The Yomiuri Shimbun reported on July 3 that a number of Japanese companies are expressing concerns that the Japanese government’s export restrictions against South Korea would negatively affect themselves and the overall economic ties between the two countries. Some Japanese experts are pointing out that the restrictions are in violation of WTO rules.
The Japanese government announced the restrictions after the South Korean Supreme Court’s ruling regarding compensation for forced labor victims. The Yomiuri Shimbun pointed out that South Korea and Japan are engaged in horizontal trade, producing products by using each other’s components and materials, and the export restrictions can crack Japanese companies’ component supply networks.
“Organic EL display production as well as semiconductor production can be hindered on the part of South Korean companies such as Samsung and LG, and then Panasonic and Sony can be affected as they are producing TVs by using LG’s organic EL panels,” the newspaper reported, adding, “South Korean companies are important clients for Japanese semiconductor manufacturing equipment suppliers and, as such, a decrease in semiconductor production in South Korea will lead to a decline in the suppliers’ exports.” It went on to say that the Japanese government is planning to exclude South Korea from its list of countries benefiting from simplified export procedures and the bilateral trade between Japan and South Korea can become complex as a result in various industries such as communications equipment manufacturing, engine manufacturing and precision equipment manufacturing.
Even the Sankei Shimbun, a far-right newspaper, criticized the Japanese government for the possible repercussions of the restrictions. “Approximately 80 percent of South Korea’s memory chip shipments head for China and Hong Kong and only 10 percent or so head for Japan, and yet Japanese companies doing business in China will be affected if South Korea’s memory chip supply to China is affected,” Japan Research Institute senior researcher Hidehiko Mukoyama said via the newspaper. He also said in his interview with the Nihon Keizai Shimbun that South Korean companies will expand their cooperation with non-Japanese raw material suppliers if raw material procurement from Japan becomes more difficult.
“The most basic principle of the WTO agreements is MFN treatment, that is, a measure favorable for one member country must be equally applied to each of the other members, and complex export procedures applied only to South Korea can be a violation of the MFN treatment clause,” said Waseda University professor Yuka Fukunaga, continuing, “Non-tariff limitations on export and import volumes are prohibited according to GATT 1994 and there is a possibility that the Japanese government’s measure is in violation of the rule.”
The Asahi Shimbun said in its July 3 editorial that the Japanese government is misusing trade for political purposes and has to immediately stop attempting to distort the principle of free trade. “Japan advocated free, fair and non-discriminatory trade at the recent G20 summit in Osaka as the chair of the summit, and yet the Japanese government ignored its own declaration in just two days,” it said, adding, “The restrictions will undermine the credibility of Japan in international trade discussions down the road.”
Likewise, the Tokyo Shimbun mentioned in its editorial that the forced labor issue has to be addressed based on diplomatic negotiations and the Japanese government would be well advised not to add to the tension with the export restrictions. “The Japanese and South Korean economies are interdependent and based on free trade principles, which the government is violating, and its measure will backfire by causing more and more South Korean companies to escape from Japan,” the editorial said, adding, “China limited the export of rare earth elements and Japan criticized China during their Senkaku Islands disputes, and export restrictions are not that effective in dealing with political and diplomatic issues.”