South Korean president calls for diplomatic solution to trade spat

South Korea's president said Monday the country is committed to finding a diplomatic solution to a bitter dispute over tightened Japanese control of exports of high-tech materials used by South Korean companies to produce semiconductors and displays.

In a meeting with senior aides, President Moon Jae-in called for Japan to withdraw what he described as a politically motivated measure and for "sincere" bilateral discussions on the issue. He said South Korea would be left no choice but to take countermeasures if the Japanese trade controls damage South Korean companies.

A view of the Busan Container Terminal in the Port of Busan in Busan, South Korea, October 21, 2017. [File photo: IC]

Last week, Japan removed South Korea from a list of nations with which it minimally restricts trade and ordered a more stringent approval process for shipments of photoresist and other key chemicals to South Korea. The move came amid deteriorating relations between the countries over issues related to Japan's brutal colonial rule of the Korean Peninsula before the end of World War II.

South Korea's Trade Ministry has said Seoul plans to file a complaint with the World Trade Organization over the "unjust" Japanese action. The South Korean government sees the Japanese move as retaliation for recent South Korean court rulings ordering Japanese corporations to compensate South Korean plaintiffs for forced labor during World War II.

"The recent trade curbs imposed by Japan have raised concern over disruption in production for our companies and the threat it poses to global supply chains ... there's global concern over the move to limit mutually beneficial trade between civilian companies for political purposes," Moon said.

"A vicious cycle created by measures and countermeasures wouldn't be ideal for both countries. But if South Korean companies begin experiencing actual damages, our government would have no choice but to take a necessary response," he said, adding that he hopes things don't come to that.

Japan's export restrictions, which went into effect last Thursday, cover fluorinated polyimides, which are used in organic light-emitting diode (OLED) screens for TVs and smartphones, and photoresist and hydrogen fluoride, which are used for making semiconductors.

Japanese officials insist the decision to end preferential treatment for such exports to South Korea resulted from a lack of trust that posed a risk to national security.

When asked about suspicions in Japan that South Korea was allowing chemicals exported from Japan to flow to North Korea, Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura said without providing details that there had been a case of inappropriate use.

"Regarding export controls with South Korea, it is true we haven't had sufficient communications or exchanges of opinion with South Korea for at least three years," Nishimura said.

An official in South Korea's presidential office denied the suspicions during a background briefing, saying that the country was properly implementing international sanctions against North Korea over its nuclear weapons program and that there was no evidence backing the Japanese claim.

The Japanese move to control exports triggered an angry response in South Korea, where many believe Japan still hasn't fully acknowledged responsibility for atrocities committed during its colonial occupation of Korea from 1910 to 1945.

Thousands of South Koreans have signed petitions posted by citizens on the presidential office's website that called for boycotts of Japanese products and travel to Japan. One petition demanded that South Korea boycott next year's Tokyo Summer Olympics.

Retailers have reported modest declines in sales of Japanese beer, while social media and online message boards were filled with posts seeking advice on whether trips to Japan should be canceled over worries of unfriendly reception by Japanese.

Analysts say the Japanese measure won't have any immediate meaningful impact on South Korean companies such as Samsung Electronics and SK Hynix, which have sufficient supplies of the materials for now, given the slowdown in demand for semiconductors.

However, there's concern that Japan might expand the restrictions to include other key semiconductor materials such as wafers, or materials and components used in other products, including rechargeable batteries for electric vehicles.

In January-May, 94% of South Korea's imports of fluorinated polyimide and 92% of its imports of photoresist were from Japan, according to a report by Moody's Investors Service, which cited trade data from South Korea.

Samsung Electronics and SK Hynix accounted for 73% of the global DRAM market and 40% of the global NAND market by revenue in the first quarter of 2019, according to market researcher DRAMeXchange.