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Japan-South Korea spat underscores importance of export controls

Measures are needed to ensure dangerous materials do not end up in wrong hands

South Korean protesters demonstrate outside the Japanese Embassy in Seoul: relations between the two countries have been strained recently over trade and wartime issues.   © Kyodo

TOKYO -- The backlash in South Korea continues against Japan's move to tighten controls on exports to the country, but analysts here say Tokyo has a legitimate concern that technologies vital to national security might fall into the wrong hands.

A sharp decline in shipments to South Korea under the new rules is extremely unlikely, according to a former official at Japan's Trade Ministry, who said a lack familiarity with the export controls in Seoul and Tokyo is fueling an overreaction.

Basic export controls on products with dual civilian and military uses that may turn up in rogue nations has become a global issue, the former official said.

While many view Japan's new export controls as retaliation for court judgments in South Korea that ordered Japanese companies to pay compensation for wartime labor, there is also the objective of controlling who can get their hands on potentially dangerous products.

Japan has taken two measures to tighten controls on exports to South Korea. On July 4, it introduced stricter controls on exports of three chipmaking materials to the country, citing multiple "inappropriate cases." It then decided to downgrade South Korea's status as a trade partner, removing it from the list of 27 countries that are granted preferential trade status. The decision will take effect Aug. 28.

The main objective of the export-control regime is to prevent potentially dangerous products from ending up in the wrong hands. It is focused on items with both civilian and military uses that are exported ostensibly to manufacture civilian goods but are actually used to make weapons.

The most important question in export control is who the end user is. The governments of advanced industrial nations regularly share information on matters of concern, such as attempts by countries under sanctions, like North Korea, or international terrorist groups to obtain dual-use products through dummy companies or other fraudulent means. Governments take this information, and details regarding specific exports, into account when deciding whether to issue export licenses.

In most cases, permission to export is granted swiftly; red flags that result in delays or rejection of export licenses make up only a small fraction of total trade. The Japanese government's approval on Aug. 8 of the first shipment of resist, a material used in chipmaking, to South Korea under the new export rules illustrates this point.

With regard to South Korea's status, Tokyo has downgraded it from Group A (formerly "white") to Group B. This should not be cause for outrage, given that there are few disruptions in Japanese exports to Taiwan, which is in Group C, to which even stricter rules apply. Taipei has not complained of unfavorable treatment because Japan's trade regulators quickly issue licenses for most exports to Taiwan.

The measures taken by Japan will cause no significant disruption in Japanese exports to South Korea, highlighting the fact that Seoul's fierce protests are misguided, predicts one Japanese export-control official.

One case that highlights South Korea's weak trade oversight involves the hastily arranged export of hydrogen fluoride, one of the three materials subject to the new export curbs, to a South Korean company that claimed the material would be used domestically. In fact, the material was re-exported to an affiliate's plant in China.

Goods labeled with false or ambiguous information about their final destination are called "roundabout exports." This is a technique favored by shell trading companies controlled by North Korea, and it is a major concern for export-control officials. China has often been used by North Korea as a conduit for illegal trade. It was natural that Japanese authorities would raise the alarm in this case.

South Korea's reaction to the Japanese export control measures leaves little doubt that it has not taken the problem of roundabout exports seriously.

In this instance, the South Korean importer re-exported hydrogen fluoride, which can also be used to make deadly sarin nerve gas, to China without notifying the Japanese company that shipped the material. The South Korean side saw this as a minor bending of the rules, apparently thinking it would not be an issue because the material would be used by its group company. This led the Japanese side to doubt that that South Korea understood the fundamental principles of export control.

As it was later confirmed that the hydrogen fluoride exported to China via South Korea was used to manufacture a legitimate product, Japan's Ministry of Economy, Trade and Industry did not take punitive action against the Japanese exporter, only issuing a warning.

But if dual-use exports from Japan were re-exported from South Korea and used to manufacture conventional weapons, or worse, weapons of mass destruction, the Japanese and South Korean companies involved, and South Korean export-control authorities, would be roundly criticized by Japan and many other countries.

Export controls are like fire prevention. If carelessness regarding fire hazards leads to an actual fire, the risk is not just to the house where the fire starts but to the entire neighborhood.

Lax export controls by a company or a government may seriously damage the company that conducts the transaction and the country responsible for oversight, creating a grave security risk for the entire world.

And this is not an issue only between Japan and South Korea. North Korea's dummy companies also make use of ports in Southeast Asia to conduct illicit transactions. To ensure safety throughout Asia, it is necessary for authorities to understand the importance of export controls and take them seriously.

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