On July 4th, 2019, Japan tightened restrictions on exports to South Korea (ROK) of three important materials used in developing high-tech devices. The move has added stress to the already tense bilateral relationship, and could disrupt global supply chains for smartphones and memory chips amidst the ongoing US-China trade war.
Japanese firms now require a government license to export fluorine polyamide, photoresists and hydrogen fluoride to the ROK, used in the foldable panels, chip-making, and display-making processes respectively. South Korea is incredibly dependent on Japan for these materials, sourcing 94 per cent, 92 per cent, and 44 per cent of the aforementioned three materials from Japan respectively, in the first quarter of 2019.
The Japanese claim the move is to allay recent “security concerns”. In early July, the Japanese media anonymously quoted a member of the ruling Liberal Democratic party, suggesting that hydrogen fluoride ended up re-exported to the DPRK, in violation of UN sanctions. For context, the UN Security Council has imposed a series of sanctions since 2006 on the DPRK to curb its missile and nuclear program, which poses serious risks to regional security. The sanctions, among other actions, ban exports to the DPRK of certain sensitive items that might be used to bolster those programs. Thus, any accusations of violating such sanctions are allegations that will be taken seriously.
Note that HF can be used to produce chemical weapons, such as sarin gas.
However, most experts believe the export curbs are tied to a ruling last October by South Korea’s Supreme Order that ordered Nippon Steel Corp. and Mitsubishi Heavy Industries (among others) to compensate for forced foreign labour that South Koreans had to endure when Japan colonized Korea from 1910-45. The compensation would be rewarded through seized assets of the aforementioned Japanese firms in Korea.
In response, Japan has stated the recent export curbs have nothing to do with “historical issues”, but rather of breaches of “international law”. They argue the 1965 treaty normalizing relations between the countries dealt with all issues of compensation; the Supreme Court of South Korea in their ruling stated that the treaty did not apply to individual nationals applying for compensation.
The latest development to the saga occurred on Friday the 12th, when officials from both countries met in Tokyo on Friday the 12th, to “explain the move” according to the Japanese. Disagreements over what took place, as well as accusations that the Japanese restrictions were WTO-incompatible, led to a cold and unproductive meeting.
The Role of Domestic Politics
The relations between the ROK and Japan have always been coloured by the issue of forced labourers, “comfort women”, and the legacy of Japanese colonialism and occupation. The term “comfort women” refers to women and girls who were forced into sexual slavery for the Imperial Japanese Army, especially during WWII. While the two countries do share strategic interests (ex. GSOMIA, an intelligence sharing agreement signed in 2016, and renewed in 2017), that is not to say disputes do not occur – most recently a military spat broke out in December when a Japanese plane and a South Korean destroyer got too close to each other.
Accordingly, given the very delicate issues at stake, both sides do not necessarily have an incentive to back down on their rhetoric. Japan has elections for its Upper House on July 21, and while a recent poll has the ruling Liberal Democrats with a strong and comfortable lead over opposition parties, their lead has shrunk by 7% in the last month, and over 28% of those polled are undecided.
Likewise, South Korean President Moon Jae-In’s 2017 campaign included references to potentially revisiting his predecessor’s deals with Japan (e.g. the 2015 bilateral agreement whereby Japan contributed 1 billion Yen to set up a foundation for the remaining “comfort women”). Accordingly, the South Korean government formally dissolved the compensation fund on July 5, partly in response to criticisms that the previous government did not properly take into account the views of the victims and instead signed a short-term deal for geopolitical gains.
From the Japanese perspective, as long as it does not jeopardize the relationship with the U.S (i.e. if the current cost-benefit calculation remains the same), there’s an incentive to dig in and double down. Given the sensitivity of the issue at hand, the South Koreans have a similar incentive – Samsung and SK Hynix, who control 63% of the global chip market, and have enough stockpile to last them a few more months. Memory chip prices have also spiked as much as 12% in the last week, the highest such jump since 2017. In the long-run however, the incentive to double down for South Korea decreases, as the export curbs might delay future chip production by around a month or two.
Japan, meanwhile, has repeatedly asked for third-party arbitration on the forced labour dispute, as per the provisions of the 1965 Treaty, but South Korea has refused to appoint an arbiter. South Korea has until July 18 to respond to this demand.
If there is finally no arbitration, Japan will quite possibly escalate the export curbs, in defiance of South Korea’s counter-offer of opening diplomatic talks over the issue. Clause 8 of Article V of the Treaty states that the dispute may be brought to “the appropriate court located in the area where the Contract concerned has been concluded,” e.g. the International Court of Justice.
Trade & Security Implications
The dispute indirectly ties in a series of other economies, as firms in South Korea provide chips to both Huawei (China) and Apple (USA), among others. At the very least, the region does not need any more trade disruptions, given the already-existing disruptions emanating from the ongoing US-China trade war.
South Korea has threatened to file a complaint at the World Trade Organization and has said they would raise the issue at the WTO General Council in late July. Although the former is more of a symbolic move (albeit with real-world consequences in the long-run), as a ruling would likely only come months or even years later. The only official reasons given for the export curbs were a “breach of trust” and “security concerns”. The South Koreans have argued the former is not a valid reason to impose trade restrictions.
If the case ends up at the WTO, it is very possible the Japanese will invoke GATT Art. 21 (National Security Exemption), the same article that President Trump has invoked to defend his steel and aluminium tariffs. Unlike the US case, however, if there is, in fact, credible evidence of sensitive materials being sent to the DPRK, the Japanese could have a formidable case.
In regards to “security concerns” now, the Japanese have failed to explain what this refers to, at least in official statements. The South Korean government declared their emergency investigation confirmed that no hydrogen fluoride was inappropriately shipped to any countries under UN sanctions.
The government has also suggested referring the issue to a UNSC panel of experts or other third-party investigators. The South Korean Deputy National Security Chief additionally suggested that unless Japan has proof of the violation, the Japanese should issue an apology and revoke the restrictions.
This is still a developing story, but given the sensitive stakes at hand, it will likely not come to a resolution soon unless outside circumstances change lead to the two nations putting their differences aside. It remains to be seen whether the US, a mutual ally of both countries, will try to arrange a diplomatic resolution, unlikely as it may be.
One notable upcoming date is July 24, where the period for public comments ends on Japan’s possible move to remove South Korea from the “white list”. This is a list of 27 trusted export destinations that receive waivers for requiring export licenses for dual-use goods (i.e. goods that can be used for both civilian and military purposes).
All in all, the dispute highlights how easily domestic politics and unreconciled historical injustices can lead regional neighbours to double down on threats and rhetoric, despite common security concerns, allies, and trade instability.
Edited by Jillian Giberson
The opinions expressed in this article are solely those of the author and they do not reflect the position of the McGill Journal of Political Studies or the Political Science Students’ Association.
Featured image by Andrew Magill via Flickr Creative Commons