Japan restricts chip, smartphone materials exports to South Korea

Japan said it will tighten regulations on the export to South Korea of several chemicals used in chip and smartphone production amid a row with Seoul on wartime forced labour. The move, which takes effect today, comes after South Korean courts ordered Japanese firms to compensate people forced into wartime labour, an issue Tokyo says was resolved when the countries resumed diplomatic relations decades ago. "The export control system is built based on international relations of trust," Japan's Ministry of Economy, Trade and Industry (METI) said in announcing the move.

"After reviews by relevant ministries, it must be said that the relations of trust between Japan and South Korea have been significantly harmed," METI added. The new restrictions apply to three chemicals as well as transfer of manufacturing technologies, removing them from a list that effectively allowed expedited export.

It means that exporters will now have to apply for permission for each batch they wish to export to South Korea, a process that takes around 90 days each time, local media reported. METI said it would also begin soliciting public comment on the removal of South Korea from a list of "white" countries that face minimal restrictions on technology transfer with national security implications.

"With South Korea, the trust which is the very foundation of the export control has been undermined," Jun Iwamatsu, the official in charge of export control at the trade ministry, told AFP. The chemicals affected by the move are fluorinated polymide, which is used in the manufacture of displays, photosensitising agent resist, which is used in chip manufacture, and hydrogen fluoride, which is used to clean chips.

Japan and South Korea are both democracies, market economies and US allies, but their relationship has been strained for decades as a result of Tokyo's brutal 1910-45 colonial rule over the Korean peninsula. And tensions have grown after a series of rulings from South Korean courts ordering Japanese firms that used wartime forced labour to compensate victims.

Last month, Tokyo proposed the issue be put to arbitration under the terms of an agreement signed by the two countries in 1965, when ties were normalised. South Korea countered with a proposal for local and Japanese firms to set up a voluntary compensation fund, which Tokyo flatly rejected as "unacceptable".

When relations were normalised, Tokyo agreed a reparations package that included grants and cheap loans intended to cover victims of various wartime policies. Japan argues that package should have permanently resolved the issue.

Deputy chief cabinet secretary Yasutoshi Nishimura told a regular briefing that the move was "in accordance with international export regulations and World Trade Organization rules"."In addition to the fact that it has become difficult to work on export control with South Korea under a relation of trust, we have also seen inappropriate cases in connection with export control as it relates to South Korea," he told reporters.

Analysts said the measure could harm Japanese producers, and share's in Japanese resist makers nosedived in some cases more than three percent after the announcement, despite a rally on the market overall. The news also sent Samsung down 0.74 per cent by mid-morning, with LG Electronics plunging 2.52 per cent.

"It could have a short-term negative impact on Japanese manufacturers... whose sales to major South Korean producers constitute 10 to 20 percent of their overall sales," said Kazuyoshi Saito, a chip analyst at IwaiCosmo Securities.