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Thaw in trade war as Japan allows export of computer chip material to South Korea

The 2 countries have been in a bitter trade war since last month when Japan imposed export controls on 3 essential chemicals used to make memory chips, which is among Korea’s top exports.

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New Delhi: Japan Thursday approved shipments of materials essential for South Korea’s production of computer chips, in efforts to ease concerns about disruption of global supply chains.

Japan last month imposed export controls on three essential chemicals used to make memory chips and display panels, which are among South Korea’s top exports. 

Japan also removed South Korea from its ‘white list’ of trade partners, meaning that South Korean goods are no longer considered ‘trusted’ and will have to go through additional security checks. Downgrading ‘white status’ still leaves South Korea on the same level as China, Taiwan and Singapore.

In response, Koreans have been boycotting Japanese goods including cars, clothing, and cigarettes. Many are cancelling their vacations to Japan, and some gas stations are refusing to service Japanese cars.

One man went viral last month after smashing his Toyota with a hammer. He now rides the bus to work every day, but told the Financial Times he does not regret his decision.

Japan cites ‘security concerns’

Japan cited ‘national security concerns’ as the reason for the downgrade, stating that South Korea’s vetting process is not secure enough for the chemicals they import. The chemicals that Japan has imposed restrictions on are used in the production of nuclear weapons, and Japan implied that they have been allowed to enter North Korea via the South.

This makes Japan the third country after the US and China to use national security to weaponize trade relations. Financial analysts generally recommend against allowing politics to dictate trade, as it can hurt domestic businesses.

Japan and South Korea depend on each other for economic prosperity: South Korea sends skilled labour to Japan, which is grappling with an ageing population and population decline, while Japan sends South Korea essential chemicals and semiconductors for their booming tech industry.

Companies such as Samsung have started stockpiling Japanese parts while South Korean President Moon Jae-in tries to grow domestic manufacturing to reduce dependency, however, this may take some time. Japanese businesses have also been hurt by the move, losing one of their top export partners.

How did the dispute begin?

The dispute began last October when a South Korean court ordered a Japanese steelmaker to compensate Korean labourers that were forced to work for Japanese companies during Japan’s occupation of the Korean Peninsula in World War II. 

Japan denounced the ruling, believing that reparations were resolved with bilateral governmental agreements. However, the court ruled that there was nothing in those agreements or international law that prevents individuals from seeking redress.

The court ruling set a precedent for other forced labourers and sex workers to make reparation claims. Over 300 companies have been accused of using forced labour, and if victims bring claims it could be devastating for Japanese businesses.

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