Japan-South Korea Feud Heats Up Over Tokyo’s North Korea Claims

(Bloomberg) --

The feud between Japan and South Korea worsened, as Seoul called for an international probe into Tokyo’s claims it allowed sensitive materials to end up in the hands of North Korea.

South Korean President Moon Jae-in’s office proposed the investigation just as government officials sat down in Tokyo to discuss Japan’s introduction of tighter export controls that threaten to crimp the tech sector’s supplies of vital production materials.

What Japan called an explanatory session ran well over its allotted time by several hours. The Japanese side explained the basis for its decision from Prime Minister Shinzo Abe’s government, and the South Korean side did not ask for the measures to be revoked, a Japanese official said.

“It seems that Prime Minister Abe sees domestic value in igniting Korea-Japan tensions and little incentive to keep the relationship constructive,” said Mintaro Oba, a former U.S. diplomat who worked on Korean Peninsula issues. “Unless there is a cost to his public position or the U.S. alliance with Japan because of his actions, Abe will keep feeding the fire -- and South Korea may have to respond in kind as the Korean public reacts to Japan. There is tremendous potential for escalation here.”

In a separate post-meeting briefing in Seoul, an industry ministry official said the South Korean counterparts were told that Japan “will remove” Korea from a so-called “white list” of countries to which it exports. Industry ministry director general Lee Hohyeon said South Korea called for additional talks by July 24, when the public comment period for possible removal ends.

Japanese officials didn’t comment in their briefing on a decision being made to remove South Korea from the list of trusted export destinations treated as presenting no risk of weapons proliferation -- a move that Abe’s government has said it could make as soon as July 24.

The scenes of somber officials from both sides meeting in a bare Japanese conference room were played on cable news loops in South Korea, where a poll earlier this week showed that two-thirds of adults planned to boycott goods from their neighbor. The tit-for-tat over export controls has escalated a long-simmering feud over whether Japan needs to further compensate Koreans who suffered under its 1910-45 occupation of the peninsula.

‘A desperate measure’

A Japanese official told Bloomberg News on Thursday that Tokyo had found a number of cases over the past three years of the materials being shipped to North Korea, China and Iran from South Korea. While Japanese officials including Abe have cited reexport concerns as their main reason for implementing the licensing requirements, they have so far stopped short of publicly identifying the recipient countries in question.

China, Iran and North Korea are all American security rivals and subjects of Trump administration pressure campaigns, complicating any potential U.S. effort to broker a truce between two of its closest allies.

Speculation that South Korea failed to abide by United Nations restrictions on trade with North Korea was “deeply regrettable,” President Moon Jae-in’s national security deputy Kim You-geun said in a televised briefing Friday in Seoul, adding the country wanted an investigation into both sides’ export controls. The move represents Moon’s most forceful effort yet to push back against a decision by Japan to implement export controls on production materials vital to South Korean companies such as Samsung Electronics Co.

“If there are any findings of our government’s faults as a result of the investigation, our government will apologize and immediately make fixes,” said Kim. “However, if there is a result that the South Korean government made no mistakes, the Japanese government should not only make an apology, but also immediately withdraw the retaliatory measure of the export curbs.”

Samsung Electronics shed about $13 billion in market value after the curbs were announced July 1, although it has since recovered somewhat as anxious memory-chip buyers move to stockpile supplies. South Korea’s benchmark Kospi index has fallen 2% this month, compared with a 1.9% increase in Japan’s Nikkei.

Resolving the export issue is more difficult because it’s been entangled with a dispute over South Korean court rulings ordering the seizure of Japanese corporate assets to compensate Koreans forced to work in colonial-era factories and mines. Another expected court decision and a Japanese deadline on its request for arbitration on the matter next week could further heighten tensions.

‘Difficult to resolve’

Japan will release details on suspected illegal transfers once it can address intelligence concerns, said the Japanese official, who asked not to be identified discussing security information that hasn’t been publicly disclosed. While Abe has said the measures were not a means of retaliating over the historical dispute, the official said Moon’s efforts to undo agreements to resolve historical issues haven’t improved the relationship.

The materials targeted by Japan are key to electronics productions. Within the tech sector, fluorinated polyimide is needed for the production of foldable panels, such as those used in Samsung’s Galaxy Fold. Photo-resists are essential for chipmaking, while hydrogen fluoride is needed for both chip and display production.

On Wednesday, South Korea’s industry ministry said the country had previously disclosed 156 cases of illegal exports of “strategic” materials between 2015 and 2019, but that included no instances involving Japanese hydrogen fluoride. While some South Korean companies made unapproved transfers to Malaysia, United Arab Emirates and Vietnam, but no countries under United Nations sanctions, the ministry said.

Oh Joon, a former South Korean ambassador to the United Nations, said the forced labor dispute complicated matters.

“The issue of exports control related to North Korea is something that South Korea and Japan can overcome. It’s a technical issue,” Oh said. “If the two sides share enough information, the two countries could move on, but pouncing on this matter with the forced labor case only makes it difficult to resolve problems.”

--With assistance from Seyoon Kim, Shinhye Kang, Jon Herskovitz, Yuko Takeo and Emi Nobuhiro.

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net;Jenny Leonard in Washington at jleonard67@bloomberg.net;Sohee Kim in Seoul at skim847@bloomberg.net

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Peter Pae

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