[Special Report 5] Trials to Solve Export Restrictions
South Korean Trade Minister Yoo Myung-hee, who returned from the visit to the United States, told reporters on July 29 that she proposed to Japan's Trade Minister Hiroshige Seko that they meet on the sidelines of the ministerial conference of the 8th Regional Comprehensive Economic Partnership (RCEP) scheduled to be held in Zhengzhou, China, from Aug. 2. Seko, however, declined the request citing his schedule. He is known as the leader of Japan’s latest decision to impose export curbs against South Korea.
However, there is a possibility that Yoo and Seko will have a meeting at the RCEP ministerial conference. An official from the Ministry of Trade, Industry and Energy (MOTIE) said, “It is still unclear whether Seko will attend the RCEP ministerial conference or not. But, we are keeping our eyes on it because there is a possibility.”
Under the circumstances, Yeo Han-koo, head of trade negation bureau of the MOTIE, held a bilateral meeting with four Japanese chief delegates for the RCEP conference on July 27. During the meeting, Yeo said, “Japan’s export regulatory measures undermine international trade norms and hamper trade liberalization in the region. Since they can cause serious damage to the global value chain and the RCEP region, Japan should immediately revoke export regulations and keep South Korea on its trade whitelist.”
In addition, both Foreign Minister Kang Kyung-hwa and her Japanese counterpart Taro Kono are planning to arrive in Bangkok, Thailand, on July 31 to attend the foreign ministers' meeting of ASEAN Regional Forum (ARF) slated for Aug. 2. An official from the Ministry of Foreign Affairs said, “It is difficult to predict whether the foreign ministers of South Korea and Japan will have a meeting but there is a possibility.” It is also reported that the United States is planning to push for trilateral talks, including Secretary of State Mike Pompeo, at the ARF conference.
In a written answer to the Strategy and Finance Committee of the National Assembly, Deputy Prime Minister and Finance Minister Hong Nam-ki said, “If Japan excludes South Korea from its whitelist, it would deal a blow to South Korean companies in a wide range of fields such as high-tech materials, electronics and telecommunications.” In regard to the material and component industries, Hong said, “Output of these industries grew by more than three times from 240 trillion won (US$202.62 billion) to 786 trillion won (US$663.57 billion) between 2001 and 2017, but the rate of localization remained at some 60 percent. Companies have relied on the existing value chain, including Japan, to secure stable suppliers and focused on inventory management and production.”
Asked about whether South Korea should take corresponding measures against Japan’s export curbs, Hong said, “We should firmly deal with unfair action, but the vicious cycle of retaliatory measures is not desirable to both countries. We think that the Japanese government should act wisely in order not to worsen the national sentiment in both countries.”
Korea Can Take Emergency Countermeasures
Under the export restriction pressures from Japan, the Korea Institute for International Economic Policy said on July 16 that the South Korean government can adopt a limited market access targeting Japanese goods or services, raise import tariffs, implement export restrictions against Japan, and strengthen its technology and standard certification requirements in order to respond more immediately to Japan’s export restrictions in compliance with the state responsibility rules of general international laws.
In principle, the South Korean government is required to give Japan prior notice regarding compensation for damage and propose negotiations. However, emergency countermeasures are possible if necessary although the countermeasures must be equivalent to South Korea’s damage caused by the restrictions. “It should be noted that these measures, which are not allowed in the framework of the WTO, may lead to WTO litigation against South Korea and Japan’s additional retaliation,” the institute explained.
The other options of the South Korean government include bilateral and multilateral diplomatic negotiations and litigation in the WTO. However, the latter based on the Dispute Settlement Understanding (DSU) of the WTO is not very effective in that it takes at least 28 months.
Korean Consumers’ Boycott of Japanese Products
As a boycott of Japanese goods continues following Japan’s restriction of exports to Korea, woes are growing among local distribution companies in particular.
Lotte Group has been hit the hardest by the boycott as it has many joint ventures with Japanese companies. Lotte Shopping has a 49 percent stake in Uniqlo Korea while Lotte Corp. owns a 40 percent stake in Muji Korea and Lotte Chilsung Beverage a 50 percent stake in Lotte Asahi Liquor.
Uniqlo Korea suffered a drop of more than 30 percent in sales after an executive at its headquarters in Japan dismissively said, “The boycott movement in Korea will not last long.” Sales of Asahi beer distributed by Lotte Asahi Liquor plunged up to 40 percent in the retail channels such as large retail stores and convenience stores.
Credit card sales of Japanese retailers and travel-related companies dropped sharply due to the spreading boycott of Japanese products and services among Koreans.
Sales of Japanese brands began to drop in the second week of July, a Korean credit card company said on July 29. Uniqlo's second-week sales fell 36.7 percent from the first week while those of Muji fell 33.4 percent. In addition, ABC Mart’s sales shrank 11.4 percent in the same period and sales of DHC (online), a Japanese cosmetics brand, plunged 55.3 percent.
Korean customers’ direct purchases through Japanese online shopping sites slid by 24.4 percent. Daimaru Department Store's Tenjin Branch in Fukuoka Prefecture suffered a 25 percent drop in sales by Korean shoppers in the past week from July 17.
JTB, the largest travel agency in Japan, said that the number of Korean travelers who recently visited Japan declined by about 10 percent from the previous year. The amount of card payments by Korean tourists in Japan has sharply decreased. In Okinawa, one of the most popular tourist attractions for Korean travelers, Korean travelers’ credit card spending shrank by 31.8 percent in the second week compared to the first week in July. In the same period, Osaka posted a 27.0 percent drop, followed by an 18.7 percent fall in Tokyo and 18.2 percent decrease in Fukuoka.
Is Washington Intervening in S. Korea-Japan Disputes?
U.S. Assistant Secretary of State for East Asian and Pacific Affairs David Stilwell said on July 17 that the U.S. government may intervene in the ongoing economic disputes between South Korea and Japan although it has yet to be found out which one it is going to side with.
Stilwell had a meeting with National Security Office Second Deputy Chief Kim Hyun-chong and Special Representative for Korean Peninsula Peace and Security Affairs at the Ministry of Foreign Affairs Lee Do-hoon in Seoul.
“The United States is hoping that South Korea and Japan will find solutions to their sensitive issues and the United States will do what it can do to help them as their close partner and ally,” he remarked at his press conference after the meeting.
He entered South Korea the previous day via Incheon International Airport. At that time, he declined to mention anything about whether the United States would intervene in the disputes between South Korea and Japan. The next day, however, he said that the United States would intervene in every relevant issue as an ally.
It remains still to be seen whether the United States will side with South Korea or Japan.
National Security Advisor of the United States John Bolton also departed on July 20 (local time) to visit South Korea and Japan after U.S. President Donald Trump said that he might go between them concerning their disputes if both sides wish.
South Korean President Moon Jae-in recently asked the president of the United States to act as an intermediary. The latter said in response that the best solution lies between the two Asian countries although he will step in if both wish.
The Yomiuri Shimbun reported that the South Korean president did so in order to solve the issue with the United States, which puts much emphasis on security cooperation among the United States, South Korea and Japan. The newspaper also said that the South Korean government may put pressure on its Japanese counterpart with the General Security of Military Information Agreement (GSOMIA), which expires on Aug. 24. The agreement is renewed each year and the South Korean government is required to notify Japan by Aug. 24 to renew it this year.
“The Japanese, Chinese and South Korean foreign ministers are trying to have a meeting in China next month,” the newspaper went on to say, continuing, “Once the meeting takes place, the Japanese government will urge the South Korean government to handle the South Korean Supreme Court’s ruling on compensation for wartime forced labor victims.”