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Japan-South Korea rift

South Korea vows to strike back at Japan with WTO complaint

Seoul readies stimulus package after country's removal from export whitelist

The seat of the South Korea delegation is seen at the World Trade Organization in Geneva, Switzerland.   © Reuters

TOKYO -- Seoul said Wednesday it will file a World Trade Organization complaint against Japan, hours after Tokyo formally imposed additional trade restrictions on South Korea. 

"We will present a case before the WTO without delay," South Korean Prime Minister Prime Minister Lee Nak-yeon said at a cabinet meeting concerning Japan's trade curbs.

Lee also laid out a plan to invest 5 trillion won ($4.1 billion) over three years into the domestic production of materials and manufacturing equipment that are chiefly imported from Japan.

Japan and South Korea have been embroiled in a dispute that has cast a cloud over the relationship between East Asia's second- and third-largest economies, and a pathway to a resolution remains elusive. The feud, triggered over a wartime labor issue, intensified last week, when South Korea withdrew from an intelligence-sharing pact with Japan. 

At midnight Wednesday, Japan enforced the decision to remove South Korea from a whitelist of nations, so-called Group A countries, that are able to import Japanese goods without added procedures. This follows strictures on semiconductor material exports Japan put into force in July.

South Korean Prime Minister Lee Nak-yeon laid out a plan to invest $4.1 billion over three years into the domestic production to counteract trade curbs from Japan.   © Kyodo

South Korea was demoted to Group B status, in which all exports except for timber and food are subject to case-by-case screenings to prevent military use.

However, the controls are not expected to be exercised immediately, and the screenings will target shipments that raise suspicion. Mitsubishi Corp., the Japanese trading house, believes the effect of the export controls will be limited.

"We've always performed internal checks under the assumption that catch-all controls would be triggered," said a Mitsubishi representative.

Yet, if frictions between the governments intensify, it would dampen sentiment among business and consumers alike. Trade between the two nations has already taken the turn for the worse.

Japanese exports to South Korea are down 11% in the first half from a year earlier, at 2.6 trillion yen ($24.6 billion), while imports from South Korea fell 7% to 1.6 trillion yen. The traffic of South Korean tourists to Japan shrank 4% on the year during the January-July period.

For South Korea to be promoted back to Group A, the first step would be to reopen discussions between senior officials. But Hiroshige Seko, Japan's minister of economy, trade and industry, is mindful of how South Korean officials publicly disclosed certain contents of the working-level meeting held on July 12, which Japan says went against agreed-upon protocols. This lack of trust means that top trade officials are hesitant to return to the table.

Fukushiro Nukaga, a leader of an association of Japanese and South Korean parliament members, spoke with Prime Minister Lee on Tuesday, reporting that Lee suggested Seoul would review its scrapping of the intelligence sharing agreement if Tokyo lifted its export controls. But Nukaga was cool to the idea. "It is not a fundamental solution. The Japanese government cannot accept it,” he said

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