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Japan-South Korea rift

Tokyo and Seoul clash at WTO as third countries look other way

South Korea calls export curbs unfair while Japan cites national security

South Korean deputy trade minister Kim Seung-ho argued Tuesday that the harm from Japan's trade curbs would extend beyond South Korea.   © Reuters

GENEVA/TOKYO -- Japan and South Korea faced off at a World Trade Organization meeting Wednesday, as Seoul looked for allies ahead of a formal complaint against export controls by Tokyo on essential chipmaking materials. But those potential allies seemed to be keeping their distance.

The two sides stuck to the arguments they have used since Japan announced the tighter restrictions on such shipments early this month, along with the planned removal of Seoul from a "whitelist" of trusted trading partners.

South Korea asserted that the curbs constitute unfair economic retaliation for court rulings ordering Japanese companies to pay compensation for their wartime use of forced labor, and that they run counter to the principle of free and fair trade.

"South Korea is the top exporter of semiconductors. Japan's measures will harm third countries," warned Kim Seung-ho, deputy minister for multilateral and legal affairs at South Korea's Ministry of Trade, Industry and Energy.

Kim said after the General Council meeting that Seoul is preparing to submit a formal complaint to the WTO.

Tokyo's delegation said the change is security related and thus "not appropriate" for the WTO to handle. Japan has cited weak South Korean oversight and cases of "inappropriate" exports to justify the tighter controls.

"We stressed to the council that the forced labor issue is completely unrelated and that the measures are not export restrictions," Junichi Ihara, Tokyo's representative in Geneva, told reporters.

Seoul "muddied the issue" and "did not address our primary argument that this was a change in export controls for national security reasons," Ihara said, calling South Korea's demand to withdraw the curbs "unacceptable."

The General Council, essentially the WTO's top decision-making body, usually deals with broad trade issues and is not the forum for settling bilateral disputes. But after lobbying by South Korea, the council agreed to discuss the issue at the two-day meeting, raising it on Wednesday after it was pushed off Tuesday's agenda due to delays.

The escalating confrontation drew a cool response from some WTO participants.

Marc Vanheukelen, the European Union ambassador to the WTO, told Nikkei that the EU will not get involved in the dispute because it is a bilateral issue.

A representative from one African country said that aside from whether the Japanese measure is right or wrong, it is difficult to understand why the issue has been brought up for discussion at the WTO's General Council.

It is unclear whether South Korea's move paid off. "There was no mood of supporting South Korea's argument," a diplomatic source said.

Thailand, which chaired the General Council meeting, wrapped up discussions by saying it hopes Japan and South Korea will explore an amicable solution.

Meanwhile, the South Korean government announced Wednesday that it has proposed a bilateral dialogue with Tokyo to address the issue.

Japan's argument that its controls are legitimate rests on Article 21 of the General Agreement on Tariffs and Trade, which allows for otherwise banned actions if a country deems them "necessary for the protection of its essential security interests" related to military supplies.

It is difficult to tell how the WTO will rule if Seoul files a complaint, as there is little in the way of precedent in Article 21 cases.

Japan is optimistic about its odds. Masahiko Hosokawa, a professor at Chubu University and former head of the Japanese trade ministry's Security Export Control Division, echoed Tokyo's view that the curbs are a national security matter and should not be taken up by the WTO.

"If this is found to be a violation, then there are examples in other countries" that would also need to be addressed, he argued.

But the WTO will likely demand a compelling national security justification to invoke the article, and some observers have voiced skepticism that the "inappropriate cases" cited but not explained by Tokyo will qualify.

"Japan could end the favorable treatment it had granted if there were a legitimate reason, but it has only explained it in abstract terms," said South Korean attorney Song Ki-Ho.

The lack of a clear justification puts the curbs in violation of GATT Article 10, which stipulates that countries must administer trade regulations in a "uniform, impartial and reasonable manner," Song argued.

In addition, Japanese Trade Minister Hiroshige Seko may have provided fodder for South Korea's retaliation argument in a July 3 tweet in which he linked the curbs to the labor row, saying the lack of a "satisfactory resolution" has "markedly damaged the relationship of trust" between the countries.

Seoul has proved adept at working the WTO system. It filed a complaint in 2004 regarding Japanese restrictions on seaweed imports, but the case was settled in 2006 after Tokyo agreed to buy more South Korean seaweed.

This past April, the WTO essentially upheld on appeal South Korea's ban on imports of fishery products from eight Japanese prefectures believed to have been affected by the March 2011 Fukushima Daiichi nuclear disaster, overturning key parts of an initial finding in Japan's favor.

Seoul's appeal was noted for its strategically targeted approach. South Korean negotiators holed up in a Geneva hotel for two weeks to get ready for oral arguments, a WTO source said. A similar level of preparation, including a deluge of lobbying, is likely with this case.

Wednesday also marked the end of the public comment period in Japan on South Korea's removal from the 27-country "whitelist," the first-ever such move by Tokyo. The government is believed to have received more than 30,000 comments, an unusually large number for such an action, amid growing concerns about yet more red tape on top of the curbs announced this month.

If Japan goes through with the proposal, exports to South Korea would no longer be eligible for such benefits as streamlined customs procedures. The trade ministry can demand reviews of exports to countries not on the list if it sees potential national security risks.

Japan's Ministry of Economy, Trade and Industry revealed Wednesday that the South Korean government was among those that submitted comments. Seoul likely defended its oversight regime and objected to the lack of dialogue leading up to the decision.

But Seoul's mechanisms for preventing proliferation of conventional weapons "have an unclear legal basis," Seko told a news conference Wednesday.

He stressed that talks between the two sides had been postponed repeatedly due to circumstances on the South Korean side and ultimately never took place.

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