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Japan-South Korea rift

Japan restricts tech exports to South Korea over wartime labor row

Move risks being seen as backtracking on free trade

Japan is expected to hamper the ability of South Korean companies to buy a plastic used in flexible OLED displays. (Photo courtesy of Samsung Display)

TOKYO -- Japan is preparing to impose tougher restrictions on South Korean companies' ability to buy semiconductor materials such as plastic used in flexible phone displays, apparently in reaction to Seoul's stance on compensation for wartime labor.

Under proposed changes to export rules, Japanese suppliers would need to apply for approval for each contract to sell specific chemicals to South Korean buyers, which until now have qualified for a simplified export process.

These changes would take effect in the coming weeks, following a public comment period. Tokyo also is weighing whether to remove South Korea from its "white list" of countries that face minimum restrictions on transfers of technology having national security implications.

The new export restrictions are expected to apply to three types of materials and chemicals, including polyimides used to make flexible organic light-emitting diode displays -- an area in which South Korean groups such as Samsung Electronics have strength.

The approval requirement would lengthen the export process, potentially disrupting South Korean production. It also would affect Japanese suppliers to these companies.

The Ministry of Economy, Trade and Industry will announce the changes to export rules in the coming days. Besides polyimides, the restrictions are expected to cover two chemicals used in forming circuit patterns on semiconductors -- etching gas and resist. Japanese suppliers have market shares estimated at around 90% in both products.

Bilateral ties have soured since South Korea's Supreme Court ordered Japanese industrial groups to compensate South Koreans forced to work for them during World War II. Assets of these companies, which include Nippon Steel & Sumitomo Metal, are being seized to pay the plaintiffs.

While U.S. President Donald Trump has been known for applying trade restrictions selectively, for Japan, singling out a particular country for export restrictions risks being interpreted as backtracking on Tokyo's commitments to free trade, as expressed in deals such as the Trans-Pacific Partnership.

G-20 leaders' joint statement in Osaka said they "strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment."

Japan's move carries other risks. If the country is seen to be restricting exports for political reasons, Samsung and other companies operating globally could seek chipmaking supplies elsewhere.

In 2010, China halted exports of rare-earth metals to Japan amid rising tensions over the Japanese-controlled Senkaku Islands in the East China Sea, which Beijing claims and calls the Diaoyu islands.

Japan responded by cultivating alternative sources for the materials in Africa through public and private-sector investment. South Korea could respond in a similar way to the semiconductor material restrictions.

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