On March 11, the board of directors of the Seoul Japan Club (SJC), an interest group of Japanese companies operating in Korea, indefinitely postponed deliberation on the withdrawal of seven members from the SJC. The seven companies are going to leave Korea. The ostensible reason for the delay is the spread of COVID-19, but the actual reason is that the withdrawals are hard to swallow for the SJC at a time when Korea-Japan relations are soured. The seven companies’ withdrawals will decrease the number of SJC members to 380.
Both Korean and Japanese businesspeople are complaining about the worsening business environment due to a rapidly deteriorating relationship between Korea and Japan. In particular, the escalating diplomatic tension has a direct negative impact on the semiconductor and display industries, the main pillars of the Korean economy. In a report released in November 2019, the Korea Economic Research Institute (KERI) said that Korea's gross domestic product (GDP) will decrease by up to 6.26 percent if the electrical and electronics industries are disrupted by Japan's tightening export regulations.
According to the Korea International Trade Association, Korea depends on Japan for 49 percent of the major materials for display products, including plates for thin film transistor-liquid crystal displaya (TFT-LCDs) and LCD shading sheets. For this reason, there is concern that the restrictions on the entry of people between Korea and Japan due to COVID-19 will do harm to the Korean display industry.
In addition, Korea also depends on Japan for most of the materials needed for semiconductor microprocessing, such as photoresist for extreme ultraviolet (EUV) processes. Thus, the Korean semiconductor industry could be undermined if Korea-Japan relationship worsens. Considering the fact that Tokyo Electron, the world's fourth largest semiconductor equipment maker, supplies etching equipment to Samsung Electronics and SK Hynix, the Korean semiconductor industry is bound to be negatively affected in many ways by travel restrictions between Korea and Japan.
“At a time when Korea is facing trouble in receiving parts from China due to the spread of the virus, the travel restrictions between Japan and Japan will inevitably hinder production of major products such as semiconductors,” said Cho Kyung-yeop, head of the Economic Research Division at the Korea Economic Research Institute. “In addition, the entry ban was partly motivated by political reasons. In this regard, industrialists in both countries face growing uncertainties.”