Seoul to resume WTO complaint over Tokyo’s export curbs, door for talks still open

June 2, 2020

South Korea on Tuesday said it will reopen a complaint at the World Trade Organization (WTO) over Japan’s export curbs in a move that could potentially batter the already frayed bilateral relations.

But Seoul’s trade ministry said it is still ready for more talks to resolve the monthslong dispute.

The announcement came more than six months after Seoul dropped its WTO complaint against Tokyo’s export restriction in a goodwill gesture to seek a breakthrough in the trade row that started with the latter’s abrupt ban of shipping key materials to its neighbor in July 2019.

The three key industrial materials are critical for the chip and display industries, namely photoresist, etching gas and fluorinated polyimide. The two industrial sectors are considered the backbones of Asia’s No. 4 economy.

In May, Seoul renewed its call for Tokyo to lift trade regulations against the neighbor by the end of that month, calling for Japan to make joint efforts to overcome economic fallout from the new coronavirus pandemic.

Despite repeated requests, Japan did not budge and give a clear response by the Sunday deadline.

South Korea said it has received a response from Japan over last month’s request but hinted it “did not meet expectations,” without providing further details.

“Japan has not been showing willingness to settle the dispute, and no progress has been made,” Na Seung-sik, a trade official of the Ministry of Trade, Industry, and Energy, said.

“We have reached the conclusion that we cannot proceed with normal negotiations (with Japan), which was the premise of suspending the complaint at the WTO,” the official said. “Accordingly, we will reopen the dispute-settlement process at the WTO over (Japan’s) exports control of the three products.”

Under the decision, South Korea plans to request the WTO open a dispute settlement panel over the trade haggling with Japan.

The WTO dispute settlement procedure will take up to more than a year, although it may depend on the progress, according to the ministry.

South Korea said the dispute settlement process at the WTO is aimed at staving off the uncertainties over the global supply chain for companies of both nations, and “proving the unlawfulness and unjustness” of Japan’s actions.

Japan removed South Korea from its list of trusted partners in August, and excoriated Seoul for not effectively controlling the trade of sensitive materials that can be diverted for military use, although it never provided details on exactly how.

In response, South Korea took Tokyo off its list of trusted trade partners in an apparent tit-for-tat move. But later Seoul conditionally put off the termination of the military information-sharing pact, the General Security of Military Information Agreement (GSOMIA).

South Korea believes Japan’s export curbs are merely a vendetta against a Seoul court’s ruling that ordered Japanese firms to compensate victims of forced labor during Japan’s 1910-45 colonial rule of the peninsula.

Tokyo partially lifted the curbs on exports of photoresist ahead of their summit in December. But no more progress has since been made.

Seoul pointed out that there have been no security-related problems reported from the three products over the past 11 months, contrary to Japan’s allegations, and the country has reiterated that it has made sufficient efforts to clear out misunderstanding between the two Asian neighbors.

The country said it also sought to meet Japan’s demands by raising the number of workers devoted to export control programs.

The trade row has been causing more damage to Tokyo’s exports than the other way around. South Korea’s exports to Japan slipped 6.9 percent to US$28 billion in 2019 from a year earlier. Its imports from Japan fell at a wider margin of 12.9 percent to $47 billion.

A growing number of South Koreans have been avoiding Japanese products since Tokyo’s abrupt export regulations, with Japanese goods shunned by consumers here.

South Korea’s imports of consumer goods plummeted 37.2 percent in April from a year earlier at US$249.6 million, marking the 10th consecutive month for the volume to lose ground on-year.

Imports of Japanese beer nose-dived 87.8 percent in the month on-year as well, customs data showed. South Korea used to be the largest importer of Japanese beer products through 2018.

For South Korea, however, removing any kinds of trade barriers is crucial as the export-reliant economy strives to overcome the pandemic-ridden crisis.

The suspended business activities and travel across the globe, caused by the COVID-19 pandemic, already have put great strains on its exports. South Korea’s outbound shipments fell for the third consecutive month, plunging 23.7 percent on-year in May.

With the pandemic further souring the diplomatic trust between the two nations, the two are far from finding common ground soon.

Tokyo decided to suspend its visa-waiver program for South Korean nationals during the early stage of the COVID-19 pandemic, to which Seoul also decided to end its entry program for Japanese visitors under the principle of reciprocity.

Last week, Tokyo decided to keep the suspension until at least the end of June.