March 17, 2023
SEOUL – South Korea and Japan’s easing of trade tensions has spurred hope among Korean businesses, as the two agreed to bolster economic ties on the sidelines of the summit talks held in Tokyo on Thursday.
Earlier in the day, Japan announced it would lift restrictions on exports of key semiconductor materials to Korea, while Korea in return decided to withdraw its complaint filed with the World Trade Organization against the export curbs.
Both countries also plan to continue talks to reinstate each other to their “whitelist” of trusted trading partners.
The breakthrough agreement comes nearly four years after Japan imposed export restrictions on three materials critical for the production of semiconductors and flexible displays — Korea’s key export items — in an apparent retaliatory action against a series of court rulings in favor of Korean wartime victims during Japan’s colonial rule of the Korean Peninsula in 1910-1945.
Japan’s lifting of export curbs will serve as a groundbreaking opportunity to normalize economic and trade relations between the two countries, the Korea International Trade Association, one of Korea’s largest umbrella economic organizations, said in a statement.
“Since Japan’s export restrictions were implemented in 2019, trade between the two countries has sharply slowed down, and costs have risen due to fragmentation of economic relations, and supply chain instability has deepened,” the group said, citing that the average annual trade growth rate between the two nations between 2019 and 2022 stood at 0.1 percent.
The announcement came as Korean President Yoon Suk Yeol capped a four-year thaw in ties with the neighboring nation during his visit to Tokyo.
With semiconductors making up some 20 percent of Korea’s exports, Japan’s restrictions had affected key items used by Korean semiconductors companies like Samsung Electronics and SK hynix, the world’s top two memory chipmakers.
“With the lifting of export restrictions, when exporting three items from Japan to South Korea from now on, the required documents will be streamlined and the approval period will be shortened, thereby significantly alleviating the procedural burden and eliminating uncertainty for companies,” Industry Minister Lee Chang-yang said.
“It will serve as a cornerstone for cooperation to stabilize the global supply chain.”
Korea’s chip and display industries were hit hard by export curbs as Japan produces almost 70 to 90 percent of supplies of the three materials — fluorine polyimide, photoresist and hydrogen fluoride — globally as of 2019.
Korea has sought to offset the impact by making efforts to nurture homegrown suppliers of the materials to replace those made in Japan.
“Due to the export restrictions for the past few years, local firms have carried out the localization of materials to provide a stable supply. But Japan’s decision has allowed us to diversify material imports because we need to import their higher-quality products sometimes,” an anonymous source from the local display industry told The Korea Herald.
Some other industry sources expect the overall impact on Korea’s export condition would be minimal.
“We surely welcome the decision, however, the impact won’t be huge like breaking through clogged arteries,” a semiconductor industry official said on condition of anonymity.
“Japan’s export restrictions made our export process complicated, rather than banning our shipments to the country.”
The source also pointed out that the neighboring country’s decision could be a bane for local suppliers of materials, parts and equipment for chips.
“With the export restrictions being lifted, Korea and Japan will have a good relationship again. It may hurt the business of the domestic (materials, parts and equipment) suppliers,” the source said.
Park Jea-gun, a professor of electronic engineering at Hanyang University, said the agreement would help mitigate supply chain risks.
“Over the past few years, we’ve realized the urgent need for supply chain diversification. Japan’s latest decision will bring some changes soon. Some Korean firms may build a research and development center there, too,” Park said.