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|2019 Japan–South Korea trade dispute|
|Part of Japan–South Korea relations and Japan–Korea disputes|
"Boycott Japan" sticker on shop in Mokpo, South Korea
|Parties involved in trade dispute|
|Japan–South Korea trade dispute|
Japan–South Korea economic war
Japanese economic retaliation
|Kanji||日韓貿易紛争 or 日韓経済戦争|
|Hiragana||にっかんぼうえきふんそう or にっかんけいざいせんそう|
The 2019 Japan–South Korea trade dispute (Japanese: 2019年 日韓貿易紛争; Korean: 2019년 한일무역분쟁), sometimes also known as Japan–South Korea economic war, is an ongoing economic conflict between the world's third and eleventh largest national economies, Japan and South Korea.
The conflict was fuelled by the legacy of World War II, and the ruling of the Supreme Court of South Korea which ruled in October and November 2018 that 10 forced labour victims were able to claim compensation from many Japanese companies.
The cause of the conflict was officially cited by the Japanese government as the South Korean government allegedly not complying with export control security regulations and ignoring the Japanese government's request to have a bilateral trade dialogue for three years, but it was also characterized by a dispute over legacy of Japanese colonialism of the Korean Peninsula from 1910 to 1945, particularly the issue of "forced labour" and comfort women compensation. The trade dispute has caused a significant deterioration in Japan–South Korea relations to the lowest point since the two countries normalized their diplomatic relations in 1965.
- 1 Background
- 2 Chronology
- 3 Reactions
- 3.1 South Korea
- 3.2 Japan
- 3.3 Other countries and viewpoints
- 3.4 Business leaders
- 3.5 International organization
- 3.6 Efforts to resolve the dispute
- 4 Effects
- 5 Concerns and controversies
- 6 See also
- 7 Notes
- 8 References
- 9 Further reading
- 10 External links
Japan and South Korea are some of the world's largest economies, ranking 3rd and 11th, respectively, in terms of GDP. South Korea, the largest memory chip producer in the world, and Japan, the largest supplier of crucial materials in chip production, have so far served as the cradle for technological products such as smartphones and personal computers.
South Korea is home to Samsung Electronics and SK Hynix, companies that together produce two-thirds of the world's memory chips. In Japan, 3 companies (JSR Corporation, Showa Denko, and Shin-Etsu Chemical) as well as Kanto Denka Kogyo, produce 90% of the world's Fluorinated polyimide and Photoresist, both of which are used for LCD and OLED displays, and 70% of Hydrogen Fluoride, used to make LSI, DRAM and NAND flash memory. South Korea imports 94% of Fluorinated polyimide, 92% of Photoresists, and 44% of Hydrogen Fluoride from the country which produce the materials, according to data from Korea International Trade Association.[note 1] On the other hand, Japan had export dependency against South Korea of three materials at 22.5%, 11.6%, and 85.9% respectively.
The two countries established diplomatic relations in December 1965, following the signing of the normalization treaty, which occurred in June of that same year where Japan recognize South Korea as the only legitimate government of the whole Korean Peninsula. As the relations continues to developed, both countries are close neighbours and one of the strongest allies of the United States in Asia, to counter the influence of China, Russia, and North Korea. However, their relations have been greatly deteriorating due to many disputes, such as the Liancourt Rocks dispute (known as Dokdo in Korean and Takeshima in Japanese) and differing interpretations on Imperial Japan's treatment of the people in then-colonial Korea, as well as many other disputes involving the two countries.
Comfort women issue
The issue over comfort women is one of many issues that shadow the further relationship between Japan and South Korea. During Japanese colonial rule in the Korean Peninsula, many of Koreans, both North and South, were forced to work at dozens of Japanese companies, often in brutal conditions. In order to support its military ambitions, during World War II between 1939 and 1945, the Empire of Japan conscript 5.4 million Koreans, 670,000 of them were sent to mainland Japan as forced labour. They even forced to work on building ships and aircraft for Imperial Japan war efforts against the allies. Enlisted to the military "comfort stations" through force, the Korean comfort women, most of them under the age of 18, were forced to serve as sex slaves for 30–40 soldiers each day.
Even after the two countries normalize their relations in 1965, the Japanese colonial legacy continues to haunt bilateral ties between the two countries. Many of South Koreans, mainly surviving comfort women, demanding more compensation and apology from the Japanese government, as well as individual claims for compensation.
At the start of negotiations in 1951, the South Korean government initially demanded $364 million ($3.6 billion in 2019 dollars) in compensation for Koreans forced into labour and military service during the Japanese colonial rule: $200 ($1,973 in 2019 dollars) per survivor, $1,650 ($16,282 in 2019 dollars) per death and $2,000 ($19,735 in 2019 dollars) per injured person. In the final agreement reached in the 1965 treaty, Japan provided an $800 million ($6.5 billion in 2019 dollars) aid as "economic cooperation", which include $300 million grant in economic aid and $200 million in loans together with $300 million in loans for private trust (equivalent to $2.4 billion, $1.6 billion, and $2,4 billion respectively in 2019 dollars), and low-interest loan package over 10 years. Japan intended to directly compensate individuals, but the South Korean government insisted on receiving the sum itself and "spent most of the money on economic development, focusing on infrastructure and the promotion of heavy industry".
In 1995, Japan said that compensation for former comfort women was settled in the 1965 agreement, but Japan made Asian Women's Fund from the humanitarian standpoint. The fund was set up in 1994 and compensated not only Koreans but also former comfort women in all other countries (except Japanese). This compensation was generally accepted outside of Korea, but in South Korea, many people refused to accept it, saying that it was not money contributed by the Japanese government.
On 28 December 2015, after U.S. President Barack Obama pressured South Korean President Park Geun-hye and Japanese Prime Minister Shinzō Abe, the two countries signed an agreement regarding settling the issue of "comfort women" during World War II, which was deemed final and irreversible if Japan fulfils its responsibilities. Japan agreed to pay ¥1 billion (₩9.7 billion; $8.3 million) to a fund supporting surviving victims while South Korea agreed to refrain from criticizing Japan regarding the issue and to work to remove a statue memorializing the victims from in front of the Japanese embassy in Seoul. The announcement came after then Japanese foreign minister Fumio Kishida met his then counterpart Yun Byung-se in Seoul, and later Abe called Park to repeat the apologies already offered by Japan. But the agreement was protested by many people, especially the elderly comfort women survivors who thinks the agreement is "humiliating" and cannot trusted the government.
On 11 May 2017, newly-elected South Korean President Moon Jae-in announced the agreement would not be enacted in its current stage and that negotiations for a deal between Japan and South Korea over the comfort women dispute had to start over. Meanwhile, in January 2018, Moon calls the 2015 agreement "undeniable, but calling Japan to accept the truth and make a heartfelt apology to victims.
South Korean government, under Moon Jae-in's administration then discarded the 2015 agreement and shut down the Japan-funded comfort women foundation which was launched in July 2016 to finance the agreement's controversial settlement on 21 November 2018. The decision sparked protest by Shinzō Abe's government, warned of risking damaging ties between the two countries.
Court decisions regarding compensation
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The two countries' bilateral relations then declined in late 2018, after Supreme Court of South Korea and other high courts made a decision that ordered several Japanese companies, including Mitsubishi Heavy Industries, Nachi-Fujikoshi and Nippon Steel, to make compensations to the families of South Koreans who were unfairly treated and illegally forced to supply labour for World War II war efforts, such as building ships and aircraft for Japan without pay at a Mitsubishi shipyard and machine tool factory in Nagoya in 1944. These decisions infuriated the Japanese government, claiming that the issue was settled under the 1965 treaty of Normalization of Diplomatic relations between the two countries.
On 30 October 2018, the Supreme Court rejected appeals to overturn a 2013 order requiring Nippon Steel to pay compensation to four South Korean workers who underwent forced labour which occurred during the war and ordered to pay each of the workers an individual sum of 100 million won (US$87,700). A month later, on 30 November 2018, Gwangju High Court rejected an appeal by Mitsubishi Heavy Industries regarding 2013 appeals of court decision that the company must pay 80 million won ($71,000) to compensate each of the 23 plaintiffs and ordered to compensate the remaining 5 South Korean elderly people who forced to work in a Japanese company where the company in a separated rulling by Supreme Court on 28 November ordered to pay 150 million won ($134,000) to each of 28 plaintiffs, elderly people which is still alive or their families. On 18 January 2019, Seoul High Court dismissed Nachi-Fujikoshi appeal of October 2014 Seoul Central District Court decision against an order that it must pay each 17 South Korean women 80 million to 100 million won (US$69,000 to US$89,000) because the victims were “tricked” into forced labour in harsh conditions.
On 8 January 2019, Daegu District Court approved a request by paintiff to seizure of 81,075 shares held by Nippon Steel in POSCO-Nippon Steel RHF Joint Venture (PNR), a South Korea-based joint venture with POSCO, which is part of 2.34 million shares worth about 11 billion won ($9.78 million) owned by the Japanese steelmaker. These decision was followed in March 2019 by same decision for seizure of Mitsubishi Heavy Industries trademark and patent assets by Daejeon District Court.
On 19 June, South Korea have proposed to have join fund with Japan for compensation of forced labour victims but Japan rejects the offering. Instead, Japan called for the establishment of an arbitration panel in accordance with the rules of the 1965 Japan-Korea Normalization Agreement. The panel would consist of one member each from third-party countries.
On 1 July, Japan announced that it would tighten the export of chemicals that are critical for the South Korean semiconductor industry. These decisions, effective on 4 July, put new restrictions on the industry, including a licensing process, forcing exporters to seek approval for each shipment up to 90 days. Deputy Chief Cabinet Secretary Yasutoshi Nishimura has clarified that the restrictions reflect current national security concerns. The South Korean government has replied that the Japanese government is showing "economic retaliation" towards a matter that was decided by Supreme Court of South Korea, whose decisions cannot be altered by the Government of South Korea.
In a press release regarding the export restrictions, the Japanese Ministry of Economy, Trade and Industry (METI) gave a lack of trust on their side for South Korea's export control and restriction system, along with another reason, as justification of the restrictions. While METI has not given specific examples, some media reports claim South Korea may have passed on restricted chemicals to the United Arab Emirates, Iran, or North Korea. For example, a Japanese broadcaster Fuji TV and a Japanese newspaper Sankei Shimbun on 10 July reported that over the past four years (from 2015 to March 2019), South Korea found 156 strategic goods with potential weapon being secretly exported. The list included ingredients for the nerve agent VX, used in the assassination of Kim Jong-nam, the half-brother of North Korean leader Kim Jong-un, and hydrofluoric acid that had been smuggled to the United Arab Emirates and elsewhere.
The South Korean government denied Japan's allegations. South Korean Trade, Industry and Energy Minister Sung Yun-mo stated that an emergency inspection on companies importing chemicals from Japan came up with no evidence those chemicals were being exported to North Korea, and that Japan's claims were groundless and should be stopped. A Bareunmirae Party lawmaker Ha Tae-kyung made a further claims that Japanese authorities uncovered suspected smuggling of strategic items by Japanese companies to North Korea, citing data from the Center for Information on Security Trade Controls (CISTEC), a non-governmental organization that tracks data on export controls. Others view Japan's trade restrictions as partially being an excuse to retaliate against suspected intellectual property infringement by South Korean companies.
Then South Korea, on behalf of the Ministry of Foreign Affairs and Ministry of Trade, Industry and Energy announced a plan to withdraw Japan's export restrictions during the meeting of the WTO Council on Trade in Goods in Geneva on 8–9 July.
Samsung Electronics vice chairman Lee Jae-yong travelled to Japan on 7 July to seek support from Japanese suppliers. He returned from Japan on the 12th and reportedly secured resources needed for its production for long term.
Representatives from Japan and South Korea held a meeting in Tokyo on 12 July to discuss the worsening diplomatic relations between the two countries, but failed to resolve the issue.
The two countries took the issue over high-tech exports restrictions to WTO in Geneva on 24 July, where they sent senior officials. Japan sent the director-general of economic affairs of Foreign Ministry, Shingo Yamagami. South Korea also sent deputy trade minister Kim Seung-ho.
On 2 August, Japanese cabinet approved the removal of South Korea from the "white-list". The countries that have the most-favoured status as trade partners, consisted of 27 countries. The loss of “most-favoured trade status” will apply to dozens more products on a list of items that potentially could be converted to weapons. The decision came after public comments from 40,000 people, which to more than 90% are in favour. The Trade Minister Hiroshige Sekō said that the trade measure was not intended to hurt bilateral ties of both countries. Then, the government officially promulgates the revision bill that excluded the country from the list of preferential trade status and published in KANPO, Japan's official gazette on 7 August. However, the bill did not stipulate any additional items that Japan will apply restrictions on, aside from the three chip and display materials. Japanese government decision to downgrade and remove South Korea from white-list takes effect on 28 August 2019, 21 days after promulgation. With the new revision, South Korea falls to Group B under revised Japanese export control system.[note 2] That means the Japanese manufacturers must apply for approval for each technology-related contract for 1,120 strategic materials that will exported to South Korea, rather than the simpler checks granted a preferential trade partners.
South Korean foreign minister Kang Kyung-wha and her then Japanese counterpart Tarō Kōno clashed at the ASEAN Plus Three meeting in Bangkok, with Kang condemning the Japanese export control was "unilateral and arbitrary". But Kōno insist that the export control is fully compatible with WTO rules.
On 8 August, the Japanese government, at a news conference held by Seko, approved shipments of a key material used in making chip and displays to South Korea in order to ease tensions between the two countries. The approval was granted on 7 August, and according to South Korean Prime Minister Lee Nak-yeon, there was a material known as EUV photoresists, which is crucial for Samsung's advanced contact chipmaking production. But Japan warned that if these three high-tech materials are found to be improperly used, the country will expand their strict checks of exports, including expanding application examination. The same material were also approved by Japan on 20 August.
On 12 August, South Korean government is taking measures to remove Japan from the country's own so-called "White-list", consisted of 29 preferred trade partners as retaliation of Japan's move, which was delayed on 8 August. The decision takes effect on 18 September 2019 after the government complete its public opinion gathering process through government websites and emails from 14 August to 3 September which 91% of the opinions were in favour of revision. Upon the revision takes effect, Japan's status has changed. Japan falls into the newly established group A-2 under Korea's export control system. As a member of group A-2, Japan will be treated the same as countries in group B with some exceptions.
On 29 August, Japan approved the first export materials since South Korea's removal from the most-favoured trade status. There is a shipment of a Hydrogen fluoride, whose the materials exported for the first time since Japan tightened its exports. The main recipient of the material is Samsung Electronics. But Japan refused to confirm the export.
South Korean Trade, Industry, and Energy Ministry announce to file a complaint with the WTO over Japanese tighter export controls and restrictions of three materials. The trade minister Yoo Myung-hee, told media on 11 September that she described the restrictions as a “discriminatory act directly targeting South Korea, and it was politically motivated”. Japanese Trade Minister Isshu Sugawara agree to hold talks with South Korea under WTO dispute settlement in a press conference on 20 September.
On 26 September, newly-appointed Japanese Foreign Minister Toshimitsu Motegi meet with South Korean Foreign Minister Kang Kyung-wha in New York City. The two countries fail to make a progress to resolve the bilateral issue, says that are "big disagreements" between the two countries, but agree to continue the dialogue.
South Korean Trade, Industry, and Energy Ministry issued a statement on 1 October that the Japanese government has not approved shipment of Hydrogen fluoride to the country even though 90 days have passed since a Japanese exporter submitted an application to export the materials.
On 11 October, representative from two countries held first round of bilateral talks in Geneva. This is part of the WTO Dispute Settlement procedure under which South Korea requested bilateral talks. If it does not resolve the issue on 60 days, South Korea will request the WTO Dispute Settlement Body to establish a panel to rule on the issue. The second round of bilateral talks was held on 19 November. But these talks fail to resolve the trade dispute between two countries.
The South Korean government's stance on the dispute is that Japan's export control is groundless and unfair. It argues that it has a sufficient catch-all control system and the lack of communication was on Japan's end. They further stated that Japan's export control is in violation of international law and will be both disruptive and harmful to both countries economies and the global market. The South Korean government urged Japan to withdraw its export control as they claim would damage their relationship further.
Before whitelist removal
The South Korean government, led by the First Vice Foreign Minister Cho Sei-Young, summoned the Japanese ambassador to lodged the protest against the export curbs by Japan on 1 July. The Trade, Industry and Energy Minister Sung Yun-Mo called Japan's move "deeply regrettable".
Then, on 10 July, President Moon Jae-in in a meeting with executives from the country's 30 conglomerates, urged Japan to “return to the principle of free trade that Japan has been pushing for” and said he would “take responsive measures” if South Korean companies were harmed by the new restrictions aimed by Japanese government.
After whitelist removal
In response to Japan's removal of the country from the list, the government held emergency cabinet meeting on the same day as Japan's announcement (2 August) and broadcast live on television across the country. Moon warned Japan against the decisions. He warned that the country will “resolutely take corresponding measures”. He also said that country 'won't be defeated again' by Japan.
On 15 August, 74th anniversary of Korea's liberation from Japanese rule, President Moon delivered a speech, urged Japan to return to dialogue to ease the tensions. Moon also saying South Korea has "not dwelt on the past" and expressed hope that Japan will play a leading role together in facilitating peace and prosperity in East Asia.
In order to reduce its reliance on Japanese Industries, the government announced a comprehensive research and development strategy. This includes a plan to spend 7.8 trillion won ($6.48 billion) in research and development for local materials, parts, and equipment over the next seven years. The government also pledged to spend 5 trillion won ($4.12 billion) to increase its own capabilities in the development of key industrial materials. The massive R&D investment will take place starting in 2020 until 2022.
South Korea propose a record budget about 513.5 trillion won ($423.7 billion) for 2020 to boost its slowing economy, represents a 9.3 percent hike from 2019 budget. A key centrepiece of the spending proposals is 24.1 trillion won ($19.9 billion) set aside for research and development (R&D) in 2020, which is up 17.3 percent from 2019, the highest in a decade.
In response to Japanese trade restrictions to South Korea, regional governments across the country launched a boycott of Japanese products and exchange programmes. The action includes the suspension of various activities such as public procurement and leasing of Japanese products, official business trips to Japan and “sisterhood” relationships with Japanese cities.
Two regional legislative bodies, Seoul Metropolitan Council and Busan Metropolitan Council on 6 September, passed non-binding ordinance labelling 284 Japanese companies including Mitsubishi Heavy Industries as "war criminal companies" to denounce the alleged use of forced labour by these companies. Under the ordinances, these Japanese companies are to be given the designation, with the mayors and other officials of the cities being requested not to purchase products from the companies in the future. In the case of Busan, there is also a provision that stickers saying "product of a war crime company" be attached to products that have already been purchased.
The Liberty Korea Party, while calling on Japan to remove the export restriction, have also criticized President Moon's handling of the issue. Rep. Na Kyung-won claimed that Moon's administration have exacerbated the issue and have also damaged relationship with the US to the point where US will not intervene. The LKP called for the government to focus on finding a diplomatic solution with Japan rather than a take hard-line stance.
All political parties in South Korea have voiced the need to restrict Japanese imports. So far, they have announced plans to create a "Pan-national" emergency body in response to the situation. South Korea's major political parties have agreed to establish a bipartisan body on 31 July 2019.
South Koreans are very unhappy with the Japanese government's decision to removing the country from the whitelist. They fear that the restriction will hurt the South Korean economy and blame the Prime Minister Shinzō Abe. Many South Koreans also feel that these restrictions are unjust and unfair, because of what Japan did during colonization of the Korean Peninsula from 1910 to until the end of World War II in 1945.
In response to Japan's move, on 5 July, a group of a South Koreans took to the street to announce a boycott of Japanese products. Since then, many South Koreans decided to boycott all Japanese products and imports, including food and beverages, cosmetics, vehicles, and clothes. Some also cancelled scheduled trips to Japan.
On Blue House presidential petition website in July 2019, nearly 27,000 people signed a petition calling for a boycott of Japanese products and an end to tourism to Japan. According to the petition website, if 200,000 people sign the petition within a month, the government is obligated to respond to the matter officially.
A website called NoNoJapan.com, created by Kim Byung-kyu was launched on 11 July to provide information about Japanese products and services that Koreans boycotted and alternative Korean products to these Japanese one. As more Koreans join the boycott, the website experienced a server crash due to a spike in traffic.
About 5,000 people, including members of 596 civil groups, held a candlelight vigil on 27 July, in Gwanghwamun Plaza and in front of the Japanese embassy to criticize Prime Minister Shinzo Abe for imposing trade restrictions. They also held another candlelight vigil in front of the Japanese Embassy in Seoul, on 3 August, with more than 15,000 people according to organizer, participating in the rally. A similar protest was held on 10 August, now with a declaration was signed by 1,000 students. The protesters also demand South Korea's removal from GSOMIA, which is a military information-sharing pact with Japan. The number of participants was similar to second rally.
They also held large scale candlelight vigil rally at Gwanghwamun Plaza, Chosun Ilbo headquarters, and the Japanese Embassy on 15 August, which is the 74th anniversary of the liberation of Korea from Japanese colonial rule. They estimate that 30,000 to 100,000 people participate in the rally. In contrast, conservative groups also held simultaneous rally, called for pushback of anti-Japanese sentiment.
There are two people that set himself in fire to protest Japanese government decision, which held in front of the Japanese Embassy In Seoul. The first incidents was occurred on 19 July, at 3:24 am local time, which a men died after the incident, and second incident occurred on 1 August by a 72-year-old man, which is in critical condition.
The boycott of Japanese products spread into the cultural sector, with release of latest Doraemon film series Doraemon: Nobita's Chronicle of the Moon Exploration, which is originally scheduled on 14 August, had been postponed indefinitely even after the film's Korean dubbing was finished. In July, another Japanese animation films, Butt Detective the Movie and Detective Conan: The Fist of Blue Sapphire, was subjected to unfavourable online reviews on internet and sold only 134,000 and 200,000 tickets respectively.
A poll conducted by Realmeter involving 504 adults reveal that, as of 24 July, 62.8% of respondents say they are boycotting Japanese goods. Another poll conducted by Gallup Korea involving 1,005 adults found that only 12% held favourable views on Japan, while 77% have negative views. Likewise the poll found that 61% of respondents blame the Japanese government for the conflict, while 17% hold the South Korean government responsible.
There were calls by many South Korean lawmakers to restraint or stopping their Investment in Japanese companies involved in their war crime against the many Korean slave labour. Korea Investing Corporation and National Pension Service faced pressure to do so. The pension fund then started to reviewing 1.23 trillion won ($1.1 billion) worth of investment of Japanese companies whether the companies, as many as 75 companies should be dropped if proved to companies that linked to Japanese war efforts in World War II.
Some South Korean media have expressed concerns about the trade dispute; such as the large dependency on Japanese materials, the dispute prolonging, doubts about US intervention, and the government having few options to tackle the dispute. The Korea Times editorial have criticized the Blue House's response to the issue.
The Japanese government's stance on its export control is that its implementation is due to deteriorating trust with South Korea. They argue that, while South Korea's catch-all control covers WMD-related goods, it has never clarified whether it covers conventional weapons as well. The Japanese government also claimed that South Korea has repeatedly postponed policy dialogues between the two nations. Japan also maintains that South Korea will simply be treated as a normal trade partner in same other Asian countries and will not get incentive measures as a "white country", the change does not break international law and that it is not an embargo.
In response to South Korea's move to remove Japan from the list of most favoured trade partners, the Trade Minister Hiroshige Seko said on Twitter on 13 August that South Korea failed to show how Japan had purportedly fallen short of international export control measures. He also said Japan does not understand why it has been removed from neighbouring country's list of trusted trade partners.
The Japanese government's decision to restrict some exports prompted criticism from many people, a group of 75 people including writer Satoshi Kamata, economic analyst Katsuto Uchihashi and Akira Kawasaki, signed an online petition that called both countries to hold a dialogue to resolve the conflict.
According to a survey conducted by Asahi Shimbun on 15 July, 56 percent of respondents support the government's export control while 21 percent did not. Among those who support Prime Minister Shinzō Abe, 74 percent of respondents support it. Among those who disapprove of Shinzō Abe, 43% say they support the export control while 36% say they're against it.
Despite the majority of Japanese supporting the government's actions, on 4 August there was a group of 200 Japanese and Korean demonstrators who protested Abe's government in the streets of Shinjuku. They called Abe to stop the export curbs to South Korea. The amount of protesters increased on 8 August. There were calls by the protestors for Abe to resign as the Prime Minister. The organizer of the protests enlisted new participants through many social media platforms.
In the midst of the trade dispute between the two countries, Japanese author Hirokazu Kore-eda urged Japanese and Korean artists to show support for one another to overcome their countries' political situation.
Other countries and viewpoints
Many countries showed concern to the actions of the two countries hurting the global tech industry. Tech companies in the United States issued a letter to both countries urging the two nations to negotiate a resolution to the dispute.
Five of America's largest tech industry groups including the Semiconductor Industry Association, which Qualcomm and Intel Corporation as a members, among its other companies, issued a joint letter to Japanese Economy Minister Hiroshige Sekō and South Korean Minister of Trade Yoo Myung-hee. They asked both sides to refrain from escalating their conflict.
Chinese Foreign Minister Wang Yi urged Japan and South Korea to show goodwill and resolve their trade spat through negotiations and dialogue.
U.S. President Donald Trump voiced concern about the worsening ties between Japan and South Korea. He said on 9 August that trade and history dispute put the country (United States) in a "very difficult position". He urged the two countries to "get along".
Some observers have pointed out that the dispute may have been exacerbated by both of the countries' leaders to drum up political support. During the beginning of the trade dispute Prime Minister Shinzō Abe's ruling Liberal Democratic Party were gearing up for Upper House election on 21 July. At the same time, President Moon Jae-in faced criticism for his economic policy and lack of progress in relationship with North Korea. Observers noted that both leaders are unlikely to back down from the dispute due to political pressure.
Many analysts and experts have viewpoints about the trade dispute as well. Political analyst Paul Triolo, who also practice head of geo-technology at Eurasia Group, told CNBC that since Japan and South Korea are U.S. allies, the United States will likely to involved in mediating the two countries in addition to China because from U.S. perspective, this is a "lose-lose confrontation", which could also inadvertently benefit China. On the other hand, Waqas Adenwala, Asia analyst at the Economist Intelligence Unit said it may be “awkward” for China to mediate in this dispute, as both South Korea and China were victims of Japan's invasion and brutal killings during World War II.
Other analyst and experts, such as Kim Hyun-Chul, an expert on Japanese enterprise at Seoul National University, told ABC News unlike trade of finished goods, high-tech industry goods that are sourced globally are interdependent. Countries that rely on South Korea's semiconductors such as the United States, China and even Japan will all be adversely affected, causing a domino effect on the global supply chain in computer and smartphone industries. Meanwhile, Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said U.S. electronics companies, many of which have large production hubs in both the U.S. and China, are vulnerable to supply shortages of South Korean memory chips, given the importance of South Korea as a supplier of chips not only hardware such as mobile phones and electronic products but also data processing programs.
On the annual conference of the Korea-Japan Economic Association in Seoul, 300 business leaders from the two countries have urged both governments to find a diplomatic solution for the trade disputes.
At request of South Korea, WTO agree to formally discuss Japan semiconductors export curbs to South Korea on 14 July. On 24 July, both countries presented their case at the WTO meeting although neither side gained any support from other WTO members.
Efforts to resolve the dispute
China-Japan-South Korea meeting in Beijing
On 21 August, the two countries involved in the trade war, and China, involved in a different trade war with the United States, held a trilateral meeting in Beijing. In that meeting, Japan and South Korea agreed to discuss efforts to resolve the conflict over compensating Korean forced labourers that has escalated into a trade war. The then Foreign Minister, now Minister of Defense, Tarō Kōno said that the two countries shared the view on the need to resolve the dispute. But South Korea's Foreign Minister said that South Korea hopes that the country will stick to "free and fair" trade for prosperity in the region.
Prime Ministers and Presidents meeting
Aside from bilateral negotiations in WTO, the two countries hold a bilateral talks to resolve the problem. The first was on 24 October, when the Prime Minister Lee Nak-yeon met with his counterpart Shinzō Abe in Tokyo. The second was on 4 November in ASEAN summit in Bangkok where Moon Jae-in held a 11-minute conversation with the Japanese Prime Minister.
The Japanese government decision to revoke preferred trade partner status for South Korea rattle global stock markets, aside from Trump tweet about tariffs on Chinese products, especially in Japan and South Korea.
On 2 August, days which occur the removal of South Korea from the list, Nikkei 225, Japanese main stock indices, fell 2.11% and South Korea's KOSPI down 0.95%, a 7-month low. Two index then down sharply on 5 August, with Nikkei 225 down 1.74% to 20,720 and Kospi down 2.56% to close at lowest level since 2016 at 1,946.98. KOSDAQ, which consisted tech-heavy and small and middle-cap stocks, plunged more than 7 percent to trigger trading halt. For the first time this occurred since 24 June 2016.
In the currency markets, South Korean won fell 9.50 won against US Dollar to closed at 1,198.00, lowest level since 9 January 2017. Then the currency plunged to more than 3-year low against the Dollar at 1,215.35 won on 5 August, lowest level since 24 June 2016 and sharpest daily loss since August 2016.
Meanwhile, many global financial markets plunge amid the decision and many stock markets take the selloff, with Nasdaq fell 1.32%, Dow Jones fell 0.37%, and S&P 500 down 0.73%. Also in other stock markets, for example, FTSE 100, DAX, and CAC 40 plunged 2.34%, 3.11%, and 3.57% respectively. On 5 August, the index took the one of largest daily loss in 2019, with Dow Jones down 767 points (2.98%), S&P 500 down nearly 3% and Nasdaq down 3.5%. Dow Jones in particular, down as much as 961.63 points.
The trade dispute (along with the China–United States trade war) is predicted to have a negative impact on both Japan and South Korea's economy. Japan's growth percentage was lowered for the second quarter of 2019 and the trade dispute with South Korea is expected to exacerbate the slowdown. Several financial services companies have lowered their forecast on South Korea's 2019 economic growth to around two percent or lower. The Bank of Korea has lowered South Korea's economic growth from 2.5% to 2.2%. In response to the economic forecast, they have also lowered interest rate from 1.75% to 1.5% on 18 July 2019. It further cut its rates to 1.25% on 15 October.
Moody's Investors Service, in a “Global Macro Outlook 2019-20” report released on 26 August, revised down forecast economic growth for both South Korea and Japan. For South Korea, the global ratings agency lowered economic growth forecast from 2.1% to 2.0% in 2019 and 2.1% in 2020 to reflect the fallout from trade dispute with Japan. the agency said the trade dispute “undermines Korea’s near-term growth prospects”. For Japan, the agency revised down economic growth forecast to 0.7% in 2019 and 0.4% in 2020. Moody's cites that Korea's boycott movement against Japanese goods and services may dent sales. But it saw trade in intermediate goods – including those covered by the export curbs and also more correlated to the global economic downturn – as “posing a larger threat to the Japanese economy.”
Amid the trade dispute with Japan, South Korean consumer sentiment fall to 31-month low in August. According to data from Bank of Korea, the composite consumer sentiment index down 3.4 points to 92.5 from 95.9 in July. It is the lowest level since January 2017, a month after then-president Park Geun-hye was impeached. The July consumer sentiment index also down to 95.9, 1.6 points lower than in June, where it stood at 97.5.
The World Trade Organization (WTO) in October 2019, cuts the forecast of volume of merchandise trade growth to 1.2% in 2019 and 2.7% in 2020, down from previous forecasted of 2.6% and 3% respectively. WTO cites this trade dispute, along with the China–U.S trade war, Brexit, and others, pose "the biggest downside risk to the forecast".
The International Monetary Fund (IMF) downgraded the economic forecast for many Asian economies because deterioration of relationship between South Korea and Japan. Asian economy could grow 5% in 2019 and 5.1% in 2020. South Korean economic growth could fall to 2% in 2019 and 2.2% in 2020.
Boycott on Japan
Boycotts of Japanese products and services in South Korea have affected Japanese brands and tourism to Japan.
On 29 July 2019, a Korean credit card company reported that credit card sales from Muji fell by 33.4%, ABC Mart sales fell by 11.4% and DHC Corporation fell by 55.3%. Similarly, credit card spending from South Koreans in Japan have also declined.
One of companies hardest-hit by boycott was Fast Retailing, companies that own Uniqlo. Uniqlo sales dropped by 40% and the company announced it close its Jongno 3-ga store in central Seoul. Analyst such as Peter Boardman warns that despite Fast Retailing post record profits, but the company could see many uncertainty because sales in South Korea account for 8% of Uniqlo sales worldwide.
Many Japanese automakers suffering steep fall in July and August. On 4 September, according to data from Korea Automobile Importers & Distributors Association (KAIDA), the combined sales of Japanese cars stood at 1,398 units in August, more than halving from a year earlier. By brand, Toyota saw its August sales plunging 59.1 percent on-year to 542 units, while Honda suffered an 80.9 percent on-year sales drop to 138 units and Nissan's car sales down 87.4 percent on-year to 57 units. The Japanese-brand automakers also suffering slump in July, with Toyota sales down 32% from the year earlier and Honda car sales tumbled 33.5% year-on-year. Lexus, South Korea's third-most imported car brand after Mercedes-Benz and BMW, saw sales down 24.6% from the previous month, although that was still up 33% from the previous year, according to data from KAIDA on 5 August.
The number of South Korean tourists visiting Japan fell 48% in August to 308,700, the lowest number since May 2016, according to Japan National Tourism Organization (JNTO). However a total number of inbound visitors decreased slightly by 2.2% to 2,520,100 because visitors from other countries increased significantly. Moreover, a surplus in the travel balance was an August record because the average spending increased as a result of the decrease of Korean visitors whose average spending per visitor is less than a half of other countries. On 16 October, JNTO reported that the number of South Korean tourists visiting Japan fell 58% in September to 201,200. However a total number of inbound visitors increased 5.2% to 2,272,900. The total spending of inbound visitors from July to September increased 9.0% despite the decrease of Korean visitors.
Some South Korean airlines announced they will reduce flights or suspend direct routes between major Japanese and South Korean cities. For example, Korean Air, the South Korea's largest airline, suspended its Busan-Osaka route from 16 September, and routes between Jeju and Narita and between Jeju and Osaka-Kansai from 1 November. The airline also temporarily suspended some of its other routes: Incheon-Komatsu and Incheon-Kagoshima both were suspended from 29 September to 16 November, and Incheon-Asahikawa suspended from 26 September to 26 October. Air Seoul, an Asiana Airlines subsidiary, suspended flights from Incheon to Toyama on 16 September and from Incheon to Kumamoto and Ube from 27 October.
As the number of passengers travelling between the two countries is plummeting, Airfares from Japan to South Korea and elsewhere in many airlines dropped to less than $10. CNN reported that it costs as little as 10,000 won ($8.38) to fly one-way from Seoul to Fukuoka on Eastar Jet, and only 1,000 Japanese yen ($9.35) the other way. If it include tax and fuel surcharges, the same route costs 7,590 yen ($71).
GSOMIA termination intention and renewal announcement
As retaliation against Japan's decision to restrict export of high-tech materials and remove of South Korea from its export “white list,” South Korea decided on the termination of the General Security of Military Information Agreement (GSOMIA). The General Security of Military Information Agreement (GSOMIA) is an agreement signed in November 2016 by South Korea and Japan to share sensitive information about threats from North Korea. According to Article 21 of the agreement, the GSOMIA will automatically be renewed for a year unless one of two countries announce a termination notice 90 days prior to the extension of the agreement.
Deputy of Blue House national security office, Kim You-geun, announced on 22 August that South Korea decided to give Japan the required 90 day notice to terminate the military intelligence sharing pact. According to South Korea, Japan did not meet Seoul's “national interests” to maintain the deal. They also stated that Tokyo has failed to communicate a clear explanation for placing controls on certain exports to South Korea. The decisions were announced after hours-long debate in National Security Command (NSC). On the other hand, South Korean Foreign Ministry added that the decision to terminate the military-sharing pact was due to trust issue between the two countries. GSOMIA initially set to expire on 23 November 2019 but South Korea decide to reverse decision to continue the agreement on 22 November.
Concerns and controversies
On 6 August 2019, a 1,000 anti-Japan banners starting to put up at centre of Seoul, as local workers hanging the banners from the streets of Jung-gu. Days before, on 5 August the district office, which headed by Seo Yang-ho, announced the plan to set the banner ahead of National Liberation day on 15 August. But the banner was sparked widespread anger by South Koreans who felt uncomfortable with the banners, as there was a widespread consensus that the anti-Japan movement is to be done by the civilians, not by the government authorities as this action might harm the motivation of anti-Japan movements and undermine the negotiation capability of the government. Then, the district head apologized for the situations and reversed his decision. A Cheong Wa Dae online petition website requesting to bring down the “No Japan” banners, had collected more than 20,000 signatures.
Pro-Japanese praising video
On 7 August, Chairman of Kolmar Korea Yoon Dong-han played a video by far-right Youtuber named Leeseob TV praising Shinzo Abe and criticizing the Moon Jae-In administration. The video included vulgar language and comments such as “Abe is definitely a great leader and President Moon Jae-in should be thankful for not getting punched by Abe in the face”. This video sparked criticism against the chairman and prompt the company to issue the official statement regarding the video on 9 August. But the online communities still anger and started to boycott the company's products. The backlash prompt the chairman to issue public apology on 11 August and the chairman was resign after he apologized to 700 employees of the company. Shares of Kolmar Korea fell 6.2% after the official statement from the company.
DHC TV anti-Korean broadcast
Starting on 10 August DHC Television, a subsidiary of the Japanese cosmetic manufacturer DHC Corporation, made inflammatory comments about Korea and its history. This sparked anger among South Koreans and prompted DHC Korea to issue an apology on 13 August. Korean consumers were urged to stop purchasing DHC's products.
- According to data from January to May 2019, South Korea imports 93.7% of Fluorinated polyimide, 91.9% of Photoresist and 43.9% of Hydrogen Fluoride from Japan. There was a significant decline from 2010 for Hydrogen fluoride imports, where South Korea imports 72.2% of the materials. Despite the first two materials also have a noticeable decline since 2010 in 97.7% and 95.5% respectively, the dependency of Japanese industries for the first two materials are still high, making South Korea still vulnerable to export restrictions from Japan.[failed verification]
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- BBC News explaination about spat between Japan and South Korea（BBC）