Korea Turns to Localization to Cope with Japanese Export Curbs
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Korea Turns to Localization to Cope with Japanese Export Curbs
Govt, Private Sector join forces to cope with export curbs Japan has imposed over historical issues

24(Tue), Sep, 2019




Minister of Trade, Industry and Energy Sung Yun-mo, Minister Yoo Young-min of the Ministry of Science and ICT, Minister. Park Young-sun of the Ministry of SMEs and Startups(MSS) and other government agency leaders attend a news briefing at the Seoul Government Complex in Saejongro, downtown Seoul, on Aug. 5 to take inter-ministry steps to ramp up the competiveness of the Korean raw materials, parts and equipment industries to reduce the nation’s dependence on Japanese-made imports. (Photo: MOTIE)




Korea is accelerating efforts to escape its dependence on Japanese-made raw materials, parts and equipment in the wake of Japan’s recent export curbs.


The move comes as the Japanese Prime Minister Shinzo Abe government imposed export curbs involving three raw materials, including etching gas, forcing Korean chipmakers and panel producers to find a way to secure their raw material supplies elsewhere, and it subsequently removed Korea from a white list of countries subject to eased customs shipping-clearance procedures when importing goods from Japan, effective on Aug. 28, as Japan escalated a trade war with Korea over historical issues.


Japan’s successive export curbs against Korea have convinced Korea that steps are needed to reduce Korea’s dependence on Japanese raw materials, substances, parts and equipment imports.


The Korean government is playing a more active role in venturing into R&D activities to localize the domestic raw materials, parts and equipment industries. Prime Minister Lee Nak-yeon convened an expanded ministers’ meeting of related ministries, including the Ministry of Science and ICT (MSIT), to cope with Japan’s export curbs. They finalized R&D investment strategies related to the raw materials, parts and equipment industries.


The government targets designating 100 core items, which will be classified into four categories, including items with higher domestic technology levels and a higher probability of diversifying imports, and offer R&D tailored to meet their needs to foster localization. The government concluded that the private sector-oriented R&D structure was to blame for the over- dependence on Japanese imports.


“As the government has so far concentrated its R&D on future industries, industries such as semiconductors and displays have been neglected, so (the government) has decided to strengthen fundamentals of mainstay industries as steps to counter Japan’s export restrictions,” said Deputy Minister Kim Sung-soo of the Science, Technology and Innovation Office at the MSIT.




Govt. IR Session to Attract FDIs on Sidelines of International Motor Show Germany


The government held an IR session to attract direct investments from Germany, which is a raw materials, parts and equipment powerhouse, to reduce Korea’s dependence on Japanese imports. The session took place in Frankfurt between Sept. 19 and Sept. 20 on the sidelines of the 2019 Motor Show Germany. The Ministry of Trade, Industry and Energy (MOTIE) teamed up with KOTRA and the Korea Raw materials & Parts Investors Consultation Committee to host the FDI attraction session.


The government strives to provide full support for localization to secure a stable supply of raw materials, parts and equipment, while attracting FDIs on items whose commercialization cannot be achieved in a short period of time.


The Korean investment team selected Germany as the first destination for their activities because the country is a raw materials, parts and equipment powerhouse, with a more competitive edge than Japan.


Figures show that Germany and Japan took up a 9.3 percent share and a 5.8 percent share in the global raw materials, parts and equipment markets, respectively.


The IR session targeted global players in the semiconductor, display, chemical materials and future car fields who were participating in the 2019 International Motor Show Germany.


Merck, a global liquid crystal materials maker, Heraeus, a semiconductor wire and liquid crystal materials company, Siltronic, one of the world's top suppliers of silicon wafers; Basf, Lanxess, and Solvay participated in the Korean government IR session, which followed one-on-one meetings.


Heraeus President Bernd Stenger said at the session that Korea is an attractive investment destination with strengths such as excellent manpower, IT infrastructure, and his company would consider more investments in Korea. Director-General Chung Dae-jin in charge of investment policy at the MOTIE said the Korean government will not spare efforts to provide support to investors in the raw materials, parts and equipment sectors.


Korean companies themselves have been stepping on the gas to localize raw materials, parts and equipment imports or diversify sources of their supply to escape the implications Japan’s exports curbs will have on them. For its part, Samsung Electronics began to utilize locally produced etching gas on some “less sensitive” chip lines.


In the past, the Korean electronics giant fully relied on Japanese etching gas with high purity. Samsung Electronics began to adopt etching gas, produced by SoulBrain and ENF Technology, using raw materials from China and Taiwan, instead of Japanese imports. The localized etching gas has been put into some chip processing lines requiring less purity.


LG Chem plans to cooperate with Korean companies to localize the supply chain for battery pouch films, for which the chemical company currently depends on imports from Japan. Korean battery makers like LG Chem, SK Innovation and Samsung SDI are accelerating efforts to ensure technology self-efficiency. At a speech at the Korea Advanced Battery Conference 2019 held at COEX in Samseong-dong, Seoul, on Aug. 28, President Kim Myung-hwan of LG Chem’s Battery Research Center said LG Chem would push for localizing battery pouch film in collaboration with Korean companies, including YoulChon Chemical.


Hyosung Group announced a plan on Aug. 20 to plunk down 1 trillion won into the carbon textile segment over the next 10 years. The move comes as Hyosung’ is trying not only to secure carbon textiles as its new growth engine, but also to overcome Korea’s over dependence on Japanese-made raw materials and part imports.







Korea Needs to Learn Lessons from Past Trade Embargoes


Chairman Kim Ki-mun of the Korea Federation of SMEs said Japan’s exports restrictions could damage all parties.


Korean companies are hit hardest and fastest, but they could boomerang: Japanese companies would subsequently lose long-term demand, a point that cannot be ignored in the globalized era of labor division and collaboration, he said. He made the comments in a local business daily column.


When a crisis is overcome with hard work, Chairman Kim said it will put Korea in a position to make another leap forward. He cited Koreans’ resilience in overcoming numerous hardships, including the Han River Miracle rising from ashes of the Korean War and the 1997 Asian financial crisis, which promoted golf-collection drive among the Korean public.


Korean and international experts share the view that Japan’s export curbs 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.


Of late, rare earths and soybeans have been the subject of scrutiny as a U.S. trade war with China has turned into a tit-for-tat. Japan itself suffered a severe shock as China imposed an export embargo on rare earths following a collision between the two countries over territorial disputes over Senkaku Islands in 2010. China scrapped the ban after a WTO panel ruled that the country violated international trade regulations.


In 1973, the United States, banned soybean exports to Japan, a close ally, temporarily. The soybean supply shock convinced Japan to diversity its source to Brazil.


During the current trade war between the United States and China, the United States chose a ceasefire instead of continuing to push China, since it caused damage to American farmers, threatening rural support for U.S. President Donald Trump’s bid for reelection.


Prof. Hosaka said there are parallels with the standoff between Korea and Japan. Korea, he said, would receive greater damage temporarily, but a prolonged standoff would not only cause economic disruptions to Korea and Japan, but to the global economy.


Korea needs to cope with the rift in a wise fashion and take a mid- to long-term perspective, since the Abe government is unlikely to revoke export curbs any time soon, Hosaka was quoted as saying.


Korean-Japanese ties started to worsen after 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.


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 a “pelican” one. He made the remarks while announcing inter-ministry steps to counter Japan’s export curbs at 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 accrued slipped 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 bringing it back to its chicks.




   
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