Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Companies lashing out at Japan
Korea Chamber of Commerce and Industry headquarters in Jung-gu, Seoul
By Nam Hyun-woo
By Nam Hyun-woo
/Companies here expressed regret over Tokyo's decision to remove Seoul from its “whitelist” of countries receiving preferential trade treatment, saying the exclusion will seriously undermine Japan's status in the global economy and reputation as a WTO member, major business associations here said Friday.
In a joint statement, the country's five major business associations said the removal was “economic retaliation” over diplomatic issues that will negatively impact the economies of both Korea and Japan.
The associations are the Korea International Trade Association, the Korea Chamber of Commerce and Industry, the Korea Federation of SMEs, the Korea Enterprises Federation (formerly Korea Employers Federation) and the Federation of Middle Market Enterprises of Korea.
The associations said Tokyo's action will not only slow Korea's economic growth but also damage Japanese industries and the global economy.
“As core nations of the global value chain, Korea imported Japanese materials and produced intermediaries, which global companies use to make end products,” the associations said. “However, the exclusion will bring chaos to the value chain and hurt many global companies. This will undermine Japan's economic status in the global market and its reputation as a WTO member.”
The Federation of Korean Industries (FKI) issued a separate statement immediately after Japan announced the removal.
“The two countries play key roles in the global value chain and serve as the main pillars of a trilateral security relationship with the U.S.,” FKI Executive Director Bae Sang-geun said. “Despite having such a close relationship, the Japanese government launched additional export restrictions and we are concerned that they will seriously undermine the cooperative economic relations between the two countries.”
The Japanese Cabinet decided to remove Korea from the whitelist during a meeting presided over by Prime Minister Shinzo Abe. Following the decision, Japanese Trade Minister Hiroshige Seko announced at a press briefing that the new measure will take effect Aug. 28.
The removal is expected to bring on tough authorization processes on 1,100 industrial items which Japanese firms export to their Korean counterparts. These items include carbon fiber, machine tools, reactors and a number of other important industrial materials.
Analysts said the new restrictions will deal a heavy blow to the chemical, machinery, auto parts and semiconductor sectors, and a number of domestic manufacturing industries. They may also slow Korea's economic growth, because these industries rely heavily on products and materials affected by the removal to make batteries, hydrogen cars and other products that are the country's new growth engines.
According to Hyundai Research Institute, Korea relied on Japanese imports for more than 90 percent of 48 items last year, worth $2.78 billion. Those items include six mineral, 14 chemical and six machinery products. Other items, such as semiconductor wafers and carbon fiber are also imported from Japan.
The domestic auto parts industry is seeking alternatives to Japanese carbon fiber required to build hydrogen tanks for Hyundai's Nexo fuel cell electric vehicle.
According to company officials, the Nexo uses a hydrogen tank built by Iljin Composites. Iljin is currently testing carbon fiber produced by Hyosung Advanced Materials to replace products from Japan's Toray, but it will take some time before this can actually be used as a replacement.
Other industries are also looking for alternatives to Japanese materials and products, because they believe imports of those have virtually ended.
“The biggest problem in the whitelist removal is that it gives Japan the power to delay export procedures on whatever products it wants,” a conglomerate official said. “This kind of uncertainty is the biggest setback for companies, which have to predict supply and demand.”
“Korea-Japan trade tensions have escalated into a trade war,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit. “If the approval process is protracted and many licensing requests are delayed or rejected, then this could potentially be very disruptive to Korea's manufacturing supply chain and manufacturing production processes.”