Japan Escalates Trade War against Korea over Historical Issues
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Japan Escalates Trade War against Korea over Historical Issues
Korea calls for PM Abe govt. to cancel Japan's export curbs on Korea and sort historical rift out diplomatically

25(Sun), Aug, 2019

President Moon Jae-in delivers a speech to mark the 74th National Liberation Day at Independence Hall of Korea in Cheonan, Chungcheongnam-do,on Aug. 15. (Photo on the courtesy of Cheong Wa Dae website)

Korean-Japanese relations have deteriorated to the lowest-ever post-war level as the Japanese government removed Korea from a white list of countries subject to eased customs shipping-clearance procedures when importing goods from Japan, representing additional export curbs to Korea, on Aug. 2.

On the same day, President Moon Jae-in expressed deep regret over Japan’s step to delist Korea from the white list, saying that the action was a reckless decision by Japan, refusing diplomatic efforts to sort it out and worsening the situation.

Prime Minister Lee Nak-yeon.

Following a joint inter-ministry meeting on Aug. 2 Prime Minister Lee Nak-yeon issued a government statement, strongly calling for Japan to retract its retaliatory trade measures against Korea.

In a speech to mark the 74th National Liberation Day at Independence Hall of Korea in Cheonan, Chungcheongnam-do, on Aug. 15, President Moon called for dialogue and cooperation with Japan, saying, “East Asia had lagged behind in the process of modernization, but once again rose to achieve economic development through the division of labor and collaboration.”

“Within the international division of labor, if any country weaponizes a sector where it has a comparative advantage, the peaceful free trade order will inevitably suffer damages. A country that achieved growth first must not kick the ladder away while others are following in its footsteps,” President Moon said.

The president added: “Better late than never: if Japan chooses the path of dialogue and cooperation, we will gladly join hands. We will strive with Japan to create an East Asia that engages in fair trade and cooperation.

“Following last year’s PyeongChang Winter Olympics, the Tokyo Summer Olympics will be held next year while the Beijing Winter Olympics are slated for 2022. This will mark an unprecedented series of Olympics held in East Asia. It will be a golden opportunity for East Asia to solidify the framework of friendship and cooperation and to progress along the path toward common prosperity.”

President Moon said, “However, we have yet to become an unshakable nation. That is because we still lack sufficient strength and remain divided.” “Today, I renew my commitment to meeting the aspirations of the people to build an unshakable nation by reminding myself of our people who have demonstrated remarkable resilience in the face of a series of crises.”

National Assembly Speaker Moon Hee-sasng sent to the National Diet of Japan and Japanese Prime Minister Abe’s Cabinet on Aug. 5 a resolution calling for the revoking of the Japan government’s retaliatory export restrictions against Korea, which was approved by the National Assembly’s plenary session unanimously on Aug. 2.

In the statement, the National Assembly urged Japan to turn to diplomatic solutions to reestablish future-oriented relationships of the two governments, expressing worry that the protracted of Korean-Japanese rift and the spreading of economic damanges would be feared to undermine friendly ties of the two countries.

In return for Japan’s additional export curbs to Korea, Seoul decided to remove Japan from the white list of countries subject to eased customs clearance.

Japan’s successive export curbs or Korea sent the Korean government, the ruling party and Cheong Wa Dae to work out steps to reduce Korea’s dependence on Japanese raw materials, substances, parts and equipment imports as part of countermeasures to mitigate the impact Japan’s export curbs to Korea would bring about.

The government, the presidential office and the ruling Democratic Party of Korea convened a tripartite meeting on Aug. 4 and decided to mobilize diverse policy steps, including tax credits, budgetary and financial support, to ramp up the competitiveness of Korean raw materials, parts and equipment industries, including nurturing 100 companies specializing in raw materials, parts and equipment.

Japanese export curbs on Korea have fueled anti-Japanese sentiment in Korea, causing boycotts of Japanese products and urging Korean travelers to refrain from touring Japan. The Japanese Foreign Ministry also issued an advisory toward Japanese travelers in Korea, citing the tense anti-Japanese sentiment on Aug. 4.

Korean-Japanese relations began to further sour as the Japanese Prime Minister Shinzo Abe government imposed export curbs on three raw materials, including etching gas, prompting Korean chipmakers and panel producers to secure their raw material supplies.

Korean Foreign Minister Kang Kyung-hwa and Japanese counterpart Taro Kono failed to iron out their differences in last-minute talks on the sidelines of the ASEAN Regional Forum held in Bangkok on Aug. 1. Despite the U.S. call for a standstill deal, the Japanese government imposed more export curbs to Korea.

Korean-Japanese ties have worsened since Korea’s Supreme Court issued a ruling ordering Nippon Steel to compensate a Korean man who was a forced laborer for the predecessor of the Japanese company during Japan’s colonial rule over Korea.

The Japanese side refused to comply with the order, citing a treaty signed by Korean and Japanese governments in 1965 had wrapped up all compensation issues, including forced labor. Later, the court ordered the seizure of some of the Japanese company’s Korean assets. Similar lawsuits are in the queue.

The worsening of Korean-Japanese relations spilled over into the economic sector in which Korean chipmakers such as Samsung Electronics and SK Hynix, have been held hostage by the historical stalemate.

President Moon and Japanese Prime Minister Abe met briefly at a reception for the G20 Osaka Summit on June 28-29, but failed to hold summit talks to try to find a diplomatic solution. Prime Minister Abe ironically declared “a free and open economy” during the G-20 meeting in Osaka, and just two days later the leader imposed trade curbs on Korea. Japan has denied that the exports curbs are retaliation for the Korean Supreme Court’s ruling, and tearing a page out of U.S. President Donald Trump’s playbook by saying the moves are related to “national security.”

Korean and international experts share the view that the escalating trade dispute between Korea and Japan may disrupt the supply chain of the global tech industry and undermine free trade principles of the General Agreement on Tariffs and Trade (GATT) and the Word Trade Organization (WTO). They have warned against weaponizing non-trade issues to pressure other countries.

Prof. Yuji Hosaka of King Sejong University Liberal Arts Department

Prof. Yuji Hosaka of King Sejong University Liberal Arts Department, a Japanese-born and naturalized Korean, was quoted in an interview with BreakNews as saying that, “it is not easy to predict how economic retaliation would end up.”

In a retaliation trade war between the United States and China, the United States chose to a ceasefire without continuing to push China since it caused damages to American farmers, threatening rural support for U.S. President Donald Trump’s bid for reelection.

Prof. Hosaka said Japan is the same, and Korea would receive greater damages temporarily, but if it is prolonged, it would not only cause economic disruptions to Korea and Japan, but also to the global economy. Korea needs to cope with the Korean-Japanese rift in a wise fashion and take a mid- to long-term perspective, since the Japanese Prime Minister Abe government would not revoke export curbs right now, Hosaka was quoted as saying.

National Assembly Speaker Moon Hee-sang,: Chairman Lee Hae-chan of the ruling Democratic Party of Korea,; Chairman Hwang Kyo-ahn of the opposition Liberty Korea Party,; Chairman Sohn Hak-kyu of the Barunmirae Party,; Chairman Shim Sang-jung of the Justice Party,; Chairman Chung Dong-young of the Party for Democracy and Peace pose together during a luncheon on Aug. 12.

Govt. to Transform Korean Raw Materials, Parts & Equipment Industries

Deputy Prime Minister-MOEF Minister Hong Nam-ki

Deputy Prime Minister-MOEF Minister Hong Nam-ki said the number of strategic materials subject to the delisting of Japan’s white list stands at 1,194, of which 159 are expected to be affected.

The 159 items would be put in a “management item” category to take countermeasures in consideration of their dependence on Japanese imports, other spill-over effects and the probability of replacing them with Korean-made goods.

Deputy Prime Minister Hong said Korea would strongly convey the message through various channels that Japan rescind its steps and resume bilateral negotiations. Even though diplomatic efforts would be made for solutions down the line, he said the Korean government plans to strengthen measures to ensure people’s safety in areas such as tourism, food and waste.

Noting that Japan’s export restrictions violate WTO regulations, he said, Korea would take its complaint against Japanese trade curbs to the WTO panel.

Minister of Trade, Industry and Energy Sung Yun-mo

In a related development, Minister of Trade, Industry and Energy Sung Yun-mo unveiled a plan to transform the Korean raw materials, parts and equipment industries from a “cormorant” paradigm to “pelican” one. He made the remarks while announcing inter-ministry steps to counter Japan’s export curbs at the Government Seoul Complex on Aug. 5.

“The Korean raw materials, parts and equipment industries are called cormorants,” Minister Sung said. “If we all join forces, we can tide them over fully and the cormorants of the past can be changed to the pelican of the future,” he added.

He compared Korea’s dependence on imported raw materials, parts and equipment to “cormorant fishing” in which a great portion of the gains accruing from Korean finished good exports slip to Japan. In cormorant fishing, cormorants are used to catch fish, but to prevent them from swallowing it whereas the pelican has the habit of storing the fish it catches in its beak and bring it to feed its chicks.

An enactment of a special law on raw materials and parts in 2001 allowed Korea to achieve explosive growth in production and exports, but the related industries have failed to yield substantive fruits in securing core technologies and localizing raw materials and parts.

Comparing future raw materials, parts and equipment industries to the “pelican” of the future, Minister Sung expressed his determination to create added value to earn spill-over effects for other industries.

“The reality is now that we face greater troubles, caused by uncertainties, but the Korean government still believes in the inner strength the Korean economy and industry have overcome numerous crises, and it has a strong determination to put into practice these steps,” he said.

Minister Sung said the government will focus on providing support to ensure a stable supply of 100 core strategic items. The government will concentrate on stabilizing supplies of 30 items essential for the supply of mainstay and new industries through diverse methods such as support focusing on R&D, the adopting of massive support tactics, and M&As.

Minister Sung attached focus to creating collaboration models among companies. Close cooperation between demand companies and supply firms has failed to live up to expectations, thus leading to a failure in creating a supply chain in Korea.

Demonstrators chant in front of the Japan Embassy in downtown Seoul to protest against Japan’s export curbs on Korea on July 25.

Companies participating in cooperation models will be given a package of strong inter-ministry support such as site location, tax benefits and preferential treatment. The government will inaugurate a competitiveness committee to implement collaboration models, and it plans to revise a special law on raw materials and parts so that it would include equipment and change the special law into a regular one.

Meanwhile, it remains to be seen when the Korean-Japanese rift will be further escalated or eased. Korean authorities are reviewing the possibility of ending the General Security of Military Information Agreement with Japan, which is automatically renewed every late August unless either side objects.

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