Japan could expand ‘strict checks’ on exports to South Korea

Japan South Korea
FILE PHOTO: South Korean Prime Minister Lee Nak-yon (R) disembarks from a plane to attend the upcoming Eastern Economic Forum in Vladivostok, on the tarmac at Vladivostok International Airport, Russia September 10, 2018. Vladimir Smirnov/TASS Host Photo Agency/Pool via REUTERS

SEOUL/TOKYO (Reuters) – Japan warned it could expand strict checks on exports to South Korea, after earlier granting approval for the shipment of a high-tech material to its neighbour for the first time since imposing tighter curbs last month.

The news, which comes as the export curbs on three high-tech components have sparked a diplomatic crisis between the U.S. allies, shows that while Japan is doubling down on pressure, it is also not keen to unilaterally stop exports.

“We are stepping up our diplomatic efforts to make Japan retract its economic attack,” South Korean Prime Minister Lee Nak-yon told government officials as he announced Japan’s decision to allow the export of EUV photoresists, crucial for Samsung’s advanced contract chipmaking production.

Top Japanese officials said the approval followed “strict examination” and cautioned the country could consider expanding its controls beyond the three high-tech materials.

“If improper use of exports are found beyond three high-tech materials, we will implement thorough steps to prevent recurrence including expanding application examination,” Industry Minister Hiroshige Seko said.

Samsung declined to comment.

Approval of exports for three materials could take up to 90 days, slowing but not halting shipments.

Seko added that Japan does not usually announce each export approval but did so this time after South Korea described Japan’s recent curbs as an “embargo” on shipments.

Shares of Tokyo Ohka Kogyo rose 5.6% and Stella Chemifa surged 6.1% after the approval was announced. Tokyo Ohka Kogyo makes photoresists and Stella Chemifa produces hydrogen fluoride, both materials affected by the export curbs.

However, it is unclear if the first approval from Tokyo signals a breakthrough in trade relations.

“They approved only one out of a number of items, and they said they would approve exports for pure civilian purposes,” a South Korean senior trade ministry official told Reuters.

Japan has removed South Korea from the “white list” of countries with fast-track trade status. It has also asked exporters to go through a lengthy permit application process each time they want to ship restricted items to South Korea.

That covers a broad range of items, including those applicable to weapons production and machine tools.

Japanese officials have cited unspecified security reasons for the export curbs.

But they have pointed to an erosion of trust after South Korean court rulings last year ordered Japanese firms to compensate wartime forced labourers, a matter Tokyo says was settled by a 1965 treaty normalising bilateral ties.

South Korean chipmakers are hitting a dead end in their quest to find alternatives for key Japanese materials that have been hit with export restrictions, raising the prospect of major disruption to their operations in coming months.

The curbs for three high-tech materials apply on EUV photoresists, used in producing chips based on an advanced technique known as extreme ultraviolet lithography.

That could hobble Samsung’s efforts to use the technology to catch up with rival Taiwan Semiconductor Manufacturing in the booming business of building advanced chips.

(Reporting by Choonsik Yoo and Hyunjoo Jin in Seoul, Kaori Kaneko and Tim Kelly in Tokyo; additional reporting and writing by Ju-min Park; Editing by Paul Tait and Himani Sarkar)

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