<President Moon Jae-in speaks about Japan’s export curbs to Korea during a meeting with economic and business leaders at Cheong Wa Dae on July 10. (Photos on the courtesy of Cheong Wa Dae website)>

Korean-Japanese relations have soured to their lowest level in decades, reaching the point where the Japanese government imposed export curbs on three important raw materials to Korea. The Korean and Japanese governments are showing no sign of budging.

President Moon Jae-in raised a “two-top diplomacy” issue in a cabinet meeting on July 16, in which Prime Minister Lee Nak-yeon, a seasoned Japan policy expert, is expected to help break the stalemate in the Korean-Japanese ties. President Moon’s statement may be a good omen for a diplomatic solution. Speculation has surfaced that Prime Minister Lee could be dispatched as a special presidential envoy to Japan. He is scheduled to participate in the Easter Economic Forum in Vladivostok, Russia, from Sept. 4 to 6 for a possible meeting with Japanese Prime Minister Shinzo Abe.

In a Korean-Japanese forum held at Keio University on July 16, Korean Ambassador to Japan Nam Kwan-pyo said the Korean government would make every effort to communicate via all channels such as summit talks to normalize Korean-Japanese ties as soon as possible, and put them on a future-forward track.

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 at the predecessor of the Japanese company during Japan’s colonial rule over Korea in October 2018.

<President Moon Jae-in shakes hands with Japanese Prime Minister Shizo Abe at a reception meeting of G20 Osaka Summit in Osaka on June 28. >

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

Any attempts to seize Mitsubishi Heavy Industries’ assets in Korea are expected to make things worse, as the Japanese government had threatened to retaliate.

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

The Korean government has remained silent to Japan’s call for diplomatic discussions on court rulings on past colonial issues, made in January, distancing itself from the court verdicts.

President Moon and Japanese Prime Minister Shizo 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 diplomatic solutions. Prime Minister Abe declared “a free and open economy” during the G-20 meeting in Osaka, but two days later, Mr. Abe retaliated by limiting Korea’s procuring of Japanese chemicals, essential for the Korean chip-making and other industries. He took a cue from U.S. President Donald Trump, who imposed economic sanctions against Chinese tech company Huawei, citing national security risks.

President Moon categorized Japan’s export restrictions as retaliation against Korea’s Supreme Court ruling against forced laborers. But in a regular news conference on July 16, Japanese Chief Cabinet Secretary Yoshihide Suga denied President Moon’s comment, saying that Japan’s exports curbs were designed to review the proper management of exports for national security.

Korean and international experts have shared 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.

Mr. Abe has been accused for having exploited the issue to rally his conservative supporters during the Japanese House of Councilors election, to be held on July 21.

<Minister of Trade, Industry and Energy Sung Yun-mo holds an urgent news briefing at Seoul Government Complex on July 9 in which he dismissed Japan’s claim of its hydrogen fluoride exports to Korea, which were diverted clandestinely to North Korea, groundless. Japan has imposed its export curbs to hydrogen fluoride, called etching gas, essential for chip-making and two other raw materials to Korea. >

Samsung Asked to Brace for Expanding of Japanese Export Curbs to Korea

Samsung Electronics Vice Chairman Lee Jay-yong convened an emergency presidents’ meeting one day after he returned from his trip to Japan between July 7 and July 12 and ordered a contingency plan against Japan’s expanding of curbs on exports to Korea.

In the meeting on July 13 Vice Chairman Lee presided over, he declared an “emergency management” situation. He told participants that Samsung Electronics should plan for the probability that Japan’s export curbs have an adverse effect on the company’s supply chain for the manufacture of products such as smartphones and TVs. In the meeting, they discussed ways of diversifying procurement sources of key materials and substances of semiconductors and display products to China, Taiwan and Russia.

Among the CEOs on hand at the weekend meeting were President Kim Ki-nam of Samsung Electronics Display Solutions Business, President Jin Gyo-young of Samsung Electronics Memory Business, President Kang In-yup of Samsung Electronics System LSI Business, and President Lee Dong-hoon of Samsung Electronics Display Business. Vice Chairman Lee left for Japan on a business trip on July 7 as Japan imposed restrictions on three key materials – fluorinated polyimides, a transparent film for displays, as well as photoresist and hydrogen fluoride, essential for chip-making processes and returned home on July 12.

<Deputy National Security Advisor Kim Hyun-chong, who visited Washington, D.C. for U.S.’s help in solving Korean-Japanese rift on July 10.>

<Minister for Trade Yoo Myung-hee, who left for the United States to discuss Japan’s export curbs to Korea on July 23.>

<Deputy Minister Kim Seung-ho of the Office of International Trade and Legal Affairs at the Ministry of Trade, Industry and Energy, leaving for Geneva for meetings at the World Trade Organization.>

Vice Chairman Lee expressed worry over Japan’s possible expanding of export curbs during the meeting, sources familiar to the matter said. He told the participants that Samsung Electronics should not just scramble to cope with pending issues in a short-term perspective, but also cultivate an insight into a big picture in global management environment trends.

Lee stressed the need for developing the capabilities to lead markets without wavering by working out regimes in which the company can nimbly cope with changes, according to the sources.

During his trip to Japan, Lee met with Japanese business and financial officials with whom he had been well acquainted, the sources said. Samsung Electronics secured enough emergency supplies of the three key materials to avoid stopping the production of chip and display plants. The extra supplies are enough to avoid suspending plants, but if Japan’s export curbs are maintained for a few months, the sources said it is impossible to prevent a production disruption.

Furthermore, the Japanese government had threatened to remove Seoul from its list of countries subject to eased customs shipping-clearance procedures when importing goods from Japan. It is feared to cause even greater damage to Korean industries depending too much on Japanese imports.

Officials inside and outside Samsung Electronics said Vice Chairman Lee’s convening of the emergency presidents’ meeting meant the fact that Samsung Electronics felt a crisis from a “perfect storm” the company has never seen before. Samsung Electronics is facing unfavorable issues such as a tech “cold war” between the United States and China, the possible collapse of international tech supply chains, caused by a rift between Korea and Japan, and the prosecution’s pending investigation into rigged accounting of Samsung Biologics.