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Japan, taking a page from Trump, uses trade against South Korea

Prime Minister Shinzo Abe of Japan has seemed to turn trade into a cudgel, but South Korean officials suspect a different motive: retaliation over an escalating political dispute between the two countries concerning reparations for Japan's World War II-era conduct

By Ben Dooley
Published: Jul 16, 2019

Japan, taking a page from Trump, uses trade against South KoreaPresident Donald Trump meets with Prime Minister Shinzo Abe of Japan at the Group of 20 summit in Osaka, Japan, June 28, 2019. Tokyo has moved to limit exports of chemicals to big South Korean chip makers like Samsung, citing vague threats to Japan’s security. Seoul says a political dispute is the real reason for the move. (Erin Schaff/The New York Times)

In June, before an audience of world leaders, Prime Minister Shinzo Abe of Japan forcefully defended the global trade order that President Donald Trump has so dramatically fractured.

“A free and open economy,” he told leaders of the Group of 20 nations in Osaka, Japan, “is the foundation of global peace and prosperity.”

Two days later, Abe became the latest world leader to strike a blow against free trade when he moved to limit South Korea’s access to Japanese chemicals that are essential to its vast electronics industry, citing vague and unspecified concerns about national security. In doing so, Japan joined the United States, Russia and other countries that have used national security concerns as a justification for cutting off trade.

Once rarely invoked by world leaders, such arguments are wearing away at long-established global rules intended to keep trade disputes from spiraling out of control. Once they are weakened, experts say, damaging trade wars could become more common.

“If this is used too often, there’s a real potential to absolutely destroy the entire international trading system,” said Bryan Mercurio, an expert on international trade law at the Chinese University of Hong Kong.

“If not one or two or three, but 10 or 15 countries decide they’re going to take measures, really unilateral measures, based on some ill-defined national security exception, it devalues the rules.”

Japanese officials have said that some South Korean companies have inadequately managed the chemicals, which fall under the category of “controlled items” — goods with potential military applications. The officials have not named companies or said how supplies may have been mismanaged.

South Korean officials suspect a different motive: retaliation over an escalating political dispute between the two countries concerning reparations for Japan’s World War II-era conduct. To some, Abe’s move seemed to take a page from Trump’s playbook, turning trade into a cudgel.

“The really troubling thing about it is that it represents the increasing weaponization of these trade or economic interests to coerce another country over completely unrelated issues,” said Gene Park, an expert on international political economy and Japanese politics at Loyola Marymount University.

“Japan has a lot of legitimate grievances,” he said, but trade measures are “not the right way to address them.”

South Korea on Friday called on the United Nations to investigate Japan’s claims.

“If the investigation concludes that our government has done nothing wrong, Japan should immediately withdraw its retaliatory export restrictions,” Kim You-geun, a senior South Korean national security official, said at a news briefing. “Of course, there should be a thorough investigation into whether Japan is violating the rules as well.”

Trump has mixed national security and economic priorities as he has escalated his attacks on major trading partners, allowing him to label European and Japanese cars as national security threats and use the threat of tariffs to force Mexico into tightening its stance against illegal immigration into the United States. Russia cited national security when imposing traffic restrictions in and out of Ukraine. Last year, Saudi Arabia, Bahrain and the United Arab Emirates also cited national security to justify a blockade against Qatar.

The World Trade Organization, the global trading referee, is grappling with the issue. In April, it ruled in Russia’s favor over the Ukraine restrictions. The United States sided with Russia in that dispute, though the WTO rejected the U.S. argument that a country’s definition of national security was not subject to review by the group.

If it lasts, Japan’s clash with South Korea could add one more pressure point to global growth. It could also require global technology companies to scramble for the microchips and other parts they need to make everyday gadgets.

“The Japanese have really muddied the water by characterizing the export restrictions as a security move,” said Daniel Sneider, who studies the Japan-South Korea relationship at Stanford University. “Now, what do you do if the South Koreans are unwilling to back off?”

Japanese officials said July 1 that they would restrict exports of specialized chemicals — fluorinated polyimide, resists and hydrogen fluoride — needed in the production of semiconductors as well as smartphone and television screens. South Korea depends on Japan for much of its supply.

To continue to sell to South Korean customers, Japanese exporters will need to apply for licenses for each one, a process that can take up to 90 days. Additionally, Japan has indicated it may remove South Korea from a list of countries that are exempt from licensing requirements for exports with possible military applications.

While at least one of the chemicals could be used to make weapons, South Korean officials accuse Japan of limiting supplies for an unrelated reason: disagreements over Japan’s colonization of the Korean Peninsula in the lead-up to the Second World War.

The export limits appear calculated to force big South Korean chipmakers like Samsung Electronics to pressure South Korea’s president, Moon Jae-in, to resolve the claims, said Sneider, of Stanford. If so, the move may have backfired. South Korean business leaders have rallied around Moon. South Korea on Tuesday challenged the move before the WTO.

South Korean companies are scrambling to find new suppliers for the chemicals, fearing that Japan could cut off exports entirely, according to Akira Minamikawa, an analyst at IHS Markit. For now, manufacturers have enough stockpiles to meet demand, which has weakened in Europe and China. The main impact will be on the production of high tech products like advanced nonmemory chips and flexible screens that are not yet being produced on a large scale, according to Sanjeev Rana, an analyst at CLSA, a brokerage.

“This issue is a little bit of noise,” Rana said. “Japan is just trying to make a point.”

Still, he said, there is widespread concern about the possible consequences.

“People are asking, ‘is this really a one-off thing?’” Rana said. “‘Or is it the start of something bigger?’”

©2019 New York Times News Service

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