2019 Japan–South Korea trade dispute
The 2019 Japan–South Korea trade dispute (Korean: 2019년 한일무역분쟁, Japanese: 2019年 日韓貿易紛争), sometimes also known as South Korea–Japan economic war (Korean: 한일경제전쟁, Japanese: 日韓経済戦争), is an ongoing economic conflict between the world's third and eleventh largest national economies, Japan and South Korea. The conflict was caused by decision of the Japanese government to tighten its several exports on 1st July 2019 and remove South Korea from whitelist on 2nd August 2019, however, it was because South Korea did not comply with export control security regulations and ignored the Japanese government’s request to have a bilateral dialogue for 3 years.
The root cause of the conflict was South Korean government not complying with export control’s security regulations, but it was also characterized by a dispute over legacy of Japanese colonialism of the Korean Peninsula from 1910 to 1945, particularly the issue of "forced labour" and comfort women compensation. The trade dispute has caused a significant deterioration in Japan–South Korea relations to the lowest point since the two countries normalized their diplomatic relations in 1965.
- 1 Background
- 2 Chronology
- 3 Reactions
- 3.1 South Korea
- 3.2 Japan
- 3.3 Other countries and viewpoints
- 3.4 International organization
- 4 Effects
- 5 Controversy
- 6 See also
- 7 Notes
- 8 References
- 9 External links
Japan and South Korea are some of the world’s largest economies, ranking 3rd and 11th, respectively, in terms of GDP. South Korea, the largest memory chip producer in the world, and Japan, the largest supplier of crucial materials in chip production, have so far served as the cradle for technological products such as smartphones and personal computers.
South Korea is home to Samsung Electronics and SK Hynix, companies that together comprise of two-thirds of the world's memory chip production. In Japan, 3 companies (JSR Corporation, Showa Denko, and Shin-Etsu Chemical) as well as Kanto Denka Kogyo, produce 90% of the world's Fluorinated polyimide and Photoresist, both of which are used for LCD and OLED displays, and 70% of Hydrogen Fluoride, used to make LSI, DRAM and NAND flash memory. South Korea imports 94% of Fluorinated polyimide, 92% of Photoresists, and 44% of Hydrogen Fluoride from the country which produce the materials, according to data from Korea International Trade Association.[note 1] On the other hand, Japan had export dependency against South Korea of three materials at 22.5%, 11.6%, and 85.9% respectively.
The two countries established diplomatic relations in December of 1965, following the signing of the normalization treaty, which occurred in June of that same year where Japan recognize South Korea as the only legitimate government of the whole Korean Peninsula and agree to provided South Korea with $300 million grant in economic aid and $200 million in loans together with $300 million in loans for private trust, a total of $800 million as "economic cooperation". Before then, the newly-independent South Korea refused to trade or open diplomatic relations with Japan because there was a trauma over the Japanese occupation. As the relations continues to developed, both countries are close neighbours and one of the strongest allies of the United States in Asia, to counter the influence of China, Russia, and North Korea. However, their relations have been greatly deteriorating due to many disputes, such as the Liancourt Rocks dispute (known as Dokdo in Korean and Takeshima in Japanese), refusal of the Japanese government's sincerity to the apologies to Korea, issues regarding reparations for World War II mistreatment of Korean citizens, as well as many other disputes involving the two countries.
Comfort women issue
The issue over comfort women is one of many issues that shadow the further relationship between Japan and South Korea. During Japanese colonial rule in the Korean Peninsula, many of Koreans, both North and South, were forced to work at dozens of Japanese companies, often in brutal conditions. In World War II, they even forced to work on building ships and aircraft for Imperial Japan war efforts against the allies. Even after the two countries normalize their relations in 1965, the Japanese colonial legacy continues to haunt bilateral ties between the two countries. Many of South Koreans, mainly surviving comfort women, demanding more compensation and apology from the Japanese government, as well as individual claims for compensation.
At the start of negotiations in 1951, the South Korean government initially demanded $364 million ($3.6 billion in current 2019 dollars) in compensation for Koreans forced into labour and military service during the Japanese colonial rule: $200 per survivor, $1,650 per death and $2,000 per injured person. In the final agreement reached in the 1965 treaty, Japan provided an $800 million ($6.5 billion in 2019 dollars) aid and low-interest loan package over 10 years. Japan intended to directly compensate individuals, but the South Korean government insisted on receiving the sum itself and "spent most of the money on economic development, focusing on infrastructure and the promotion of heavy industry".
On 28th of December 2015, the two countries signed an agreement regarding settling the issue of "comfort women" during World War II, which was deemed final and irreversible if Japan fulfills its responsibilities. Japan agreed to pay ¥1 billion (₩9.7 billion; $8.3 million) to a fund supporting surviving victims while South Korea agreed to refrain from criticizing Japan regarding the issue and to work to remove a statue memorializing the victims from in front of the Japanese embassy in Seoul. But the agreement was protested by many people, especially the elderly comfort women survivors who thinks the agreement is "humiliating" and cannot trusted the government.
On 11 May 2017, newly-elected South Korean President Moon Jae-in announced the agreement would not be enacted in its current stage and that negotiations for a deal between Japan and South Korea over the comfort women dispute had to start over. Meanwhile in January 2018, Moon calls the 2015 agreement "undeniable, but calling Japan to accept the truth and make a heartfelt apology to victims.
South Korean government, under Moon Jae-in's administration then discarded the 2015 agreement and shut down the Japan-funded comfort women foundation which was launched in July of 2016 to finance the agreement's controversial settlement in 21 November 2018. The decision sparked protest by Shinzō Abe's government, warned of risking damaging ties between the two countries.
The two countries' bilateral relations then declined in late 2018, after Supreme Court of South Korea and other high courts made an decision that order several Japanese companies, including Mitsubishi Heavy Industries, Nachi-Fujikoshi and Nippon Steel, to make compensations to the families of South Koreans who were unfairly treated and illegally forced to supply labour for World War II war efforts, such as building ships and aircraft for Japan without pay at a Mitsubishi shipyard and machine tool factory in Nagoya in 1944. These decisions infuriated the Japanese government, claiming that the issue was settled under the 1965 treaty of Normalization of Diplomatic relations between the two countries.
In 30 October 2018, the Supreme Court rejected appeals to overturn a 2013 order requiring Nippon Steel to pay compensation to four South Korean workers who underwent forced labour which occurred during the war and ordered to pay each of the workers an individual sum of 100 million won (US$87,700). A Month later, in 30 November 2018, Gwangju High Court rejected an appeal by Mitsubishi Heavy Industries regarding 2013 appeals of court decision that the company must pay 80 million won ($71,000) to compensate each of the 23 plaintiffs and ordered to compensate 28 South Korean elderly people who forced to work in Japanese company where the company in a separated rulling ordered to pay $134,000 to each of five plaintiffs or their families. In 18 January 2019, Seoul High Court dismissed Nachi-Fujikoshi appeal of October 2014 Seoul Central District Court decision against an order that it must pay each 17 South Korean women 80 million to 100 million won (US$69,000 to US$89,000) because the victims were “tricked” into forced labour in harsh conditions.
In 8 January 2019, Daegu District Court approved a request by paintiff to seizure of 81,075 shares held by Nippon Steel in POSCO-Nippon Steel RHF Joint Venture (PNR), a South Korea-based joint venture with POSCO, which is part of 2.34 million shares worth about 11 billion won ($9.78 million) owned by the Japanese steelmaker. These decision was followed in March 2019 by same decision for seizure of Mitsubishi Heavy Industries trademark and patent assets by Daejeon District Court.
On 19 June, South Korea have proposed to have join fund with Japan for compensation of forced labour victims but Japan rejects the offering. Instead, Japan called for the establishment of an arbitration panel as a new step toward resolving the dispute. The panel would consist of one member each from third-party countries.
On the 1st of July, Japan announced that it would tighten the export of chemicals that are critical for the South Korean semiconductor industry. These decisions, effective on 4 July, put new restrictions on the industry, including a licensing process, forcing exporters to seek approval for each shipment up to 90 days. Deputy Chief Cabinet Secretary Yasutoshi Nishimura has clarified that the restrictions reflect current national security concerns. The South Korean government has replied that the Japanese government is showing "economic retaliation" towards a matter that was decided by Supreme Court of South Korea, whose decisions cannot be altered by the Government of South Korea.
In a press release regarding the export restrictions, the Japanese Ministry of Economy, Trade and Industry (METI) gave a lack of trust on their side for South Korea's export control and restriction system, along with another reason, as justification of the restrictions. While METI has not given specific examples, some media reports claim South Korea may have passed on restricted chemicals to the United Arab Emirates, Iran, or North Korea. For example, a Japanese broadcaster Fuji TV and a Japanese newspaper Sankei Shimbun in 10 July reported that over the past four years (from 2015 to March 2019), South Korea found 156 strategic goods with potential weapon being secretly exported. The list included ingredients for the nerve agent VX, used in the assassination of Kim Jong-nam, the half-brother of North Korean leader Kim Jong-un, and hydrofluoric acid that had been smuggled to the United Arab Emirates and elsewhere.
The South Korean government denied Japan's allegations. South Korean Trade, Industry and Energy Minister Sung Yun-mo stated that an emergency inspection on companies importing chemicals from Japan came up with no evidence those chemicals were being exported to North Korea, and that Japan's claims were groundless and should be stopped. A Bareunmirae Party lawmaker Ha Tae-kyung made a further claims that Japanese authorities uncovered suspected smuggling of strategic items by Japanese companies to North Korea, citing data from the Center for Information on Security Trade Controls (CISTEC), a non-governmental organization that tracks data on export controls. Others view Japan's trade restrictions as partially being an excuse to retaliate against suspected intellectual property infringement by South Korean companies.
Then South Korea, on behalf of the Ministry of Foreign Affairs and Ministry of Trade, Industry and Energy announced a plan to withdraw Japan's export restrictions during the meeting of the WTO Council on Trade in Goods in Geneva on 8-9 July.
Samsung Electronics vice chairman Lee Jae-yong travelled to Japan on the 7th of July to seek support from Japanese suppliers. He returned from Japan on the 12th and reportedly secured resources needed for its production for long term.
Representatives from Japan and South Korea held a meeting in Tokyo on the 12th of July to discuss the worsening diplomatic relations between the two countries, but failed to resolve the issue.
The two countries took the issue over high-tech exports restrictions to WTO in Geneva on 24 July, where they sent senior officials. Japan sent the director-general of economic affairs of Foreign Ministry, Shingo Yamagami. South Korea also sent deputy trade minister Kim Seung-ho.
On 2 August, Japanese cabinet approved the removal of South Korea from the "white-list". The countries that have the most-favoured status as trade partners, consisted of 27 countries. The loss of “most-favoured trade status” will apply to dozens more products on a list of items that potentially could be converted to weapons. The decision came after public comments from 40,000 people, which to more than 90% are in favour. The Trade Minister Hiroshige Seko said that the trade measure was not intended to hurt bilateral ties of both countries. Then, the government officially promulgates the revision bill that excluded the country from the list of preferential trade status and published in KAMPO, Japan's official gazette on the 7 August. However, the bill didn't stipulate any additional items that Japan will apply restrictions on, aside from the three chip and display materials.
On 8 August, the Japanese government, at a news conference held by Seko, approved shipments of a key material used in making chip and displays to South Korea in order to ease tensions between the two countries. The approval was granted on the 7th of August, and according to South Korean Prime Minister Lee Nak-yeon, there was a material known as EUV photoresists, which is crucial for Samsung's advanced contact chipmaking production. But Japan warned that if these three high-tech materials are found to be improperly used, the country will expand their strict checks of exports, including expanding application examination.
Japan decision to downgrade and remove South Korea from white-list takes effect on 28 August 2019, 21 days after promulgation. That means the Japanese manufacturers must apply for approval for each technology-related contract for 1,120 strategic materials that will exported to South Korea, rather than the simpler checks granted a preferential trade partners.
On 29 August, Japan approved the first export materials since South Korea's removal from the most-favoured trade status. There is a shipment of a Hydrogen Fluoride, whose materials exported for the first time since Japan tightened its exports, South Korea's trade ministry confirmed. The main recipient of the material is Samsung Electronics. But Japan refused to confirm the export.
South Korean Trade, Industry, and Energy Ministry announce to file a complaint with the WTO over Japanese tighter export controls and restrictions of three materials. The trade minister Yoo Myung-hee, told media in 11 September that she described the restrictions as a “discriminatory act directly targeting South Korea, and it was politically motivated”.
The South Korean government's stance on the dispute is that Japan's export control is groundless and unfair. It argues that it has a sufficient catch-all control system and the lack of communication was on Japan's end. They further stated that Japan's export control is in violation of international law and will be both disruptive and harmful to both countries economies and the global market. The South Korean government urged Japan to withdraw its export control as they claim would damage their relationship further.
Before whitelist removal
The South Korean government, led by the First Vice Foreign Minister Cho Sei-Young, summoned the Japanese ambassador to lodged the protest against the export curbs by Japan on 1 July as the country prepares to file the lawsuit to the World Trade Organization. Trade, Industry and Energy Minister Sung Yun-Mo called Japan's move "deeply regrettable".
Then, on 10 July, President Moon Jae-in in a meeting with executives from the country's 30 conglomerates, urged Japan to “return to the principle of free trade that Japan has been pushing for” and said he would “take responsive measures” if South Korean companies were harmed by the new restrictions aimed by Japanese government.
After whitelist removal
In response to Japan's removal of the country from the list, the government held emergency cabinet meeting on the same day as Japan's announcement (2 August) and broadcast live on television across the country. President Moon warned Japan against the decisions. He warned that the country will “resolutely take corresponding measures”. He also said that country 'won't be defeated again' by Japan.
South Korean government is taking measures to remove Japan from the country's own so-called "White-list", consisted of 29 preferred trade partners as retaliation of Japan's move, but the decision was delayed on 8 August. The government then announce to do so on 12 August. The decision will take effect in September 2019 after the government complete its public opinion gathering process before the government can make public announcement. Upon the revision takes effect, Japan will fall into the newly established group A-2 under Korea’s export control system. As a member of group A-2, Japan will be treated the same as countries in group B with some exceptions. The government also announced to tighten its import quota on fishery and agricultural products from Fukushima, which was introduced due to concerns of radioactive contamination from the Fukushima Daiichi nuclear disaster in 2011.
In 15 August, 74th anniversary of Korea's liberation from Japanese rule, President Moon delivered a speech, urged Japan to return to dialogue to ease the tensions. Moon also saying South Korea has "not dwelt on the past" and expressed hope that Japan will play a leading role together in facilitating peace and prosperity in East Asia.
In order to reduce its reliance on Japanese Industries, the government announced a comprehensive research and development strategy. This includes a plan to spend 7.8 trillion won ($6.48 billion) in research and development for local materials, parts, and equipment over the next seven years. The government also pledged to spend 5 trillion won ($4.12 billion) to increase its own capabilities in the development of key industrial materials. The massive R&D investment will take place starting in 2020 until 2022.
South Korea propose a record budget about 513.5 trillion won ($423.7 billion) for 2020 to boost its slowing economy, represents a 9.3 percent hike from 2019 budget. A key centrepiece of the spending proposals is 24.1 trillion won ($19.9 billion) set aside for research and development (R&D) in 2020, which is up 17.3 percent from 2019, the highest in a decade.
In response to Japanese trade restrictions to South Korea, regional governments across the country launched a boycott of Japanese products and exchange programmes. The action includes the suspension of various activities such as public procurement and leasing of Japanese products, official business trips to Japan and “sisterhood” relationships with Japanese cities.
Two regional legislative bodies, Seoul Metropolitan Council and Busan Metropolitan Council on 6 September, passed non-binding ordinance labelling 284 Japanese companies including Mitsubishi Heavy Industries as "war criminal companies" to denounce the alleged use of forced labour by these companies. Under the ordinances, these Japanese companies are to be given the designation, with the mayors and other officials of the cities being requested not to purchase products from the companies in the future. In the case of Busan, there is also a provision that stickers saying "product of a war crime company" be attached to products that have already been purchased.
The Liberty Korea Party, while calling on Japan to remove the export restriction, have also criticized President Moon's handling on the issue. Rep. Na Kyung-won claimed that Moon's administration have exacerbated the issue and have also damaged relationship with the US to the point where US will not intervene. The LKP called for the government to focus on finding a diplomatic solution with Japan rather than a take hard-line stance.
All political parties in South Korea have voiced the need to restrict Japanese imports. So far, they have announced plans to create a "Pan-national" emergency body in response to the situation. South Korea's major political parties have agreed to establish a bipartisan body on 31 July 2019.
South Koreans are very unhappy with the Japanese government’s decision to removing the country from the whitelist. They fear that the restriction will hurt the South Korean economy and blame the Prime Minister Shinzō Abe. Many South Koreans also feel that these restrictions are unjust and unfair, because of what Japan did during colonization of the Korean Peninsula from 1910 to until the end of World War II in 1945.
In response to Japan's move, on 5 July, a group of a South Koreans took to the street to announce a boycott of Japanese products. Since then, many of South Koreans took the actions to boycott anything Japanese, range from beer, cosmetics, cars, and clothes. They even cancelling a trip to Japan to protest the country's move to restrict South Korea's exports.
On Blue House presidential petition website in July 2019, Nearly 27,000 people signed a petition calling for a boycott of Japanese products and an end to tourism to Japan. If 200,000 people sign the petition within a month, the government is obligated to respond to the matter.
About 5,000 people, including members of 596 civil groups, held a candlelight vigil on 27 July, in Gwanghwamun Plaza and in front of the Japanese embassy to criticize Prime Minister Shinzo Abe for imposing trade restrictions. They also held another candlelight vigil in front of the Japanese Embassy in Seoul, on 3 August, with more than 15,000 people according to organizer, participate in the rally. A similar protest was held on 10 August, now with a declaration was signed by 1,000 students. The protesters also demand South Korea's removal from GSOMIA, which is a military information-sharing pact with Japan. The number of participants was similar to second rally.
They also held large scale candlelight vigil rally at Gwanghwamun Plaza, Chosun Ilbo headquarters, and the Japanese Embassy on 15 August, which is the 74th anniversary of the liberation of Korea from Japanese colonial rule. They estimate that 30,000 to 100,000 people participate in the rally. In contrast, conservative groups also held simultaneous rally, called for pushback of anti-Japanese sentiment.
There are two people that set himself in fire to protest Japanese government decision, which held in front of the Japanese Embassy In Seoul. The first incidents was occurred on 19 July, at 3:24 am local time, which a men died after the incident, and second incident occurred on 1 August by a 72-year-old man, which is in critical condition.
The boycott of Japanese products spread into the cultural sector, with release of latest Doraemon film series Doraemon: Nobita's Chronicle of the Moon Exploration, which is originally scheduled on 14 August, had been postponed indefinitely even after the film's Korean dubbing was finished. In July, another Japanese animation films, Butt Detective the Movie and Detective Conan: The Fist of Blue Sapphire, was subjected to unfavourable online reviews on internet and sold only 134,000 and 200,000 tickets respectively.
A poll conducted by Realmeter involving 504 adults reveal that, as of 24 July, 62.8% of respondents say they are boycotting Japanese goods. Another poll conducted by Gallup Korea involving 1,005 adults found that only 12% held favourable views on Japan, while 77% have negative views. Likewise the poll found that 61% of respondents blame the Japanese government for the conflict, while 17% hold the South Korean government responsible.
There were calls by many South Korean lawmakers to restraint or stopping their Investment in Japanese companies involved in their war crime against the many Korean slave labour. Korea Investing Corporation and National Pension Service faced pressure to do so. The pension fund then started to reviewing 1.23 trillion won ($1.1bn) worth of investment of Japanese companies whether the companies, as many as 75 companies should be dropped if proved to companies that linked to Japanese war efforts in World War II.
Some South Korean media have expressed concerns about the trade dispute; such as the large dependency on Japanese materials, the dispute prolonging, doubts about US intervention, and the government having few options to tackle the dispute. The Korea Times editorial have criticized the Blue House's response to the issue.
The Japanese government's stance on its export control is that it's implementation is due to deteriorating trust with South Korea. They argue that, while South Korea's catch-all control covers WMD-related goods, it has never clarified whether it covers conventional weapons as well. The Japanese government also claimed that South Korea has repeatedly postponed policy dialogues between the two nations. Japan also maintains that South Korea will simply be treated as a normal trade partner and will not get incentive measures as a "white country", the change does not break international law and that it's not an embargo.
In response to South Korea's move to remove Japan from the list of most favoured trade partners, the Trade Minister Hiroshige Seko said on Twitter in 13 August that South Korea failed to show how Japan had purportedly fallen short of international export control measures. He also said Japan does not understand why it has been removed from neighbouring country's list of trusted trade partners.
Japanese government decision to restrict some exports prompted criticism from many people, a group of 75 people consists writer Satoshi Kamata, economic analyst Katsuto Uchihashi, and Akira Kawasaki, signed an online petition called both countries to hold dialogues to resolve the conflict. They worried about escalating tensions between two countries.
According to a survey conducted by Asahi Shimbun on 15 July, 56% of respondents support the government's export control while 21% did not. Among those who support Prime Minister Shinzō Abe, 74% of respondents support it. Among those who disapprove of Shinzō Abe, 43% say they support the export control while 36% say they're against it.
Despite majority of Japanese support the government actions, on 4 August, there was a group by a group of 200 demonstrators, consists of Japanese people and Koreans living in the country, to protest Abe's government in streets of Shinjuku. They called Abe to stop export curbs to South Korea. The protesters who participate then grow on 8 August and these protesters urging Abe to resign as Prime Minister. The organizer of protesters enlisted new participants through many social media platforms.
Other countries and viewpoints
Many countries showed concern about Japan's actions hurting the global tech industry. Tech companies in the United States issued a letter to both countries urging the two nations to negotiate a resolution to the dispute.
Five of America's largest tech industry groups including the Semiconductor Industry Association, which Qualcomm and Intel Corporation as a members, among its other companies, issued a joint letter to Japanese Economy Minister Hiroshige Seko and South Korean Minister of Trade Yoo Myung-hee. They asked both sides to refrain from escalating their conflict.
Chinese Foreign Minister Wang Yi urged Japan and South Korea to show goodwill and resolve their trade spat through negotiations and dialogue.
On the other hand, US President Donald Trump voiced concern about the worsening ties between Japan and South Korea. He said on 9 August that trade and history dispute put the country (United States) in a "very difficult position". He urged the two countries to "get along".
Some observers have pointed out that the dispute may have been exacerbated by both of the countries' leaders to drum up political support. During the beginning of the trade dispute Prime Minister Shinzō Abe's ruling Liberal Democratic Party were gearing up for Upper House election on 21 July. At the same time, President Moon Jae-in faced criticism for his economic policy and lack of progress in relationship with North Korea. Observers noted that both leaders are unlikely to back down from the dispute due to political pressure.
Many analysts and experts have viewpoints about the trade dispute as well. Political analyst Paul Triolo, who also practice head of geo-technology at Eurasia Group, told CNBC that since Japan and South Korea are US allies, the United States will likely to involved in mediating the two countries in addition to China because from US perspective, this is a "lose-lose confrontation", which could also inadvertently benefit China. On the other hand, Waqas Adenwala, Asia analyst at the Economist Intelligence Unit said it may be “awkward” for China to mediate in this dispute, as both South Korea and China were victims of Japan’s invasion and brutal killings during World War II.
Other analyst and experts, such as Kim Hyun-Chul, an expert on Japanese enterprise at Seoul National University, told ABC News unlike trade of finished goods, high-tech industry goods that are sourced globally are interdependent. Countries that rely on South Korea's semiconductors such as the United States, China and even Japan will all be adversely affected, causing a domino effect on the global supply chain in computer and smartphone industries. Meanwhile Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said U.S. electronics companies, many of which have large production hubs in both the U.S. and China, are vulnerable to supply shortages of South Korean memory chips, given the importance of South Korea as a supplier of chips not only hardware such as mobile phones and electronic products but also data processing programs.
China-Japan-South Korea meeting in Beijing
In 21 August, the two countries that involved in own trade war and China, who have a trade war with the United States, held a trilateral meeting in Beijing. In that meeting, Japan and South Korea agree for dialogue to resolve a conflict between the neighbouring countries over compensating Korean forced labour that has spilled over into trade war. The then Foreign Minister, now the Minister of Defense Tarō Kōno said that the two countries shared the view on the need to resolve the dispute. But South Korea's Foreign Minister said that South Korea hopes that the country will stick to "free and fair" trade for prosperity in the region.
At request of South Korea, WTO agree to formally discuss Japan semiconductors export curbs to South Korea on 14 July. On 24 July, both countries presented their case at the WTO meeting although neither side gained any support from other WTO members.
The Japanese government decision to revoke preferred trade partner status for South Korea rattle global stock markets, aside from Trump tweet about tariffs on Chinese products, especially in Japan and South Korea.
On 2 August, days which occur the removal of South Korea from the list, Nikkei 225, Japanese main stock indices, fell 2.11% and South Korea's KOSPI down 0.95%, a 7-month low. Two index then down sharply in 5 August, with Nikkei 225 down 1,74% to 20,720 and Kospi down 2.56% to close at lowest level since 2016 at 1,946.98. KOSDAQ, which consisted tech-heavy and small and middle-cap stocks, plunged more than 7 percent to trigger trading halt. For the first time this occurred since 24 June 2016.
In the currency markets, South Korean won fell 9.50 won against US Dollar to closed at 1,198.00, lowest level since 9 January 2017. Then the currency plunged to more than 3-year low against the Dollar at 1,215.35 won on 5 August, lowest level since 24 June 2016 and sharpest daily loss since August 2016.
Meanwhile, many global financial markets plunge amid the decision and many stock markets take the selloff, with Nasdaq fell 1.32%, Dow Jones fell 0.37%, and S&P 500 down 0.73%. Also in other stock markets, for example, FTSE 100, DAX, and CAC 40 plunged 2.34%, 3.11%, and 3.57% respectively. On 5 August, the index took the one of largest daily loss in 2019, with Dow Jones down 767 points (2.98%), S&P 500 down nearly 3% and Nasdaq down 3.5%. Dow Jones in particular, down as much as 961.63 points.
The trade dispute (along with the China–United States trade war) is predicted to have a negative impact on South Korea's economy. Several financial services companies have lowered their forecast on South Korea's 2019 economic growth to around two percent or lower. The Bank of Korea has lowered South Korea's economic growth from 2.5% to 2.2%. In response to the economic forecast, they have also lowered interest rate from 1.75% to 1.5% on 18 July 2019.
Moody’s Investors Service, in a “Global Macro Outlook 2019-20” report released on 26 August, revised down forecast economic growth for both South Korea and Japan. For South Korea, the global ratings agency lowered economic growth forecast from 2.1% to 2.0% in 2019 and 2.1% in 2020 to reflect the fallout from trade dispute with Japan. the agency said the trade dispute “undermines Korea’s near-term growth prospects”. For Japan, the agency revised down economic growth forecast to 0.7% in 2019 and 0.4% in 2020. Moody's cites that Korea’s boycott movement against Japanese goods and services may dent sales. But it saw trade in intermediate goods – including those covered by the export curbs and also more correlated to the global economic downturn – as “posing a larger threat to the Japanese economy.”
Amid the trade dispute with Japan, South Korean consumer sentiment fall to 31-month low in August. According to data from Bank of Korea, the composite consumer sentiment index down 3.4 points to 92.5 from 95.9 in July. It is the lowest level since January 2017, a month after then-president Park Geun-hye was impeached. The July consumer sentiment index also down to 95.9, 1.6 points lower than in June, where it stood at 97.5.
Boycott on Japan
Boycotts of Japanese products and services in South Korea have affected Japanese brands and tourism to Japan.
On 29 July 2019, a Korean credit card company reported that credit card sales from Muji fell by 33.4%, ABC Mart sales fell by 11.4% and Daigaku Honyaku Center fell by 55.3%. Uniqlo sales dropped by 40% and the company announced it will close down its Jongno 3-ga store in central Seoul. Similarly, credit card spending from South Koreans in Japan have also declined.
Many Japanese automakers suffering steep fall in July and August. On 4 September, according to data from Korea Automobile Importers & Distributors Association (KAIDA), the combined sales of Japanese cars stood at 1,398 units in August, more than halving from a year earlier. By brand, Toyota saw its August sales plunging 59.1 percent on-year to 542 units, while Honda suffered an 80.9 percent on-year sales drop to 138 units and Nissan's car sales down 87.4 percent on-year to 57 units. The Japanese-brand automakers also suffering slump in July, with Toyota sales down 32% from the year earlier and Honda car sales tumbled 33.5% year-on-year. Lexus, South Korea’s third-most imported car brand after Mercedes-Benz and BMW, saw sales down 24.6% from the previous month, although that was still up 33% from the previous year, according to data from KAIDA in 5 August.
Japanese tourism were badly affected by tensions between the two countries as the number of South Korean tourists visiting Japan fell 7.6% in July to 561,700, the lowest number since September 2018, according to Japan National Tourism Organization. JTB Corporation reported that the number of Koreans visiting Japan declined by about 10%.
Some South Korean airlines announced they will reduce flights or suspend direct routes between major Japanese and South Korean cities. For Example, Korean Air, the South Korea's largest airline, will suspend its Busan-Osaka route (14 flights a week) from 16 September, as well as routes between Jeju and Narita (three flights a week) and between Jeju and Osaka-Kansai (four flights a week) from 1 November. The airline will also temporarily suspend some of its other routes: Incheon-Komatsu (three flights a week) and Incheon-Kagoshima (three flights a week) will be suspended from 29 September to 16 November, and Incheon-Asahikawa will be suspended from 26 September to 26 October. Air Seoul, a Asiana Airlines subsidiary, will suspend flights from Incheon to Toyama, Kumamoto, and Ube on 16 September and 27 October, respectively.
As the number of passengers travelling between the two countries is plummeting, Airfares from Japan to South Korea and elsewhere in many airlines dropped to less than $10. CNN reported that tt costs as little as 10,000 won ($8.38) to fly one-way from Seoul to Fukuoka on Eastar Jet, and only 1,000 Japanese yen ($9.35) the other way. If it incude tax and fuel surcharges, the same route costs 7,590 yen ($71).
South Korea's Ministry of National Defense was reviewing whether the country will maintain the General Security of Military Information Agreement (GSOMIA), the agreement that signed in November 2016 by South Korea and Japan to share sensitive information about threats from North Korea. The government considers all options regarding the agreement. The GSOMIA will automatically renewed unless one of two countries express an intention to cancel the agreement.
Deputy of Blue House national security office, Kim You-geun, announced on 22 August that South Korea decides to terminate the military intelligence sharing pact with Japan. South Korea said that Japan did not meet Seoul’s “national interests” to maintain the deal. The Blue House citing a “grave change” in security cooperation conditions that it attributed to the recent strengthening of export controls by the Japanese government. The decisions was announced after hours-long debate in National Security Command (NSC). On the other hand, South Korean Foreign Ministry added that the decision to terminate the military-sharing pact was due to trust issue between the two countries and separated from the country alliance with the United States.
Japan strongly protest South Korean government decision to terminate military-sharing intelligence pact, calling the move "extremely regettable. Japanese then Defence Minister Takeshi Iwaya, accused South Korea of failing to appreciate the growing threat posed by North Korea. The then-foreign minister, Tarō Kōno, said Seoul had “completely misjudged” the security environment and criticized it for mixing export controls with security issues. The Ministry summoned the South Korean ambassador to protest the move.
Japanese Prime Minister Shinzō Abe also denounced South Korea decision, saying such action "damages trust" with Japan. Abe accused Seoul of not keeping past promises.
Many U.S officials expressed concerns about the decision. The Pentagon top Asia's official, Randy Schriver, alarmed President Moon Jae-in that the administration halted the pact and urged Seoul and Tokyo to ensure that political disputes did not hurt security in the Asia-Pacific region. Meanwhile, the U.S Secretary of Defense Mark Esper said he was “very disappointed” with the decision and hoped Seoul and Tokyo would overcome their differences to face common threats, such as North Korea and China.
On 6 August 2019, a 1,000 anti-Japan banners starting to put up at centre of Seoul, as local workers hanging the banners from the streets of Jung-gu. Days before, on 5 August the district office, which headed by Seo Yang-ho, announced the plan to set the banner ahead of National Liberation day on 15 August. But the banner was sparked widespread anger by South Koreans who felt uncomfortable with the banners, as there was a widespread consensus that the anti-Japan movement is to be done by the civilians, not by the government authorities as this action might harm the motivation of anti-Japan movements and undermine the negotiation capability of the government. Then, the district head apologized for the situations and reversed his decision. A Cheong Wa Dae online petition website requesting to bring down the “No Japan” banners, had collected more than 20,000 signatures.
Pro-Japanese praising video
On 7 August, Chairman of Kolmar Korea Yoon Dong-han played a video by far-right Youtuber named Leeseob TV that praising Shinzo Abe and criticizing the Moon Jae-In administration. The video included vulgar language and comments such as “Abe is definitely a great leader and President Moon Jae-in should be thankful for not getting punched by Abe in the face”. This video sparked criticism against the chairman and prompt the company to issue the official statement regarding the video on 9 August. But the online communities still anger and started to boycott the company's products. The backlash prompt the chairman to issue public apology on 11 August and the chairman was resign after he apologized to 700 employees of the company. Shares of Kolmar Korea fell 6.2% after the official statement from the company.
- According to data from January to May 2019, South Korea imports 93.7% of Fluorinated polyimide, 91.9% of Photoresist and 43.9% of Hydrogen Fluoride from Japan. There was a significant decline from 2010 for Hydrogen fluoride imports, where South Korea imports 72.2% of the materials. Despite the first two materials also have a noticeable decline since 2010 in 97.7% and 95.5% respectively, the dependency of Japanese industries for the first two materials are still high, making South Korea still vulnerable to export restrictions from Japan.[failed verification]
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... Through careful consideration among the relevant ministries in Japan, the Government of Japan cannot help but state that the Japan-ROK relationship of trust including in the field of export control and regulation has been significantly undermined. Considering that certain issues in ROK's export control and regulation can only be addressed under a relationship of utmost trust, METI has concluded that it must change the current implementation practices such as licensing policies and procedures for export or transfer of controlled items and their relevant technologies to the ROK in order to ensure appropriate implementation of Japan’s own export control and regulation. In addition, as METI has recently found that certain sensitive items have been exported to the ROK with inadequate management by companies, METI will apply more stringent procedures over certain controlled items and their relevant technologies. ...
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Quotations related to 2019 Japan–South Korea trade dispute at Wikiquote