(3rd LD) S. Korea begins legal review of WTO complaint against Japan's export curbs

(ATTN: UPDATES presidential staff for policy's comments in para 5)

SEOUL, July 3 (Yonhap) -- South Korea's trade ministry has started a review of the legal grounds for filing a complaint with the World Trade Organization (WTO) over Japan's decision to tighten the rules for exports of semiconductor and display materials to Seoul, a government official said Wednesday.

"We believe that Japan's measure can be considered an act of controlling exports, which is strictly banned by the WTO," the official said on condition of anonymity. "The related departments have already begun administrative work on the issue."

Trade Minister Yoo Myung-hee canceled her business trip to Latin America scheduled for this week, apparently to deal with the trade row with Japan.

Earlier in the day, Kim Sang-jo, chief of staff to President Moon Jae-in for policy, also said he contacted related businesses here, which include the nation's five largest conglomerates, such as Samsung and LG, on how to cope with Japan's export restrictions.

"We have sorted out a long list of materials and parts (needed for manufacturing of OLED and memory chips) that can be imported only from Japan, and the top three items are subject to Japanese measures this time," Kim said, noting the government will make concerted efforts with local companies to minimize fallout from Japan's export curbs.

In a major escalation of a long-simmering diplomatic row over compensation for wartime forced labor, Japan abruptly announced earlier this week that it will tighten regulations on exports to South Korea of high-tech chemicals used in semiconductor and smartphone production.

In response, South Korea's Industry Minister Sung Yun-mo vowed to take "necessary" steps, including filing a complaint with the WTO, describing the Japanese move as an "economic retaliation."

Among the three items to be regulated starting Thursday is fluorine polyimide, which is used to make flexible organic light-emitting diode displays.

The other two materials are resist, a thin layer used to transfer a circuit pattern to a semiconductor substrate, and etching gas, which is needed in the semiconductor fabrication process.

When the new policy is implemented, Japanese companies will have to apply for approval for each contract to export specific materials to South Korean clients, including major brands such as Samsung, LG, and SK.

South Korea has been considered one of the so-called "white list" nations granted more leeway for faster export processing in terms of items related to national security. Twenty-seven countries have been receiving benefits from the exclusion, including the United States and Britain.

"Japan is violating article 11 of the General Agreement on Tariffs and Trade, which bans regulations on export volumes unless the products have a serious impact on national security," another South Korean official said.

While the South Korean government is reviewing filing a complaint with WTO, sources said Seoul will take flexible measures depending on the progress of the issue.

Experts said once the complaint is filed at the WTO, the dispute is expected to continue for a long period, considering that South Korea and Japan are closely connected in the semiconductor and information technology industries.

South Korea and Japan will first be asked to reach an agreement when the suit is filed. If the two parties fail to find common ground, the WTO will open a panel to review the dispute.

Bilateral ties between South Korea and Japan were further strained last October when Seoul's top court ruled that Nippon Steel & Sumitomo Metal Corp., a Japanese steelmaker now known as Nippon Steel Corp., must compensate four South Koreans for wartime forced labor and unpaid work. The Korean Peninsula was under Japan's colonial rule from 1910-45.

Japan has lashed out at the ruling, claiming that the compensation issue was fully settled in the 1965 bilateral accord on normalizing the countries' diplomatic ties.

President Moon has said, however, the October ruling against Japan's wartime forced labor means individual rights to damage claims are not terminated under the pact between the two countries.

Separately, the Korean government said it plans to invest 6 trillion won (US$5.12 billion) to develop home-grown, high-tech materials to ease the nation's dependency on Japanese firms.

As part of the proposed investment, feasibility studies have been completed before allocating budgets to projects, officials said.

Many analysts have voiced worries that the negative impact of the Japanese export curbs is likely to spread beyond Seoul and Tokyo to electronics manufacturers around the world because Samsung and SK hynix account for more than 70 percent of global memory chip output.

According to industry researcher DRAMeXchange, Samsung's global market share in computer memory chips stood at 42.7 percent in the first quarter, while SK hynix accounted for 29.9 percent of the market.

"As a result, any material disruption in their production would have serious implications for global supply chains and technology and electronics companies, including Japanese ones," Moody's Investors Service said in a statement.

colin@yna.co.kr
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