GP Insights

GP Insights # 114, 3 August 2019

Japan removes South Korea from Trusted Trade Partners list
Harini Madhusudhan

What happened?

Japan announced that it would remove South Korea from its list of 'Trusted Trade Partners.' Stating that these measures are based on National Security Concerns and address Seoul's inadequate controls on export. Seoul was quick to respond to this, Ko Ming Jung, a government spokesperson, have said, "Our government will sternly respond to Japan's unfair decision." Not long ago, South Korea had warned that it may reconsider its decision over an intelligence-sharing accord with Japan if the situation were to get worse.

The "white list" includes 27 countries of which South Korea would be the first one to be removed, later this month, according to the announcement. The decision by Japan has come a month after Japan tightened rules on the export of materials crucial for South Korean tech manufacturers. Protests in front of the Japanese embassy in South Korea, called for a boycott of Japanese goods during a rally, while also demanding compensation and apology for the forced labour and wartime sex slaves.

What is the background?

The complicated history between the two countries is set to be a smaller version of the ongoing trade war between the US and China. The dispute began with the court ruling by a South Korean court on the comfort women and forced labour, ordering Japanese firms to pay compensation, thereby inflating the long-running tensions. These decisions were condemned by Japan who said that the dispute was settled in 1965 when diplomatic ties were normalised between the neighbouring countries.

South Korea has seized the assets of two companies' part of the case and Mitsubishi Heavy, one of the firms involved has refused to comply. Fast forward to a month ago, and Japan restricted access to products needed to make display panels and memory chips, which are critical industries for South Korea. The country's tech giants Samsung Electronics and SK Hynix exported around 60 percent of global memory components last year, according to IHS Markit, showing potential to rattle the electronics industry over potential threats to the global supply chain.

What does it mean?

Moon Jae-In on Friday tweeted saying, they would never be back to Japan "….We are expecting a lot of difficulties ahead of us, but it is not that we cannot overcome." Shows that there is no end to this dispute shortly. The immediate impact would be on the electronics industry, and as Japan's third-largest trading partner, buying about $54 billion worth of their goods, the impact would fall heavy on the industrial machines, chemicals and entertainment industries of the countries. A trade- war in the East, which has the largest technology-driven economies is just what the world did not need with 5G issue still around. On the political front, these actions by Japan could be an answer to the Chinese question on whose side does Japan stand, by taking the US route to trade conflicts.

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