Japan, South Korea engage in tit-for-tat trade measures

Japan yesterday removed South Korea from its list of trusted export destinations, prompting Seoul to do likewise in a tit-for-tat measure as tensions between the East Asian powers boiled over.

South Korean President Moon Jae-in warned that his country had the means to inflict major damage on Japan, accusing Tokyo of “the clear intention to attack and hurt our economy by impeding our future economic growth”.

Japan’s decision, announced after a Cabinet meeting, came after it held a public consultation exercise last month that drew more than 40,000 comments, of which 95 per cent approved the move.

Trade Minister Hiroshige Seko said the measure, due to security concerns, was “not intended to hurt bilateral ties” with South Korea and was not a trade embargo or a ban.

What it does is bring South Korea – which has enjoyed fast-track and preferential trade treatment since it was white-listed in 2004 – in line with the usual Customs procedures for territories not on the list, Mr Seko said, as he played down the impact on the global supply chain.

But the removal, which will take effect on Aug 28, will have implications beyond stricter export controls for three chemicals – fluorinated polyimides, photoresists and hydrogen fluoride (etching gas) – that Tokyo imposed on South Korea last month. Japan controls up to 90 per cent of the global market for the three chemicals.

South Korean Finance Minister Hong Nam-ki said Japan’s tighter export controls could affect some 1,200 items that are sensitive due to potential military use.

Japan’s decision, announced after a Cabinet meeting, came after it held a public consultation exercise last month that drew more than 40,000 comments, of which 95 per cent approved the move.

He vowed to mitigate any impact on South Korean companies for 159 items, for which they are heavily reliant on Japanese makers.

Mr Moon did not mince his words yesterday in a nationally televised statement at a Cabinet meeting in Seoul, accusing Japan of being reckless, selfish and destructive.

“It’s become obvious that the Japanese government is responsible for having made the situation worse,” he said. “I unequivocally warn that the Japanese government will be entirely held accountable for what will unfold going forward.

He added: “If Japan – even though it has great economic strength – attempts to harm our economy, the Korean government also has counter-measures with which to respond. We will never overlook such circumstances where Japan, the instigator of these wrongs, is turning on us.”

He said this year marked the 100th anniversary of the Korean independence movement, evoking nationalist fervour by drawing parallels between Japan’s trade move and its bloody occupation in the past.

“We will never again lose to Japan,” he vowed.

Protests broke out yesterday outside the Japanese Embassy in Seoul.

Demonstrators held signs reading “No Abe”, referring to Japanese Prime Minister Shinzo Abe, as they chanted: “The Abe government distorts history and commits economic invasion!”

South Korean Foreign Minister Kang Kyung-wha told reporters yesterday that the United States had offered to do what it could to resolve the spat, after a three-way meeting with her Japanese counterpart Taro Kono and US Secretary of State Mike Pompeo in Bangkok on the sidelines of a South-east Asia forum.

But a Japanese official later said that no such comment was made and that Mr Pompeo had only “encouraged (the) countries to find a way forward”.

Mr Kono also said Japan had explained its position to the US and does not regard what Mr Pompeo said as an offer to mediate.

The chasm between the two East Asian neighbours, first over their bitter shared history and now trade, may yet damage security ties.

A decision on whether to renew their joint military intelligence-sharing pact is due by Aug 24.

Japan has said it has no intention to rescind the pact, but South Korea this week spoke about a rethink under present circumstances.

A breakdown of this pact will complicate efforts by the two US allies on regional security issues such as North Korea – which yesterday conducted its third short-range projectile test in a week – and China’s growing military assertiveness.

Still, in striking South Korea off the white list, Japan said it could not turn a blind eye to what it sees as lax export controls. It said these have led to the smuggling of materials in everyday objects such as smartphones which, in the wrong hands, could lead to the manufacture of weapons of mass destruction.

Japan also insists the move had nothing to do with a separate dispute over wartime labour.

• Additional reporting by Tan Hui Yee in Bangkok

About trade white lists

TOKYO • Japan will strike South Korea off its white list of trusted export destinations on Aug 28, while Seoul has vowed to expel Tokyo from its similar list in retaliation. Here is an explainer on trade white lists.

WHAT IS A TRADE WHITE LIST?

Different jurisdictions have different trade procedures. Not every territory adopts a trade white list; each may screen exports and grant licences based on its own criteria.

But the jurisdictions that adopt some form of trade white list – such as the European Union, Australia, Japan and South Korea – use it as an export control mechanism for “dual use” strategic items to guard against the proliferation of weapons of mass destruction.

These items, defined as goods, software and technology that can be used for both civilian and military applications, may be used in everyday items such as cars and smartphones. But in the wrong hands, they can be tapped for more nefarious purposes. Examples of these items include carbon fibres, titanium alloys and gyroscopes.

Countries on a trade white list are ascertained to have strict export control measures that prevent the rerouting or the smuggling of these components to a third destination.

WHAT DOES BEING ON THE WHITE LIST MEAN?

For Japan, companies that export “dual use items” to nations on the white list may apply for bulk licences that are valid for multiple transactions over three years, thus effectively fast-tracking the Customs process.

Japan’s Ministry of Economy, Trade and Industry yesterday said it will tweak the categorisation system it uses for security export control. Group A countries are “white countries”, while Group B countries are those with certain levels of export controls. Group D nations include North Korea. Most territories outside of the Group A “white list” category will undergo the usual Customs procedure, by which permission is required for each contract to export materials with military potential.

Japan says the standard processing time is up to 90 days, though licences are generally granted within two to three weeks. This has fuelled concerns in South Korea over delays in shipments of vital components, though Japan has brushed off these anxieties by saying firms can simply apply for permission promptly.

HOW DOES JAPAN MANAGE ITS WHITE LIST?

Japan says a continual review of its export control system – and its white list – to mitigate emerging threats is necessary for the effective control over sensitive substances and technology from a security viewpoint. This, it says, is fully compatible with World Trade Organisation rules.

South Korea was added to Japan’s list in 2004. It will be the first nation to be stripped of the status on Aug 28.

Japan has accused South Korea of rebuffing its efforts for bilateral trade expert talks to address security concerns. This has undermined trust, it says, stressing that the removal of South Korea from the white list has nothing to do with their differences on other issues like wartime labour.

But Seoul sees it as a political tit-for-tat move, arguing that there appears to be no other trigger and calling for more evidence from Japan that it has been negligent on export controls.

Walter Sim

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