This article is the second part of a two-part series by Aidan Foster-Carter on the ongoing trade spat between South Korea and Japan. You can read part one here.
The nation that gave the world Pearl Harbor has not lost the art of the surprise attack.
Hosting the G20 summit in Osaka last month, Japanese Prime Minister Shinzo Abe spoke up stoutly for global free trade.
In implicit critique of U.S. President Donald Trump’s trade wars, Abe insisted in a speech on June 28: “Now is the time we communicate a strong message for the maintenance and strengthening of a free, fair and non-discriminatory trading system.”
Amen to that. So nobody, least of all in Seoul, expected the bombshell that fell just days later.
In an unprecedented move, from July 4 Japan tightened procedures for exports to the ROK of three obscure chemicals you may never have heard of, unless you’re a techie or security buff. But they’re all vital to South Korea’s electronics industry, which in turn is crucial to exports and hence to the overall health of the economy and prosperity.
Photoresists and anhydrous hydrogen fluoride (ANF) are key ingredients in manufacturing semiconductors (computer chips, in popular parlance).
Fluorinated polyimides are equally essential to smartphone displays. ANF is versatile: it can also be used to reprocess nuclear fuel. (This article, though focused on Iran, offers helpful explanation.)
That dual-use potential was the reason Tokyo gave for its action, implying that ANF sold to South Korea had ended up in the North. Seoul indignantly denied this, and struck back with accusations that Japan was the one that is lax in enforcing sanctions against the DPRK.
DIVERSION IS A RED HERRING
In a row growing more heated by the day, with little common ground, a rare point of unity is that no one really believes Tokyo’s security pretext. This has zilch to do with North Korea – except that Kim Jong Un will of course gain from and exploit the rift between his enemies.
The real reason is Abe’s fury with Moon Jae-in. As noted in my first article, Moon’s two conservative predecessors – both now behind bars, but that’s another story – irritated Japan by their inconsistency: veering from friendship to hostility (Lee Myung-bak) or vice versa (Park Geun-hye). For more details see this earlier piece of mine for NK News, from January 2017.
Whereas Moon is at least consistent. Consistently hostile, that is. True, the prime minister he chose, Lee Nak-yon, is rare among ROK politicians in having close ties to Japan and speaking fluent Japanese.
That appointment two years ago stoked hopes, not least in Tokyo, that here at last might be a South Korean president serious about mending fences.
Not a bit of it. The fences Moon Jae-in wants to mend are with North Korea, though results on that front – spectacular at first – now look precarious.
Has Japan learned nothing about Korean psychology?
But with Japan, quite the contrary. As Abe and indeed most Japanese see it, Moon has been unremittingly hostile. Far from offering any olive branch, he has inflamed or escalated matters on three separate fronts.
Even so, Tokyo’s view – surely hard to fault – is that agreements are agreements, and must be kept (this one was explicitly touted as “final and irreversible”). Where would diplomacy be if incoming governments felt free to repudiate any bilateral inter-state treaty signed by their predecessors that they dislike?
Second, there was a worrying moment last December when, Japan claims, a South Korean destroyer locked its fire radar onto a Japanese naval patrol aircraft. Seoul denies this. You can read their competing versions on each country’s defense ministry website, here and here.
Third and most fatefully, Moon broke a big firewall – or at least failed to stop it being broken. For the past half-century, though political animosities (mostly about pre-1945 history) have festered unhealed, both sides had wisely not allowed such matters to impact business.
As you’d expect from two close geographical neighbors with a shared if contested history, Japan and South Korea are major trading partners. Our last article highlighted a particular structure to their commerce. After half a century, the ROK remains highly dependent on Japanese technology in two core areas: machinery and components.
Seoul has always run a substantial deficit on bilateral trade. In 2017 Japan was South Korea’s second-largest source of imports after China, worth U.S.$54.2bn – but only its fifth biggest export market (smaller than Vietnam, even), with $26.9 billion (less than half as much). In that context, Japan’s new trade curbs are very serious, as we’ll see.
WHO UPPED THE ANTE?
But importantly, it wasn’t Tokyo who started this. The fateful step, breaching the firewall between painful politics and gainful business, came last fall – from Seoul.
On October 31 the ROK Supreme Court ordered Nippon Steel to pay 100 million won (U.S.$88,000) each to four plaintiffs – three now deceased – as compensation for their forced labor during World War Two. Japan’s foreign minister, Taro Kono, angrily called this “totally unacceptable”.
Since then Korean courts have found against other Japanese companies, including Mitsubishi. Some judgments have gone further, approving seizure of those firms’ assets in South Korea in lieu of payment (Tokyo has instructed its companies not to cough up, even were they so minded). Now some such seized assets may be sold. Japan says it will sue if that happens.
That is the background to, and real reason for, Japan’s new trade squeeze.
How it works is like this. South Korea has lost its preferential status (tantamount to blanket approval) for these three items. Instead Japanese firms must now apply for permission to export them, a process which could take 90 days.
A trade war between Japan and South Korea is an unmitigated disaster, politically and economically
Given how just-in-time supply chains work, especially in electronics, this is a serious blow.
Samsung’s de facto boss, Lee Jae-yong, rushed to Tokyo for talks with suppliers. Samsung is also drawing up contingency plans. It and other ROK chipmakers are thought to have enough supplies for a few weeks, but thereafter problems loom if this dispute is not settled.
Instead it may well get worse. Japan also threatens to take South Korea off a wider ‘white list’ of some 850 strategic items, meaning that each of these too would require specific permission for Japanese firms to export. That would greatly amplify and extend the disruption.
Already the ripples are spreading. South Koreans are organizing boycotts of Japanese goods. Tour companies are canceling vacations in Japan. Hong Nam-ki, the ROK finance and economy minister, has warned that this dispute could dent economic growth.
His president struck a more defiant note. On July 15 Moon Jae-in warned Tokyo that it will be the ultimate loser, while calling for ROK firms to reduce their dependence on Japan. The former is doubtful – this dispute is lose-lose for all concerned – while the latter is easier said than done, especially at short notice.
GSOMIA AT RISK AGAIN?
The row is also impacting security. Veterans of ROK-Japan spats will remember, and experts already know, the acronym GSOMIA (General Security of Military Information Agreement).
Basically it is about sharing intelligence. Allies tend to have GSOMIAs. Japan and the ROK have one, but boy it took some doing.
Their first ever post-war military accord, this was first pushed by Lee Myung-bak in 2012 – until he bottled out at the last minute, fearing a domestic backlash. It took four more years for Park Geun-hye to get this through, in 2016.
But if passions rise, demagogues in either country may call for an end to sharing secrets with their perfidious neighbor. You sow dragons’ teeth, this is what you reap.
Tokyo’s frustration is understandable. Yet for Abe to take a leaf out of Trump’s playbook – national security, bah humbug – is a dangerous miscalculation.
Has Japan learned nothing about Korean psychology? If even impoverished North Korea remains defiant after 13 years of ever-tighter UNSC sanctions, does he really think Moon will buckle just to keep Samsung’s supply chain ticking? That would be political suicide for any ROK leader, of whatever persuasion.
South Korea’s left and right loathe each other. Yet Japan’s action prompted the first meeting of leaders of all political parties, both government and opposition, in over a year. And guess what? They all rallied behind Moon, even the conservatives who can’t abide him.
Meanwhile each country dismisses the other’s solution on the wartime labor issue. Japan wants third party arbitration, South Korea a joint compensation fund. Mediation is urgently needed.
In the past the U.S. would have got swiftly and quietly involved, but the Trump administration has been slow to act. It does now seem to be getting into gear, albeit with the rather startling suggestion of that well-known peacemaker John Bolton as honest broker.
This has zilch to do with North Korea – except that Kim Jong Un will of course gain from and exploit the rift between his enemies
Where is North Korea in all this? Kim Jong Un must be gloating. Pyongyang media have not said much, so far. Currently the DPRK is cross with both parties. Japan gets insulted almost daily, while the latest gripe with Seoul is upcoming joint maneuvers with the U.S.
However Uriminzokkiri did weigh in on July 13, supporting Korean compatriots. Under the crisp headline “A shameless act, the result of a lack of remorse for Tokyo’s historical wrong-doings,” the DPRK website averred that “Japan’s export restrictions derive from Abe’s wicked and vulgar mind to earn support of the right wing through taming South Korea by mimicking the US” – meaning Trump’s sanctions against China.
On July 18 KCNA joined the fray. Bottom line: “Japan has no say as it still remains in the dock of the court of history.” That arguably summarizes many Koreans’ default position.
Pyongyang may have more to say. Inter-Korean ties appear on ice at the moment, but in the past when they have bloomed – as in the sunshine era – giving Japan a kicking was often easy low-hanging fruit for the two Koreas to share, if hardly constructive or future-oriented.
Meanwhile if the GSOMIA goes, that will weaken co-ordination on handling North Korea.
To end on a slightly wild note: After China and South Korea took the then radical step of opening diplomatic relations in 1992, this gave space for their jilted ex-partners to cautiously explore each other. Taiwan and North Korea have had intermittent business dealings ever since.
Abe is now the only regional leader not to have held a summit with Kim Jong Un. Despite his hard-line stance, Japan’s premier has several times admitted he would like one. Maybe Kim will grant him that – if the price is right – just to show how he can play off all against all.
In this ever more Hobbesian milieu, anything is possible. But what is certain is that a trade war between Japan and South Korea is an unmitigated disaster, politically and economically. It will impoverish both countries (and potentially others), while further poisoning political ties and inhibiting security co-operation.
Someone needs to find an exit ramp, and fast.
Edited by James Fretwell and Oliver Hotham
Featured image: Blue House
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