SKorea vows countermeasures as Japan downgrades trade status

TOKYO: Japan's Cabinet on Friday approved the removal of South Korea from a list of countries with preferential trade status, prompting retaliation from Seoul where a senior official summoned the Japanese ambassador and told him that South Koreans may no longer consider Japan a friendly nation.

The decision expanding controls over exports of sensitive materials takes effect on Aug. 28. It follows an earlier requirement that Japanese exporters to South Korea be approved on a case-by-case basis for three materials used in semiconductors, smartphones and other high-tech devices — South Korea's key exports.

Trade Minister Hiroshige Seko said the decision was needed to "appropriately carry out export controls for national security purposes" and was based on South Korea's "insufficient" export controls.

In addition to escalating tensions between the Asian neighbours, the move will ripple across the high-tech sector, further affecting supply chains already rattled by U.S.-China trade tensions.

The loss of preferential trade status will apply to dozens of more products on a list of items that potentially could be converted to weapons. That's in addition to more than 200 other items requiring individual inspection for exports to all countries. Ending South Korea's "white country" status would also mean Japan could limit exports of any product on national security grounds.

South Korea's President Moon Jae-in, before heading into an emergency Cabinet meeting to discuss the Japanese measures, vowed stern countermeasures against Japan's planned downgrading of his country's trade status, calling it an attempt to contain South Korea's economic growth and harm global supply chains. Moon accused Japan of retaliating against South Korean court rulings that ordered Japanese companies to compensate Korean plaintiffs for their wartime labour during Japan's 1910-1945 colonization of the Korean Peninsula.

"There are deep wounds between Korea and Japan due to our unfortunate history. However, our two countries have long endeavoured to heal the wounds by using stitches, medicine and bandages. Nonetheless, if Japan, the aggressor, reopens the old wounds after so long, an international community aware of the facts will never tolerate it. Japan must squarely face up to this," Moon said.

He said South Korea today is one of the world's top democracies and economic powers with the potential to fully overcome the difficulties. "However, if we succumb to challenges, history will repeat itself. If we take the current challenges as an opportunity instead and turn them into a chance to make a new economic leap, we can fully triumph over Japan. Our economy can surpass Japan's," he said.

South Korea says the Japanese trade curbs could hurt its export-dependent economy and has accused Japan of weaponizing trade to retaliate over disputes stemming from wartime history. Tokyo's export measures since early July have already triggered angry protests and boycotts from South Korea.

South Korean presidential office said Seoul will consider ending a military intelligence-sharing pact with Tokyo as part of countermeasures against Japan. The pact's renewal is coming up later this month.

South Korea's Foreign Ministry summoned the Japanese ambassador and Vice Foreign Minister Cho Sei-young told him Japan's trade measures betray a history of cooperation and that South Koreans may no longer consider Japan a friendly nation because it imposed what Seoul sees as economic retaliation.

South Korea's Finance Minister Hong Nam-ki said Seoul will also take steps to remove Japan from its own "whitelist" of nations receiving preferential trade treatment, and speed up efforts to file a complaint with the World Trade Organization.

Japan denies Seoul's allegation that the export controls were retaliation for South Korean court rulings allowing Japanese companies' assets to be seized as compensation for their wartime use of Korean labourers.

"We have no intention whatsoever to affect relations between Japan and South Korea, and it's not meant to be retaliation on something, to begin with," Seko said. "I hope South Korea understands that this is not an export ban."

In Bangkok, the South Korean and Japanese foreign ministers met with U.S. Secretary of State Mike Pompeo on the sidelines of the Association of Southeast Asian Nations. After about half an hour, all three came out of the room for the camera spray, stood in front of the cameras without saying a word and without even shaking hands.

The tighter approval for the export of the three items — fluorinated polyimides, photoresists and hydrogen fluoride — has had a limited impact, analysts say, because South Korean companies have at least three-month stockpiles of the computer chips and displays that would be affected, amid slowing demand and worries over U.S.-China trade tensions.

Additional controls, however, add to uncertainty for Korean manufacturers including SK Hynix and Samsung Electronics that rely heavily on Japanese suppliers.

"Japan has responded to a resurfacing, deeply felt, historical grievance with the use of highly impactful and damaging trade restrictions, seeking to choke off the South Korean semiconductor industry," Fitch Solutions said in a recent report. "The ripple effects to the technology, consumer and tourism sectors, the Korean and Japanese economies, as well as the fragile political and security balance in the region, will be notable."

Japan and South Korea are both important hosts for U.S. military bases in East Asia. But they've been bickering for years over a territorial dispute and over South Korean demands for more contrition and compensation for the wartime labour and sexual abuse of Korean women in military brothels during Japan's colonial rule.

Until recently, the history disputes had not affected trade between the two export-dependent countries. Japan has run a perennial trade surplus with South Korea, at $20.3 billion in 2018, with parts, chemicals and other materials and equipment accounting for about $15 billion of its exports last year.

The trade spat came as relations between the two neighbours have soured over South Korea's demands for compensation for their harsh labour for Japanese companies before and during World War II, an issue Japan says was "completely and finally" settled under the 1965 treaty normalizing relations. The Foreign Ministry released Monday official documents from May 1961 that showed South Korea declined Japan's proposal for compensation to individual forced labour victims.