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Is Japan importing trade war tactics for its dispute with South Korea?

The relationship between Japan and South Korea has in recent weeks reached one of its lowest points since relations were normalised between the two countries in 1965. It is no coincidence that Japan’s decision to impose tougher restrictions on exports of key materials used in technology manufacturing to South Korea has come amid emotionally-charged exchanges over a wartime labour dispute. 

On 1 July, Tokyo announced restrictions on exports to South Korea on three materials used in manufacturing smartphones and semiconductors. Companies will now have to apply for individual export licences rather than batch licences, slowing down the supply chain dramatically. Yomiuri Shimbun even went so far as to describe the move as a “de facto embargo”.

Japan and Korea have long debated contrition and compensation for Japan’s occupational rule of Korea between 1910-1945. While the conflict between the countries has been limited to diplomatic snubs and the occasional inflammatory rhetoric, the issue is currently drifting towards economic conflict.

South Korea is home to some of the world’s top memory chip and semiconductor production companies including Samsung Electronics and SK Hynix. Limiting access to specialised Japanese materials has the potential to severely disrupt manufacturing, despite attempts by South Korean companies to publicly downplay the issue. 

Customers are anticipating future disruptions in electronics production, resulting in a rush to buy existing stock. Over two weeks, the market prices for DRAM chips went up by around 23 per cent and share prices for the country’s top chipmakers climbed.

Companies may stand to benefit in the short-term, however, there are only three to four months’ worth of chip inventory in South Korea. If Japan’s export restrictions remain or are further tightened after this period, the issue will cause significant production issues and disruptions in the global electronics market.

Within days of the export restriction announcement, South Korea publicised plans to invest 1 trillion won (AUD$1.2 billion) annually over the next ten years to develop high-tech materials and reduce dependence on Japan. It is uncertain whether these measures will sufficiently counter the effects of export restrictions.

South Korea’s Minister of Trade, Industry and Energy, Sung Yun-mo described the export restrictions as a direct “retaliation” to 2018 South Korean Supreme Court rulings which ordered Japanese firms Mitsubishi Heavy Industries and Nippon Steel to compensate victims of forced labour. Japan’s Chief Cabinet Secretary Yoshihide rejected this characterisation, rather describing an erosion of “mutual trust”, undermining the security of the export system. 

Tokyo rebuffed the Supreme Court ruling, arguing that it does not abide by the 1965 treaty between the countries, which normalised diplomatic and economic relations and according to Japanese Prime Minister Shinzo Abe, matters of compensation were settled “completely and finally”. 

In contrast, South Korean President Moon Jae-in contends that the 1965 treaty did not provide enough justice to wartime labourers, agreeing with the court’s decision that individuals still have legal recourse to compensation. This directly contradicts sensitive documents disclosed in 2005 regarding the 1965 agreement which reveal the government agreed to never make future demands for compensation at either government or individual level. 

Japan has repeatedly expressed its desire to build a relationship that is “future-oriented”, yet, South Korea continues to drag its feet and reverse decisions made by previous administrations. 

In 2015, South Korea’s Park administration made a deal with Japan to “finally and irreversibly” end the decades-old dispute over victims of sexual slavery, known as “comfort women”. Abe offered his “most sincere apologies” and agreed to set up a joint foundation to support living victims. However, in 2018 Moon announced the unilateral disbandment of the foundation, citing a lack of prior consultation with former comfort women and public backlash.

As Seoul continues to make new demands, Japan cannot trust the certainty of any existing or future agreements. Brad Glosserman, deputy director of the Centre for Rule-Making Strategies at Tama University in Tokyo, claims that “the belief in Tokyo is that the South Koreans are forever going to move the goalposts and seek to maintain the moral and political high ground”. 

A majority of the South Korean public believe Japan has not sufficiently atoned. The Moon government’s decision to diverge from the previous Park administration – a government mired by corruption and opportunism – is perhaps an attempt to capitalise on public discontent and gain public approval.

Bilateral talks have so far failed to make any progress and Seoul has rejected Tokyo’s proposal for third-party arbitration. The situation is expected to escalate as Japan recently announced that it is removing South Korea from a list of preferred trading partners, known as the “white list”. Companies will now be required to meet further requirements before exports can be sold to Korean companies.

There are clear links to be made with the US-China trade war. Both China and South Korea have experienced historical subjugation and humiliation and are, therefore, hostile to the perception of being treated unfairly. Abe also appears to be following US President Donald Trump’s strategy of using export restrictions as leverage in a political conflict. This will almost certainly lead to a tit-for-tat escalation, as it has done between Washington and Beijing.

According to Deborah Elms, executive director of the Asian Trade Centre, Japan’s latest move is simply “another symptom of the collapsing trade regime.” During the recent G20 summit there was no effort to publicly denounce protectionism nor an attempt by major global powers to reinforce the global rules-based order. This is despite Japan’s early championing of a “free and open Indo-Pacific”. 

It is likely that Japan will only suffer in the longer term, as companies rethink their reliance on Japanese manufacturing and the country’s image as protector of free trade. The export restrictions have placed Seoul and Tokyo on the precipice of a vicious cycle of escalation that is unlikely to reward either. 

Alexandra Smith is the East Asia Fellow for Young Australians in International Affairs.


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