receive preferential treatment on requirements for the import of sensitive Japanese-made goods. The move could slow imports of ball bearings, precision machine tools and other products that are essential to South Korea’s technology industry.

The removal will take effect on Aug. 28, Japanese officials said, leaving both sides room to cool tensions.

South Korea’s president, Moon Jae-in, condemned the move, which he said was aimed at sabotaging South Korea’s economy as it struggles with slowing growth. South Korean officials said they would remove Japan from their own white list, without offering details.

“If Japan intentionally hurts our economy, it will also have to suffer big damage,” Mr. Moon said after convening an emergency cabinet meeting, adding that “we will never again lose to Japan.”

The dispute has spooked global markets, with investors fearing the restrictions could upset the flow of critical electronic components from South Korea to the world’s factories. And it has drawn in the United States government, which has become increasingly concerned that the contretemps between two of its most important allies could increase China’s influence in the region and weaken Washington’s hand in negotiations with North Korea.

South Korea said on Friday that it is considering pulling out of an intelligence-sharing deal that the two countries signed in 2016 at Washington’s urging. The agreement allows the two allies of the United States to share intelligence on North Korea, such as tracking data on ballistic missiles fired by the North. If that agreement is abrogated, it would be the clearest sign yet that the festering dispute was undermining the United States’ efforts to expand a security partnership with South Korea and Japan.

“Our government will take comprehensive countermeasures, including reviewing whether it is appropriate to share sensitive military intelligence with a country that does not trust us and raises security-related problems,” said Kim Hyun-chong, a deputy national security adviser to Mr. Moon.

Tokyo says it has taken the measures because of unspecified national security concerns linked to the mishandling of materials with potential military applications by South Korean firms. Seoul says the restrictions are aimed at pressuring it to resolve outstanding disputes over the legacy of Japan’s occupation of the Korean Peninsula.

Japanese officials played down the potential impact on the global technology industry.

“We think that there will be basically no effect on global supply chains, or adverse impact on Japanese business,” Hiroshige Seko, the Japanese minister of the economy and industry, told reporters after the announcement.

South Korea’s removal from the white list follows a decision by Japan in early July to tighten controls on exports to the country of several chemicals used in the production of advanced semiconductors and digital flat screens — pillars of the South Korean economy. The decision required Japanese companies to apply for a license to export the chemicals to South Korean customers, a process that could take up to 90 days.

Japanese officials have said that the decision and the subsequent removal of South Korea from the white list were a last-resort response to Seoul’s refusal to engage in repeated requests for discussions about the mishandling of sensitive exports. They have declined to give specific examples of those concerns.

South Korea disputes that account. Choi Youngbae, minister-counselor at the South Korean Embassy in Tokyo, said South Korea has agreed to meet with Japanese government counterparts but that Japan has not responded to requests for such meetings. South Korea has raised the restrictions on chemicals with the global trade watchdog, the World Trade Organization.

“They are saying they have lost trust in us,” Mr. Choi said. “But we have lost our trust of them on this matter.”

Tensions over Japan’s rule over the Korean Peninsula from 1910 until its surrender at the end of World War II in 1945 have been a perennial thorn in relations between the two countries. But the usual cycle of recriminations has escalated since South Korea’s Supreme Court ruled that victims of forced labor during the period had the right to seek compensation from Japanese companies.

The decision drew a strong protest from Japan, which has long held that all claims from the colonial era had been settled by a 1965 agreement that reestablished diplomatic ties between the countries and provided Seoul with $500 million in aid, money which was used by the country’s government to build up its economy.

When Japan last month tightened controls of chemicals sold to South Korea, officials insisted the action was not connected to South Korea’s handling of historical issues. But in Seoul, the move was seen as a warning shot: If the South Korean government refused to make the labor issue disappear, Tokyo would kneecap one of the country’s main industries.

The restrictions unveiled on Friday in Japan are unlikely to have a major effect on South Korea’s economy or global supply chains more broadly, according to Masahiko Hosokawa, a former Japanese official who worked on the country’s export system.

Moving forward, export contracts for certain goods with potential military applications will have to be approved by the Japanese government, he said, adding that Tokyo puts the same requirement on selling to places like Taiwan and China, which also have large electronics industries that source components and materials from Japan. The process of sorting out the licenses will only take a few weeks, he added.

The concerns are “exaggerated,” he said.

Industry experts also suggested that South Korean companies would find ways to deal with the delays and added costs that the white list removal will cause. The removal is “not a ban on exports,” said Sanjeev Rana, an expert on the semiconductor industry at CLSA, a brokerage. “Companies can eventually adjust. But it’s going to take a little bit of paperwork and time.”

How long is not clear. Companies have had time to prepare for the decision. Japan announced it was considering removing South Korea from the white list at the beginning of July.

Still, sorting out what products will be affected can be a time-consuming process, especially for high-tech firms. The average mobile phone, for example, includes hundreds of components. Manufacturers will have to check each one to see whether it was imported from Japan and, if so, whether its supplier will need government approval to continue shipping it.

Export approvals, too, may not come as quickly as Mr. Hosokawa suggests. A month after Japan’s first round of tightening regulations, major electronics manufacturers have still not received shipments of the three chemicals involved, according to an industry source who asked to speak anonymously to discuss private corporate information.

The measures may also hurt Japanese companies. Mr. Moon said on Friday that South Korea would reduce its dependence on Japanese technologies and materials by finding alternative sources for imports and providing financial and other support for South Korean manufacturers to produce products locally.

Regardless of the practical effects of the ban, the political fallout has been intense.

South Korean public opinion is quickly souring on Japan. Proposed boycotts of Japanese products and tourism could be damaging. In mid-July, a man angry over the first round of trade restrictions set himself on fire in front of the Japanese Embassy in Seoul. A second, similar incident occurred Thursday.

“I have not seen it this bad in all my whole career,” said Mr. Choi, the minister-counselor at the South Korean Embassy in Tokyo, who has spent 23 years as a diplomat.

In Washington, concern is growing that fallout from the dispute could affect cooperation and military readiness between two American allies, according to Celeste Arrington, an expert on Japanese and South Korean politics at George Washington University.

Secretary of State Mike Pompeo is expected to meet with both Kang Kyung-wha, South Korea’s foreign minister, and Taro Kono, the Japanese foreign minister, in Bangkok on Friday.

The disagreement could “endanger sustained U.S. efforts on North Korea,” Ms. Arrington said, noting that arriving at a deal with North Korea would ultimately require cooperation from both Tokyo and Seoul.

By Ben Dooley and Choe Sang-Hun

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