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Addressing Japan’s retaliation (KOR)

July 03,2019
The Japanese government has decided to regulate Korea-bound shipments of three chemicals crucial in production of semiconductors and displays as a result of “deep injury in mutual trust between the two governments.” Sung Yun-mo, Korea’s trade and industry minister, identified the action as “retaliation” for Korean court rulings on wartime forced labor. Starting Thursday, Japanese exporters of three materials — fluorine polyimide used to make flexible organic light-emitting diode displays, photoresists needed to transfer circuit patterns to chip substrates and etching gas used for semiconductor fabrication — must seek government permission for shipments to Korea. As Japan removed Korea from its preferential list, vendors must gain Tokyo’s approval for every contract — a process that could take up to 90 days.

The move could deal a critical blow to Korean chip and display makers, which generate the bulk of Korean exports. Since they rely mostly on Japanese materials, it won’t be easy to find replacements immediately. Production and shipments could be delayed, hurting not just the companies but also the Korean economy. Korean exports have been falling for months, with the fall widening to double digits — 13.5 percent — in June. Japan aimed straight at the heart of the Korean economy.

The move hardly befits the world’s third largest economy. It was the host to the Group of 20 summit in Osaka, Japan that ended Saturday with a declaration to create a “free, fair, non-discriminative, transparent, predictable and stable trade and investment environment.” The move also could be as harmful to Japanese companies as it could lose their long-time Korean partners and clients. Japanese Prime Minister Shinzo Abe could be putting national interests at risk because of his ambition to become the longest-serving Japanese leader by winning the Upper House election later this month.

The Korean government is equally at fault for neglecting the thorny issue until it came to affect its businesses and exports. Tokyo has warned of a retaliatory action since the Korean Supreme Court’s first ruling in October last year, in which it ordered individual compensation for wartime labor. Seoul angered Tokyo by insisting on noninterference in terms of judicial decisions. In March, Taro Aso, Japan’s deputy prime minister and finance minister, warned of retaliatory action, including tariffs, remittance restrictions and visa barriers. Last month, Tokyo announced tougher quarantine checks on Korean fisheries. Yet the government sat idle.

Tokyo’s retaliation may be upped sooner or later. Some are even warning of tariff barriers. Seoul warned it could file a complaint with the World Trade Organization and rebuked the Japanese ambassador in Seoul. Korea must respond to unfair trade actions from Japan. But it must be subtle and clever so as not to cause economic damage from a political and diplomatic standoff. If the contest turns emotional, both countries can hurt.

Japan has attacked Korea’s weakest point. Korea must strengthen material development and diversify trade, but that cannot be achieved in short period. In the meantime, the government must do its best to minimize the damage to Korean companies and economy. It must not take the crisis lightly, insisting on noninterference in business affairs as it did with Beijing’s Terminal High Altitude Area Defense retaliation.

JoongAng Ilbo, July 2, Page 30