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Tokyo’s CP is a way around export restrictions

Aug 03,2019
There may be ways for local companies to import 1,120 dual-use items from Japan even after Tokyo removed Seoul from a list of countries given preferential treatment in export procedures.

According to the Korea Strategic Trade Institute (KOSTI), many Japanese companies are entitled to export their products through a swift approval process called the Compliance Program (CP).

For CP-entitled companies, the approval timeline for exporting dual-use items - sensitive goods that can be used for civilian or military purposes - is shortened from the usual 90 days to seven. And with a single approval, export of those goods can be conducted freely for three years with no additional paperwork.

As of now, 632 Japanese companies are registered in the Compliance Program, according to the website of the Japanese Ministry of Economy, Trade and Industry.

It is not clear at this point what materials will face additional export restrictions as a result of Korea being removed from Japan’s so-called white list. But whatever those goods are, KOSTI believes that Korean companies may be able to maintain their import volumes from Japan if their Japanese suppliers are registered with CP.

Under the CP, Korean companies that faced restrictions starting with the July 4 measure, when Tokyo imposed a tougher export approval process for three key materials used in semiconductor and display industries - polyimides, hydrogen fluoride and photoresists - could still obtain supplies.

The CP list includes major Japanese material manufacturers and chemical companies like Toray Industries, JSR, Sumitomo Chemical and Showa Denko.

Toray Industries produces membranes for LG Chem’s electric car batteries and carbon fibers for Hyundai Motor’s hydrogen-powered and electric cars. Toray also makes advanced materials like polyimide film in a joint venture with U.S. chemical company DuPont.

JSR manufactures photoresists used in the extreme ultra-violet (EUV) system, a key to Samsung Electronics’ next-generation chip process. Its joint venture in Belgium, established with a Belgian research institute, also manufactures photoresists and could be a substitute supplier for Korean semiconductor companies.

Sumitomo Chemical manufactures polyimides used to produce screens protectors for Samsung Electronics’ Galaxy Fold. Its joint venture with SK, Showa Denko, is a leading high-quality hydrogen fluoride manufacturer.

KOSTI said the actual number of Japanese companies in the Compliance Program could be around 1,300 because some Japanese companies are not listed on the Japanese ministry webpage.

Yet if the Shinzo Abe administration ignores the Compliance Program, importing key materials could still be tough for Korean companies.

In the cases of polyimides, hydrogen fluoride and photoresists, the approval process has already become tougher and the Japanese government is now requiring additional forms. Japan’s Trade Ministry directly manages all parts of the process.

Due to the tougher processes, no Japanese photoresists, highly-pure hydrogen fluoride or fluorinated polyimides have been shipped to Korea since July 4.

The Japanese government gives its white list treatment to China, Taiwan, Hong Kong and Singapore, even though they are not technically on the list. If less than 20 kilograms, restricted materials like hydrogen fluoride can be shipped to those countries, and additional paperwork won’t be required for three years.

As the tension deepens between Seoul and Tokyo, Korean tech companies like Samsung Electronics, SK Hynix and LG Display are keen to learn what products will be harder to import from Japan.

Many are looking for new suppliers in China, Taiwan, Germany or the Netherlands.

Eindhoven, Netherlands, is home to many advanced materials companies including ASML, the largest supplier in the world of photolithography systems for the semiconductor industry.

Samsung Electronics smartphone, appliances and TV divisions are trying to acquire as much Japanese materials as possible by Aug. 15. Samsung recently sent a letter to those divisions saying it will pay the additional costs for obtaining Japanese materials.

Korean companies expecting the conflict to deepen have reportedly ordered enough mask blanks - which transfer the minute and highly complex circular patterns for semiconductors - from Hoya and Asahi Glass Corporation to last until early next year.

BY KIM YOUNG-MIN [ko.juntae@joongang.co.kr]