Wednesday, August 21, 2019
Japan Suddenly Initiates Economic Retaliation Against South Korea
Restricting Exports of 3 Materials to Korea from July 4
Japan Suddenly Initiates Economic Retaliation Against South Korea
  • By Jung Suk-yee
  • July 1, 2019, 09:25
Share articles

The Japanese government will restrict exports of three chemical materials to South Korea starting from July 4 in response to the South Korean Supreme Court’s ruling regarding compensation for forced labor victims.

The Sankei Shimbun reported on June 30 that the Japanese government would restrict exports of three chemical materials to South Korea starting from July 4 in response to the South Korean Supreme Court’s ruling regarding compensation for forced labor victims.

The three materials are fluorine polyimide as a liquid crystal display component for use in TVs and smartphones and resist and etching gas necessary for manufacturing of semiconductors. Japan currently accounts for approximately 90 percent of the global supply of each of the three materials.

At present, South Korean companies are extremely dependent on Japan when it comes to certain industrial items. Last year, they imported semiconductor manufacturing equipment worth a total of US$5.2 billion from Japan and the annual imports amounted to US$2.4 billion, US$1.9 billion and US$1.9 billion as for integrated circuit semiconductors, basic petrochemicals, and other precision chemical materials, respectively. Likewise, they imported US$1.2 billion of individual device semiconductors, US$1 billion of auto parts, US$0.9 billion of silicon wafers, and US$0.9 billion of optical device components. The items are related to the semiconductor, petrochemical, automobile and electronics industries, which are South Korea’s major export industries.

Despite the South Korean government’s decades of R&D efforts to help South Korean companies reduce the dependence, South Korea’s trade deficit with Japan and their technological dependence are continuing to increase. For example, the trade deficit rose from US$20.3 billion to US$24.1 billion from 2015 to last year as South Korea’s imports of Japanese precision chemical materials, silicon wafers and semiconductor manufacturing equipment jumped 29.3 percent, 51 percent and 8.1 percent, respectively.
 

In the automobile industry, SsangYong Motor Company is currently importing transmissions from Aisin Seiki for its major products. The South Korean automaker producing 140,000 cars a year will take a direct hit if Japan expands its export restrictions to cover the item. The engines, automotive electronics and software of SsangYong are optimized for Aisin transmissions and cannot be replaced in a short time. Besides, South Korean automakers other than Hyundai Motor Group can produce no hybrid cars without Japanese technologies.

The same applies to future industries. For instance, source technologies for optical lenses of high-precision cameras, which are indispensable for self-driving vehicles and so on, are currently owned by Japanese companies. South Korea is fully dependent on Japanese technologies in the robotics industry as well.

Some experts point out that the Japanese government is unlikely to completely ban the export of those items as the export restrictions can negatively affect Japanese companies’ exports. “It seems that the Japanese government’s announcement has to do with the Upper House elections scheduled for July 21,” one of them mentioned, adding, “The Japanese government may be planning to tame the South Korean government and South Korean companies by permitting the export of the items in a limited way.”