Korea: Japan-South Korea trade showdown deals further blow to fragile economy
July 16, 2019
A long-standing feud escalated between Japan and South Korea in late June when political tensions rooted in an old wartime disagreement boiled over and Japan placed restrictions on exports to Korea of several high-tech materials. The sanctions require Japanese firms to apply for permission to sell three chemicals used in the manufacturing of semiconductors, memory chips and display panels to Korea. The restrictions risk disrupting tech supply chains and cutting off Samsung and other Korean tech giants’ access to critical materials used in smartphone and television manufacturing, hindering business activity at an already tough time for the economy. If the quarrel lingers, it will likely hit Korea’s vital and already embattled semiconductor industry, which accounted for a sizeable chunk of Korean exports in 2018.
The trade spat is unlikely to be resolved any time soon and, more likely, could further escalate into a tit-for-tat exchange given that both sides have since doubled down on their positions. Negotiations on 12 July were characterized as a cold and stony exchange and yielded no progress towards a resolution; in fact, reports suggest they may have further worsened relations. Meanwhile, Korean President Moon Jae-in has vowed to financially assist Korean firms in resourcing materials, while Japan continues to insist that its measures are not in violation of World Trade Organization rules.
The discord largely stems from historical differences dating back to World War Two. Korea harbors resentment over atrocities including sex slavery and forced labor committed during Japanese occupation between 1910–1945. Near the end of 2018, Korea’s Supreme Court ruled that several Japanese companies must pay reparations to victims of forced labor and ordered the seizure of local Japanese assets of firms that did not compensate victims. In response, Japan accused the Supreme Court of overturning their bilateral treaty signed in 1965, which it claims had settled disputes over slave labor, and demanded Korea appoint an arbitrator under the terms outlined in the 1965 agreement. The recent export control, Japan claims, is a repercussion of the breakdown in trust resulting from Korea’s lack of response.
Author: Lindsey Ice, Economist