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South Korea files WTO complaint over Japan trade restrictions

  • September 11, 2019

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South Korea has filed a complaint with the World Trade Organization over Japanese trade restrictions, in the latest escalation of a dispute stemming from Japan’s colonial rule over Korea that has dented security and trade relations between the key US allies.

Seoul has complained that Tokyo’s removal in July of preferential trade status for three materials critical to South Korean technology companies violated WTO rules by regulating trade for political reasons.

Tokyo has argued that the imposition of new trade controls was based on security and trust issues. However, many analysts viewed it as retaliation after South Korean courts ordered Japanese companies to pay damages over forced labour during the second world war and the government in Seoul refused to enter into arbitration over the issue.

Japan’s export restrictions have raised fears of disruption among South Korea’s electronics manufacturers, the country’s most important export industry. Yoo Myung-hee, South Korean trade minister, on Wednesday described the restrictions as a “discriminatory act directly targeting South Korea, and it was politically motivated”. 

While Japanese officials have not stopped shipments of the materials, the threat of uncertainty to South Korean companies such as Samsung Electronics and SK Hynix, the world’s two biggest memory chip producers, has spurred Seoul to announce spending of as much as $6.5bn in an urgent bid to reduce its reliance on Japanese technology and materials. 

Seoul’s decision to take the issue to the WTO came just hours after the organisation ruled for Japan against South Korea in a separate anti-dumping case.

A series of Japan-South Korea trade disputes at the WTO have become increasingly entangled with the deepening fallout between Seoul and Tokyo. South Korea cheered in April when the WTO ruled in its favour a dispute over fish; now Tokyo is proclaiming its success in the fight over valves.

In the export controls dispute, top Japanese officials have insisted that the measures were purely a domestic matter related to arms control, based on WTO rules, and were not countermeasures against the South Korean court ruling on wartime servitude.

Pascal Lamy, the former director-general of the WTO, told the Financial Times in a recent interview that if the dispute was heard by the organisation Japan would likely “have to prove” its assertion that exports to South Korea posed a security threat.

“There is a provision in the WTO which says you can obstruct trade for national security reasons . . . Pretending there is a national security concern is not enough. There has to be substance,” Mr Lamy said.

The WTO has provided an effective forum for Japan and South Korea to settle trade disputes — something they have struggled to find in the broader argument over forced labour. However, the WTO’s appellate body is in danger of collapse because the US is refusing to appoint new judges due to concerns about legal over-reach.

If the appellate body ceases to function, the WTO will be unable to provide any final ruling on the export controls case, making it harder for Japan and South Korea to reach a settlement.

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