Export restrictions that Japan has imposed on Korea not only threaten the relationship between the two countries but also affected the global electronics manufacturing industry.
Declaration made by Japan earlier this week marked a “step back” in the relationship, which is not very good between the two countries. This move led the Seoul government to retaliate and caused many chip makers to face a shortage of temporary supplies.
From July 4, Japanese suppliers must be licensed by the government, before exporting three important chemicals of the semiconductor industry to Korea. The review process can take up to 3 months. However, Korean chip makers usually store enough parts and materials for 1-2 months only.
Direct impact on global supply chain
A source from SK chip maker Hynix said it did not have enough stock for the next three months. It would have to stop the production line; if it failed to buy necessary materials from Japan during this time. Leading chip firm Samsung was also assessing the situation and not commenting further.
The impact of Japan’s “embargo” could spread around the world. Especially when South Korea accounted for 70% of the market share of dynamic random access memory (DRAM), and 50% of NAND flash memory market share. Samsung is also leading the chip market in terms of revenue while SK Hynix ranks the third.
All smartphones and computers need memory chips. Memory chips of SK Hynix and Samsung are used in devices such as Apple iPhone, Huawei phones, HP computers, Lenovo, and even Sony TVs, Panasonic.
A representative of a major Japanese electronics company expressed concern that the ban could have the opposite effect. “If Korea’s memory supply is lacking, iPhone production has a problem that will affect our supply of components,” Nikkei quoted the person as saying.
Japanese companies with little reputation are holding a huge market share in the three types of export-restricted materials. They used Polyimide to make flexible OLED displays. They also utilized the other two materials for circuit board manufacturing, including resistors (coatings) and gas etching (gaseous anti-corrosion agents).
The most prominent companies in this area are JSR, Showa Denko, and Shin-Etsu Chemical. All of which own at least one-third of their capital from foreign investors.
Controversy on “free and fair trade”
Japan is planning to remove South Korea from its “allowable list” of exports in August. This includes 27 countries, including the US, Germany, and France. After Japan removed Korea from the list, all transactions for military purposes must be approved by the government. No countries are currently excluded from the list.
Japan cited the bad relationship with Korea to issue control orders. The case seems to be related to a long-standing dispute over South Korea’s request. The request was about asking Japanese companies to compensate for Korean labor during wartime.
Control orders were also issued. It was after the Japanese government strengthened the control of some types of Korean seafood from June. And, to retaliate against restrictions on food imports from areas affected by the Fukushima nuclear disaster in Japan in 2011.
“It is difficult to manage export goods based on trust relationship with Korea,” said Yasutoshi Nishimura, deputy chief of Japan ‘s office.
South Korean Deputy Foreign Minister, Cho Sei-young met Japanese Ambassador Yasumasa Nakamine to demand the removal of the ban. He expressed concern about its impact on the industry and bilateral relations between Japan and South Korea. He argued that this decision goes against the policy of “free and fair trade.” This was introduced by Japan at G20 Summit last week.
Cho said the government would work with businesses to find countermeasures. The Korean Ministry of Trade, Energy, and Industry will also respond with “appropriate measures,” including filing a complaint with the World Trade Organization (WTO).
Action from Korea
“We will turn this into an opportunity to improve Korean technology capacity,” said Industry Minister Sung Yun-mo.
Experts are having different ideas about whether or not new regulations are in line with WTO rules. “This is an area where Japan can make its own decisions and not violate any of these,” said Keisuke Hanyuda, partner of Deloitte Tohmatsu Consulting Japan.
However, Yuka Fukunaga, Waseda University professor, said that Japan’s control order could fall into “gray zone,” and violate WTO agreements.