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What’s Driving Japan’s Trade Restrictions on South Korea?

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Tokyo Report

What’s Driving Japan’s Trade Restrictions on South Korea?

The export controls are a policy of last resort from a frustrated Tokyo.

What’s Driving Japan’s Trade Restrictions on South Korea?
Credit: US Chairman of the Joint Chiefs of Staff

Since the 1980s, countries around the world have bought into the free trade ideology and liberalized trade. Even after the United States, the traditional leader of the global free trade regime, dramatically rejected the benefits of international cooperation by pulling out of the Trans-Pacific Partnership (TPP), Japan stepped up to keep the momentum going for TPP-11. As the world’s fourth largest exporter and fourth largest importer, with limited natural resources and an aging population, it makes eminent sense for Japan to pick up the baton that the United States dropped.

Japan’s leadership on free trade and standardizing regulations is also in line with its self-portrayal as the champion of a rules-based international order. The emphasis on rules is intended to distinguish Japanese leadership from China’s. And yet – despite Japan’s economic self-interest in free trade and rhetorical claims to international standing on the basis of rules – Japan is in the headlines across the world for escalating a trade dispute with South Korea, its third largest export destination and fourth largest import origin. What is behind this seemingly self-defeating policy decision?

The “trade” aspect of the ongoing Japan-South Korea dispute over historical issues began in early July when Japan placed controls on the exports of fluorinated polyamids, photoresists, and hydrogen fluoride – chemical materials used to make computer chips, display panels, and other high-tech products. Japan accounts for nearly 100 percent of fluorinated polyimide and photoresist, and about 70 percent of hydrogen fluoride. This is technically not a blanket export prohibition, but a requirement that Japanese companies apply for licenses for each of these three chemical materials when they sell to South Korea – a requirement that gives the Japanese government the bureaucratic room to delay exports for up to 90 days. However, it can become a de facto embargo if the Japanese government does not grant export permissions.

This restriction is affecting the global semiconductor industry, and specifically Samsung and SK Hynix within South Korea. Officially, Japan imposed these export controls as a matter of Japanese national security, accusing South Korea of not properly controlling these sensitive materials (i.e. implying that Seoul allows some of these sensitive materials with military applications to reach North Korea).

This is the same official reason that Japan is considering removing South Korea from its “white list” of countries, a decision that is expected at the end of this week. If South Korea is dropped from the “white list,” then Japanese exporters will have to apply for permission to export to South Korea a wider range of items that can be used in manufacturing weapons. If things go poorly for South Korea, this decision may be implemented as early as late August. Setting aside the validity of Japan’s legal justification, it is clear that the national security explanation alone cannot explain the timing or the severity of Japan’s trade restrictions.

These trade restrictions are, for all intents and purposes, retaliation for the South Korean high court’s decision last October to allow individual victims of Japan’s colonial era policy of forced labor to go after Japanese companies’ assets in South Korea. The Japanese government maintains, as it always has, that these issues were resolved under the broader 1965 agreement that normalized relations between the former colonizer and former colony. At the time, dictator Park Chung-hee accepted Japanese aid and loans to spur South Korea’s rapid industrialization and the matter of individual compensation was closed. Or so Japan thought.

The question of compensation of forced laborers – one of the recurring historical issues that continues to poison Japan-South Korea relations – can explain the timing and the extent to which Japan is willing to temporarily sabotage its own economic well-being. Though Japanese officials deny a connection between the two issues, this “trade” dispute is about Japan trying to get South Korea accept the 1965 settlement.

Japan has no interest in weaponizing trade. As already mentioned, Japan’s economic well-being and prosperity is dependent on free trade – on its ability to import raw materials and export high-tech finished goods. Japan would be one of the first victims if free trade falls to protectionism, or the norms and rules binding the international economy together erode.

This is not Japan’s policy of first choice, as it is a policy that could hurt Japan’s economy in the long run as well if this leads to a permanent shift of South Korean supply chains away from Japan. It is a policy of last resort to get the progressive government in Seoul to accept what Japan sees as the foundation of the bilateral relationship: the 1965 terms of normalization. As Brad Glosserman, deputy director of and visiting professor at the Tama University Center for Rule-Making Strategies, notes, “For a country that is so dependent on free and open trade to do something like this speaks to the level of frustration that Japan feels, and that Japan does not have many other options. Japan is really just trying to signal their resolve – the Japanese nation’s willingness to pay a price – to get this addressed.”

What does Japan want from all of this? What is Japan’s endgame? Or in other words, what would South Korea have to do for Japan to return to business as usual? There are four steps that South Korea would need to take, Glosserman argues, each demonstrating the liberal Moon Jae-In administration’s commitment to taking Japan’s concerns about the bilateral relationship seriously. First, at the most basic level, Moon and the progressive left have to stop using historical issues as a contemporary political issue. Moon needs to demonstrate the kind of leadership Kim Dae-jung did in 1998, publicly committing to a “forward-looking relationship.” Second, Moon’s administration would have to accept the binding nature of the 1965 normalization.

Third, regarding the court decision on individual victims of forced labor, the Moon administration can accept the legal process as having been completed, but make the political decision to not enforce the decision, to protect Japanese company assets in South Korea from expropriation. Moon can make this decision on the basis of South Korea’s “national interest” in maintaining positive relations with Japan. Fourth, South Korea can withdraw the WTO case and make a commitment to addressing Japanese concerns about sensitive materials reaching North Korea via South Korea.

None of these steps will be easy for the Moon administration. But that is the point for Japan – Japan wants a costly signal from Moon. Without excusing Japanese colonial and wartime atrocities, one can recognize that Japan’s postwar conservative leaders have made costly decisions for the sake of maintaining positive relations with South Korea. Conservative Shinzo Abe chose not to revise the Kono Statement, and it was Abe’s government that negotiated the 2015 “comfort women” deal. The deal Abe reached with former President Park Geun-hye may not have gone far enough to please all segments of the South Korean population, but it also went farther than it would have pleased Japanese conservative nationalists to go.

Japanese conservatives are getting tired of reaching deals with South Korea and then having them unilaterally reinterpreted, as in the case of the 1965 normalization, or abrogated, as with the 2015 “comfort women” deal.

To understand why a free trade-dependent, rules-upholding country is apparently willing to undermine the rules of free trade with one of its most important trading partners, it may be useful to divide rules, norms, laws, treaties – the “stuff” of international order – between the content of what they regulate, e.g. trade, and the attributes that make them meaningful, e.g. mutual acceptance, reliability, and finality. In an ironic twist, Japan is using a particular subset of international rules, norms, laws, and treaties (specifically regulating trade) to fight for a common understanding that rules, norms, laws, and treaties (but especially those concerning historical issues) ought to be mutually accepted, reliable, and final once signed.

Even if the agreement reached in years or decades prior is not the preferred agreement of the current generation, there needs to be an acceptance of those agreements as constituted. Perhaps the only silver lining in all of this is that a liberal president rules in South Korea and a conservative prime minister leads Japan — “To forge an enduring deal,” Glosserman emphasizes, “this combination is what you need.” After having been burned twice – once after reaching an agreement with a dictatorship and once after reaching an agreement with a democratically-elected conservative administration – an agreement reached with a democratically-elected liberal administration may have greater weight in Japanese estimations of its future durability. But as Japan has abided by (would have abided by) these past agreements, Tokyo wants to see the initiative for another attempt come from South Korea.

Japan’s trade restriction on exports to South Korea is not Tokyo’s optimal policy, and it is not a long-term solution to Japan’s historical issues with South Korea. It is a desperate attempt by one country trying to get its valuable economic and security partner to commit to putting the relationship of today and the relationship of the future ahead of the issues of the past.