Uneasy NEIGHBOURS
Worsening trade dispute that arose from decades-old historical tensions worries friends of Japan and South Korea. By Ken Lohatepanont and Erich Parpart
● Whenever North Korea fires missiles across the Korean peninsula and into the sea, condemnation from South Korea and neighbouring Japan is sure to follow. But last Tuesday, when Pyongyang conducted its fourth such test in two weeks — coinciding with US-South Korean military drills — scarcely a word was heard from Seoul or Tokyo.
Shinzo Abe and Moon Jae-in, it seems, were too busy feuding with each other to worry about the latest provocation from Kim Jong-un. The prime minister of Japan and the president of South Korea are locked in a dispute that is worrying their friends in Asia as well as their allies in the United States.
President Moon even went so far as to describe the escalating trade war with Japan as a wake-up call to revamp his country’s economy and explore more economic cooperation with the North instead.
“The advantage Japan’s economy has over us is the size of its economy and domestic market,” he said on Aug 5. “If the South and North could create a ‘peace economy’ through economic cooperation, we can catch up with Japan’s superiority in one burst.”
South Korea and Japan have had an uneasy relationship since the latter colonised the Korean peninsula from 1910 to 1945. Historical memory plays a significant negative role in their relations.
“Political leaders on both sides are tempted to use this issue to rally support at home,” Steven Vogel, a professor at the University of California, Berkeley and an expert on Japanese political economy, told Asia Focus. “They realise that they take a risk by making concessions, and they can galvanise their constituents by taking a tough stand.”
On the Korean side, anti-Japanese sentiment is passed down the generations, even as the generation that experienced Japanese occupation and war dies out. A recent survey showed that almost seven in 10 people in South Korea still feel negatively about Japan, he added.
“On the Japanese side, political leaders keep the issue [of historical memory] alive with occasional insensitive statements,” said Prof Vogel. Historical enmity aside, a new economic dimension has soured the relationship even further.
The trouble started when the South Korean Supreme Court ruled last year that the Japanese company Mitsubishi must compensate Korean forced-labour victims from seven decades ago. It also ordered 100 million won (around US$85,000) each in reparations for four wartime labourers at Nippon Steel.
Japan angrily condemned the ruling, stating that the 1965 treaty establishing diplomatic relations between the two countries had settled the issue. The concern in Japan is that the ruling could open the floodgates for other victims and their relatives, totalling 220,000, to file lawsuits against an estimated 300 Japanese companies accused of using forced labour during the occupation. Reparations could swell to $20 billion or more.
Public comments sent to the Japanese government show that about 90% of citizens agree that South Korea is no longer a reliable alliance partner. Among other things, they cite Seoul’s dubious conduct toward the North, with which President Moon hopes to forge a more normal relationship.
With the public on its side, and citing national security, Japan has retaliated by restricting exports of three crucial materials for manufacturing semiconductors to tech-heavy South Korea. Exports of the materials were worth $400 million last year.
Although the ban excludes chemical exports, it does require companies in Japan to acquire a licence before they can do so, which may lead to supply chain problems. Japan maintains that the chemicals could be used for military purposes, but the use of national security grounds to justify export controls worries some trade experts.
Japan last Thursday issued its first licence for exporting one of three chemicals that Samsung Electronics had requested a month earlier. Such approval could have taken up to 90 days, an official in Tokyo said, by way of showing that Japan was trying to be fair.
“Japan is the latest country to mix trade with politics, following the US and China,” Peter Kim, global strategist at Mirae Asset Daewoo in Seoul, told the Nikkei Asian Review.
“Very much like the ‘Entity List’ from the US aimed at China, the measure is part of a continuing global trend of weaponising trade at the expense of multilateral agreements and transparency.”
Moreover, Tokyo has removed South Korea from its “white list” of preferred export partners, This followed allegations that hydrogen fluoride was shipped to North Korea after being imported by South Korea, a claim the Seoul government denies.
Experts say the actions from Japan could disrupt global production of smartphones, computers and other electronics as
Japan makes up to 90% of the chemicals essential for producing memory chips, an industry South Korea dominates.
President Moon described Tokyo’s decision as “an unprecedented emergency”, while thousands of protesters marched in Seoul, accusing Japan of an “economic invasion”.
“This was a significant escalation that undermines Japan’s reputation as a defender of the liberal trade regime,” Prof Vogel said. “The deterioration in bilateral relations has both economic and security costs.”
Washington has also expressed concerns that Seoul-Tokyo tensions are threatening an intelligence-sharing agreement that the US considers crucial to monitoring North Korea’s nuclear development.
Not everyone in Japan is pleased with Mr Abe’s handling of the dispute. “[Shinzo Abe] has just insisted at the G-20 meeting that he would try his best to uphold global free trade,” said Ruka, a university student interviewed in Tokyo.
“It’s nonsense to try to resolve the political debate by limiting exports. I hope he holds discussions with President Moon, and that other countries along with international organisations can mediate between them.”
Nevertheless, a Nikkei-TV Tokyo survey published on July 29 found that 58% of respondents in Japan supported the export curbs on key semiconductor materials and only 20% opposed the policy.
The Bloomberg news agency weighed in with an editorial accusing Mr Abe of resorting to “the bullying tactics favoured by China and US President Donald Trump”, adding that it was “hypocritical for a leader who had, until now, had won well-deserved plaudits for strengthening the global trading order”.
South Korea has already taken the dispute to the World Trade Organization, arguing that other countries could be caught in the crossfire. “There are major concerns that such a move would have a grave impact on not only the economies in both countries, but the global supply chain,” said Lee Ho-hyeon, a director at the Trade Ministry.
In the wake of the trade war, anti-Japanese nationalism in South Korea has manifested itself in several ways. One Korean man died after setting fire to himself outside the Japanese embassy. His father-in-law had been a forced-labour victim.
“Japan has started a trade war with South Korea over a historical issue. But historical issues should be separated from economic issues,” said a Korean businessman in Thailand, asking not to be named because of the sensitivity of the issue.
“Moreover, Japan has been promoting a free trade policy. Japan’s economic retaliation is unprecedented and it will only escalate anti-Japanese sentiment in South Korea. If Japan does not withdraw retaliation soon, the situation will be worse for a long time. Most Koreans are now thinking ‘Korea will not lose to Japan ever again,’ as President Moon said [after Tokyo removed South Korea from its white list].”
Other Koreans have begun voting with their wallets by boycotting Japanese goods including beer. One grocery shop in Seoul posted a sign saying “This store does not sell Japanese products!”. Some petrol stations in Seoul are even refusing to service Japanese cars.
“We planned to go to Okinawa in August, but we changed our plan to Jeju,” the manager of a Seoul financial company told Nikkei. “My wife also told me not to go to Uniqlo anymore,” he added, referring to the Japanese clothing chain.
Uniqlo, meanwhile, was forced to apologise after its chief financial officer said the boycott would not last long enough to hurt sales.
reported otherwise, saying The Korea Herald Uniqlo’s sales in South Korea fell 30% last month. Outside Seoul, other cities such as Busan have chosen to suspend goodwill exchanges with Japan until the export curbs are lifted.
Besides smartphones and other electronics, sales of Japanese cars in South Korea are plunging. Toyota sales last month were down 32% from a year earlier and Honda sales were off 34%. Soyeon Bae, a South Korean citizen, told Asia
Focus that she feels there is “a fundamental shift among the younger Korean generation to view Japan as an unreliable partner”. She thinks Mr Abe has “opened a Pandora’s Box that will affect Northeast Asia for years to come.”
ESCALATION RISK
Things could worsen globally if the trade tensions drag on. Arin Jira, chairman of the Asean Business Advisory Council in Thailand, said he believes “there will be a similar economic impact” to that of the US-China trade war but on different sectors.
“The ripple effects on the regional electronics supply chains cannot be underestimated,” DBS economist Ma Tieying told the BBC in July. She said Apple, Huawei, Sony and others making smartphones, computers and televisions could suffer.
South Korea is the world’s second largest producer of semiconductors while Samsung and LG Electronics hold more than 90% of the global organic light-emitting diode (OLED) screen market.
“The price of memory components could significantly increase due to the inability of the other memory suppliers to meet global demand,” said Rajiv Biswas, Asia-Pacific chief economist at London-based IHS Markit.
According to Nikkei, Samsung is already feeling the heat, as are major chipmakers including SK Hynix. “It is one of the worst situations we have ever had,” a Samsung executive, who asked not to be named, told the Japanese publication. “Politicians take no responsibility for the mess, even though it has almost killed us.”
Samsung also acknowledged the challenges when it reported financial results on July 31. “We are facing difficulties due to the burden of this new export approval process, and the uncertainties that this new process would bring,” vice-president Lee Myung-jin said.
Ultimately, South Korean businesses may seek to reduce their dependence on Japan. In this regard, Japan offers an example: When China banned rare earth exports to Japan in 2010, the latter built a rare earth supply chain outside of China.
While South Korea’s “New Southern Policy” to shift its economic focus from mostly developed countries in Asia, North America and Europe to Southeast Asia is an encouraging development, the presence of major rivals such as China and Japan, which have already established strong ties with Asean, presents a major challenge, Paik Ungyu, Minister of Trade, Industry and Energy, told the Bangkok Post in June.
Still, that did not stop Seoul from asking for help from its regional partners to convince Japan to roll back export restrictions when officials gathered at the Asean-led foreign ministers’ meetings in Bangkok recently.
“South Korea’s strategy stressing the importance of free trade in the face of Japan’s trade restrictions nicely fits in with the ‘Asean spirit,’ particularly at a time when the association is emphasising the free trade principle all the more because it is suffering from the ongoing US-China trade dispute”, Choi Yoon-jung, a research fellow in the department of diplomatic strategy studies at the Sejong Institute, told the South China Morning Post.
Karl Friedhoff, fellow in public opinion and Asia policy at the Chicago Council on Global Affairs, told Nikkei that he is concerned that the dispute may drag on, harming both economies.
“The only way that this reaches some sort of short-term truce is if the Korean courts decide not to liquidate the seized assets of Japanese companies as reparations for Korean forced labourers, and Japan removes its export curbs,” he said.
“But that liquidation is going to take place, and when it does the genie will be well and truly out of the bottle. Japan will retaliate and both sides will then settle in for an extended battle which will make them both losers.”
The economic tensions also make trilateral cooperation between the US, South Korea and Japan even more difficult even as Washington seeks support from its allies in its superpower competition with China.
“The US has a major stake in improving this bilateral relationship, and it can help if it chooses because it has considerable leverage over both Japan and South Korea,” Prof Vogel pointed out.
Additionally, the recent conclusion of Japan’s upper house elections could give Mr Abe political space to restore ties. “The main thing that changes is that Japan is not facing another election soon, so that gives him a bit more room to manoeuvre,” he added.
“Politicians take no responsibility for the mess, even though it has almost killed us”
SAMSUNG ELECTRONICS EXECUTIVE