S. Korean leader says Tokyo’s trade curbs will hurt Japan more

In his strongest comments yet on a growing trade dispute, South Korea’s president urged Japan on Monday to lift recently tightened controls on high-tech exports to South Korea, which he said threaten to shatter the countries’ economic cooperation and could damage Japan more than South Korea.

The dispute between the two U.S. allies has further soured relations already troubled over Japan’s colonial rule of Korea before the end of World War II.

President Moon Jae-in accused Japan of abusing its leverage in trade to punish South Korea over their historical dispute. South Korea sees the trade curbs as retaliation for South Korean court rulings earlier this year that ordered Japanese corporations to compensate South Korean victims for forced labor during World War II.

South Korea says the strengthened export controls of photoresists and other sensitive materials mainly to manufacture semiconductors and display screens could hurt its export-dependent economy and disrupt global supply chains.

Its government plans to file a complaint with the World Trade Organization and raise the issue at next week’s WTO General Council in Geneva. Trade officials from the countries failed to resolve the dispute in a working-level meeting in Tokyo on Friday.

Moon also said South Korea will use the dispute as an opportunity to reduce its dependence on Japan by strengthening its technology industry and diversifying import sources.

“Japan’s export restrictions have broken the framework of economic cooperation between South Korea and Japan that had continued over a half-century based on mutual dependence,” Moon said in a meeting of senior aides at Seoul’s presidential palace.

“The shattered credibility of cooperation with Japan in the manufacturing industry will inspire our companies to break out of their dependence on Japanese materials, components and equipment and work toward diversifying import sources or localizing the technologies. I warn that, eventually, it will be the Japanese economy that will be damaged more.”

Analysts say the Japanese measure won’t have any immediate meaningful impact on South Korean chipmakers, which have sufficient supplies of the materials for now, given a slowdown in demand for semiconductors. But there is concern that Japan will expand its export controls to other industries.

Park Ki-young, a spokesman of the Ministry of Trade, Industry and Energy, said Monday that the government is bracing for the possibility that Japan will remove South Korea from a 27-country “whitelist” receiving preferential treatment in trade.

Its removal from the list would require Japanese companies to apply for case-by-case approvals for exports to South Korea of more than 850 items deemed sensitive, not just the three materials affected by the trade curbs that took effect July 4. It would also allow Japanese authorities to restrict any export to South Korea when they believe there are security concerns, Park said.