LDN - Business

South Korea says 'won't be defeated again' as Japan trade row escalates

[August 02, 2019] By Makiko Yamazaki and Ju-min Park

TOKYO/SEOUL (Reuters) - South Korea fired back at Japan over a deepening trade dispute on Friday, pledging it would not be "defeated again" by its neighbor, laying bare decades-old animosity at the root of a row over fast-track export status.

During a rare live television broadcast of his cabinet meeting, President Moon Jae-in threatened countermeasures after Japan's cabinet approved the removal of South Korea's fast-track export status from Aug.28.

Dropping South Korea from a so-called "white list" of favored export destinations means some Japanese exporters face more paperwork and on-site inspections before they can secure permits, potentially slowing exports of a wide range of goods.

Relations between the two U.S. allies began to deteriorate late last year following a row over compensation for wartime forced laborers during Japan's occupation, but President Moon's comments were the starkest yet.

"We won't be defeated by Japan again," Moon told his cabinet, pointedly invoking South Korea's difficult history with Japan, which colonized the Korean peninsula before World War Two.

He described Japan as a "selfish nuisance" for a decision that threatens to disrupt global supply chains, and aired suspicions over its motive for hobbling a rival economy.

Top officials followed Moon in blaming Japan, South Korea's security partner in a region where both are the biggest allies of the United States.

Kim Hyun-chong, the senior national security adviser, criticized Tokyo as an obstacle to the South's effort to build peace with North Korea, saying Japan's step amounted to the "public humiliation" of Seoul.

South Korea will review whether to maintain a military information sharing pact with its neighbor, Kim added.

South Korea's countermeasures will see it drop Japan from its own list of favored trading partners and hasten filing of a complaint to the World Trade Organization over Japan's export controls, Finance Minister Hong Nam-ki said.

Its foreign ministry summoned the Japanese ambassador to be told by a vice foreign minister that Japan was no longer considered a friendly nation, Yonhap news agency said.

Earlier in Tokyo, Japanese Industry Minister Hiroshige Seko said the cabinet had taken the decision for national security reasons, and it was not intended to harm ties. South Korean officials have had a different perspective, particularly since last month, when Japan tightened curbs on exports to South Korea of three high-tech materials needed to make memory chips and display panels, threatening the global supply of chips.

TRUST DEFICIT

Japan has also pointed to an erosion of trust since South Korean court rulings ordered its firms to compensate wartime forced laborers. Tokyo says that issue was settled by a 1965 treaty that normalized ties between the two countries.

"We want South Korea to first create an environment in which we can have dialogue with trust. It's South Korea's responsibility to do that," Seko said.

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Protesters hold signs during an anti-Japan rally in front of the Japanese embassy in Seoul, South Korea, August 2, 2019. The sign reads "NO Abe". REUTERS/Kim Hong-Ji

The rift is the latest example of how a decades-old disagreement has undermined relations between the two U.S. allies at a time when Washington wants them working closely together on North Korea. It is also awkward economically, as both export driven economies face sliding demand from China.

South Korea would be the first country removed from Japan's white list, which now has 27 countries including Britain, Germany and the United States.

SENSITIVITIES

Seko said Japan was unwilling to hold a dialogue until South Korea corrected a statement made at a July meeting between bureaucrats of the two countries.

Japan has disputed a Korean official's comment that Seoul asked it to repeal the export curbs. Tokyo has also accused South Korea of breaking a pact on what the two would disclose about the meeting.

The United States has urged the two countries to consider reaching a "standstill agreement" to buy more time for talks, a senior U.S. administration official told reporters in Washington on Tuesday.

On Thursday, U.S. Secretary of State Mike Pompeo said he hoped they would find a solution by themselves, stressing cooperation on North Korea was "incredibly important". Seko said Japan had briefed the U.S. administration on its plans.

Foreign ministers attending the ASEAN grouping's East Asia summit of 18 nations in Bangkok expressed concern about the recent developments on trade between Japan and South Korea, a Thai foreign ministry official told a briefing.

CHIPS AT STAKE

The fresh restrictions could deal an additional blow to South Korean chipmakers already scrambling to secure key material after last month's export curbs.

The South's top imports from Japan by value last year were semiconductor components and equipment ranging from silicon wafers to chip etching machines, totaling about $11 billion, or nearly a fifth of Japanese imports, data from the Korea International Trade Association shows.

Moody's Investors Service said Japan's removal of the export status was a credit negative for many South Korean companies.

South Korea's central bank chief also flagged concerns the move could hit its economy.

On Thursday, South Korea said exports had tumbled for an eighth straight month in July, with the worsening trade dispute darkening an increasingly gloomy picture.

(Additional reporting by Yoshifumi Takemoto in Tokyo; Jack Kim, Hyunjoo Jin, and Joori Roh, Choonsik Yoo in Seoul; Hyonhee Shin and Patpicha Tanakasempipat in Bangkok; writing by David Dolan; Editing by Simon Cameron-Moore)

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