Japan’s export control to further strain Korean economy

The Korean Times July 5, 2019

By Lee Kyung-min 

Japan’s export control of key materials needed to produce semiconductors and displays will deal a significant blow to Asia’s fourth-largest economy, economists said Friday. 

“Given that semiconductors account for about 6 percent of the country’s GDP, a 10 percent drop in the export volume could lead to a 0.6-percentage-point drop in the growth rate,” KB Securities Chief Economist Chang Jae-chul said. 

The concerns follow toughened export procedures effective July 4 involving three high-tech materials used in smartphone displays and chips including fluorinated polyimides, resists and hydrogen fluoride. 

Under the new requirement, Japanese exporters must seek approval with its authorities based on the number of contracts. 

This is a major “hassle,” given the previous rules allowed export of such materials sufficient for up to three years of production on a single approval. 

The KB economist said chipmaking ― Korea’s pillar industry ― stands to lose the most due to the heavy reliance on Japanese materials.

According to Japan’s Sankei Shimbun newspaper, Japan produces about 90 percent of fluorinated polyimides and resists worldwide. It also produces around 70 percent of the world’s etching gas. 

“With no alternatives in store, Korean chipmakers will see their stockpiles run out fast,” Chang said. 

“If the dispute continues for over 90 days, their fourth-quarter performance ― meaning the country’s GDP and real economy at large ― will also be hit hard.” 

Japan’s plan to remove Korea from its white list, a measure to remove preferential treatments granted thus far, is another major downside risk to Korea’s economy, he added.

If removed, Korea will no longer be among 27 countries on the list including the U.S. and Germany which have avoided heavy customs clearance for imports from Japan. 

Almost all items will be subject to the time-consuming procedure except for groceries and wood materials. Imports can be denied altogether.

“The measure will hurt Korean businesses that need the imported materials and parts to make goods for sales domestically or overseas, another factor clouding growth prospects,” he said. 

The much-politicized feud between the two neighbors is a new, unforeseen risk straining the country still reeling from the 0.4 percent year-on-year contraction of the GDP in the first quarter, compounded by the revised-down growth outlook, according to Kim Hyoung-ryoul, head of research at Kyobo Securities.

“The country’s chip sales have continued to struggle over the past seven months due in large part to the U.S.-China trade dispute,” he said.

The new conflict with Japan is adding to the woes because it could increase risk, notably a possible chip price hike, he added. 

“While the feud may not pose an immediate and direct threat to the trade environment in general, a price hike in this circumstance is not helpful. The growth prospect is likely to dim with such an adverse development.”

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