Solving tensions between Korea and Japan and influencing the technology industry worth tens of billions of USD between the two parties

Japan said it is tightening export controls on high-tech materials used in monitors and smartphone chips to Korea, amid escalating tensions in bilateral relations due to controversy surrounding. Forcing Koreans to work for Japanese companies during World War II.

But why does Japan tighten up its exports of these materials, how important are they in trade between the two countries?

What types of materials are restricted for export and what are they used for?

Export restrictions are valid for 3 types of materials: Fluorinate Polyimide, contrast agents and Hydrogen Fluoride.

Fluorinated Polyimides are synthetic resins used as substrates in flexible OLED displays. Contrast materials are thin layers of material used to print chip layout circuits on a semiconductor disk surface. Meanwhile, Hydrogen Fluoride is used as a corrosive gas in the chip manufacturing process.

Why are these materials so important?

According to market research firms, Japan is now a 90% producer of Fluorinated Polyimide and 70% of global corrosive gas. It also produces about 90% of the contrast material. Therefore, restricting the export of these materials will make it difficult for Korean chip makers to find alternative supplies.

A source from one of South Korea’s leading memory chip makers said that chip makers tried to build stockpiles, adding that they depend on Japan for more than 70. % the amount of dye and corrosive gases imported from this country.

Which firms will be affected by this export restriction?

Most Korean tech giants, including Samsung Electronics, SK Hynix and LG Display, will be affected by this export restriction. Not only that, suppliers of these Japanese materials will also be affected.

In the first 5 months of this year, Korea imported USD 103.52 million of contrast material (accounting for more than 90% of Korea’s import share for this material), USD 28.44 million of Hydrogen Fluoride ( accounting for 43.9% of Korea’s import demand) and USD 12.14 million of Fluorinated Polyimides (accounting for nearly 94% of Korea’s import demand) from Japan.

Meanwhile, Korea is also a major export partner for these Japanese materials. Exports to Korea accounted for 11.6% of export value for contrast material, 85.9% for corrosive gas and 22.5% for Fluorinated Polyimides.

According to Nikkei magazine, Japanese suppliers for contrast materials are JSR, Tokyo Ohka Kogyo and Shin-Etsu Chemical. The corrosive gas suppliers are Showa Denko KK. In addition, Kanto Denka Kogyo, a manufacturer of fluoride-related chemicals is also affected by this export restriction.

How will export restrictions take place?

A Japanese government official said that the country will stop preferential treatment for shipments of these three materials to South Korea and will require exporters to have a license to export goods. Usually will take 90 days to receive.

Memory chips of Korean manufacturers will be severely affected by this export restriction.

Japan also plans to remove South Korea from the White List under trade control laws, when Japanese exporters will have to have licenses for products that can be used in the Application related to weapons.

Currently, the white list of Japan has 27 countries, including notable countries such as Germany, Korea, Britain and the United States.

What are the reasons for these moves?

Tokyo has been disappointed that South Korea lacks action on issues arising from the Supreme Court’s ruling in October last year, forcing a Japanese company, Nippon Steel, to compensate the Japanese. Korean forced labor during World War II.

Japan has rejected Korea’s proposal to create a common compensation fund for victims with contributions from companies from both countries. Japan said that compensation for forced labor has been completed since 1965 when the two countries restored diplomatic relations. They called for the establishment of an arbitration committee on this issue.

South Korea believes that Japanese moves are a violation of WTO rules, and said it will take necessary retaliatory measures, including filing a complaint. Japan affirmed its moves did not violate WTO rules.

Refer to Reuters