July 4, 2019 / 12:00 AM / 2 months ago

South Korea says may retaliate against Japan high-tech export curbs

SEOUL (Reuters) - South Korea said on Thursday it may retaliate against Japan’s latest export limits on high-tech materials, as a row over forced wartime labor threatened to disrupt global supplies of memory chips and smartphones.

FILE PHOTO: The logo of Samsung Electronics is pictured at the company's factory in Tijuana, Mexico, June 1, 2019. REUTERS/Jorge Duenes/File Photo

Samsung Electronics Co (005930.KS) and SK Hynix Inc (000660.KS) - the world’s top memory chipmakers, and suppliers to Apple (AAPL.O) and China’s Huawei Technologies - could face delays if the measures that took effect on Thursday drag on.

“Implementing corresponding measures against Japan cannot be ruled out,” Finance Minister Hong Nam-ki told South Korea radio. He said the trade row could cause “unfortunate damage to both Korean and Japanese economies”.

The dispute is the latest flashpoint in a quarrel over South Korean efforts to seek compensation for Japan’s use of forced wartime labor, which got fresh impetus from South Korean court rulings last year.

The curbs on exports of three materials used in South Korean chips and smartphone displays, which Japan had announced on Monday, will disrupt the global supply chain, South Korea’s trade minister said.

Japan accounts for 70%-90% of the production of the three materials, Japanese media have said, making it difficult for South Korean chipmakers to find alternative sources of supply.

“It will pose a huge uncertainty and threat to the global economy by shaking up the global supply chain,” Trade Minister Yoo Myung-hee told a meeting of industry groups on Thursday.

South Korea’s presidential office said on Thursday that it plans to actively seek diplomatic countermeasures, including complaining to the World Trade Organization (WTO) against the “retaliatory” export curbs.

“We will explain to major countries about the unfairness of Japan’s action, and the fact that this violates the principle of free trade,” Yoon Do-han, press secretary to the President, said in a statement.

Finance Minister Hong had said it would take a long time to get a WTO ruling on the dispute.

The row exploded late last year when South Korean court rulings ordered Japan’s Nippon Steel & Sumitomo Metal Corp (5401.T) and Mitsubishi Heavy Industries Ltd to pay hundreds of thousands of dollars to South Korean plaintiffs.

Japan denounced the court verdicts as “unthinkable”.

The two countries share a bitter history that includes Japan’s 1910-45 colonization of the Korean peninsula and the use of comfort women, Japan’s euphemism for girls and women, many of them Korean, forced to work in its wartime brothels.

FIGHT JUST STARTING

Both sides showed no signs of backing down in the trade dispute.

Kyodo News Agency reported on Tuesday that Japan was considering expanding its export controls to more items bound for South Korea.

The leader of South Korea’s ruling Democratic Party, Lee Hae-chan, said: “This fight is just in the beginning, not the end”.

The items affected by Japan’s curbs include photoresists and hydrogen fluoride, both essential materials in the chipmaking process at Samsung and SK Hynix.

Cranes and containers at an industrial port are seen through a fence in Tokyo, Japan, February 22, 2019.

Samsung was reviewing measures to minimize the impact on its production, the company told Reuters.

SK Hynix declined to comment. The company sent a letter to its clients on Tuesday saying it could handle the current situation in the short term, but there would be problems if the curbs dragged on, a source with knowledge of the matter said.

“Without these materials, which South Korean chipmakers rely on mostly from Japan, the whole process of semiconductor manufacturing can be in trouble,” the source said, asking for anonymity due to the sensitivity of the matter.

Reporting by Joori Roh, Choonsik Yoo, Ju-min Park, Additional reporting by Sangmi Cha, Heekyong Yang and Hyunjoo Jin; Editing by Richard Borsuk, Darren Schuettler and Muralikumar Anantharaman

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