TOKYO (AP) -- Antagonisms between South Korea and Japan are already at the boiling point. They're bound to deepen with Tokyo's plan to expand controls over exports of sensitive materials by dropping its neighbor from a list of 27 countries granted preferential trade status.
The decision, expected soon, will ripple across the high-tech sector, further shaking up supply chains already rattled by trade tensions between the U.S. and China.
As of July 4, Japanese companies need case-by-case approvals to export to South Korea three materials used to make semiconductors and displays used in smartphones and other high-tech devices.
With the loss of South Korea's so-called "white country" status, that requirement will apply to dozens more products on a list of items that potentially could be converted to weapons, according to a Japanese trade ministry document. That's in addition to more than 200 other items requiring individual inspection for exports to all countries.
Japan's trade ministry says Seoul has undermined a "relationship of trust," including export controls, with lax controls on re-exports to other countries. South Korea denies that, as meanwhile tensions have risen with some South Koreans calling for boycotts of Japanese products.
As a "public comment" period ended Wednesday, Japan's trade minister Hiroshige Seko said Japan plans to go ahead and strip South Korea of its preferred status for export licensing. He said Seoul had failed to provide a convincing explanation to address Japan's doubts that South Korean export controls are strict enough to prevent sensitive materials from potentially being misused.
Officials are studying opinions submitted to the government, but that's largely a formality.
Chief Cabinet Secretary Yoshihide Suga has not confirmed reports the Cabinet will approve the plan as early as Aug. 2. If it does, the new rules would take effect on Aug. 23, forcing exporters to get licenses to sell a huge array of products ranging from alloys of aluminum to freeze dryers and vacuum pumps.
Approvals of such exports could take up to 90 days, slowing but not halting shipments. But ending South Korea's "white country" status would also mean Japan could limit exports of any product on national security grounds.
Officials say Japan found some sensitive items were shipped to South Korea "with inadequate management by companies" — without giving specific examples or saying which Japan-based companies were at fault.
In at least five cases that were exposed and penalized, Japanese exports to South Korea have ended up illegally in North Korea since South Korea was added to the white list in 2004, government documents show.
Adding another layer of ambiguity to the diplomatic dispute, Tokyo also has expressed dissatisfaction over demands for compensation for people forced to work for Japanese companies before and during World War II, an issue Japan says it settled under the 1965 treaty normalizing relations.
Japan and South Korea are both important hosts for U.S. military bases in East Asia. But they've been bickering for years over a territorial dispute and over South Korean demands for more contrition and compensation from Japan for its use of forced labor and sexual abuse of Korean women in military brothels during the Japanese occupation of the Korean peninsula in the early 20th century.
Until recently, such issues had not affected trade between the two countries, both of which depend heavily on exports. Japan has run a perennial trade surplus with South Korea, at $20.3 billion in 2018, with parts, chemicals and other materials and equipment accounting for about $15 billion of its exports last year.
The tighter approvals on the three items newly subject to licensing controls — fluorinated polyimides, photo resists and hydrogen fluoride — have had a limited impact, analysts say, because South Korean companies had at least 3-month stockpiles of the computer chips and displays that would be affected, thanks to slowing demand and worries over trade tensions between the U.S. and China.
But the tightening controls are adding to uncertainty for technology manufacturers: According to IHS Markit, in 2018 Korean firms SK Hynix and Samsung Electronics supplied 61% of memory components used in various electronics, relying heavily on Japanese suppliers.
"If restrictions remain, Korean chipmakers' production lines and therefore global semiconductor supply chains are likely to be disrupted. Korean chipmakers are major actors in global semiconductor supply chains," Fitch Ratings said in a recent report.
"The restrictions threaten not only Korean companies but also companies from many other markets that take part in the global technology ecosystem," it said.
Japanese companies are also already suffering from weaker demand.
Looking at the three sensitive materials already targeted, Japan supplies about 90% of the fluorinated polyimides, 90% of photoresists and 40% of hydrogen fluoride used by South Korean companies, Fitch said, citing the Korean International Trade Association.
For Tokyo Ohka Kogyo Co., a major Japanese semiconductor parts maker, the July 4 export measures have only affected a special type of EUV, or extreme ultraviolet wavelength, photoresists, so the impact has been limited, says company spokesman Takashi Ono.
But Ono said the tighter control on exports of hydrogen fluoride, an etching gas used in most semiconductor production process, is a bigger problem.
"Our concern is if that starts causing delays or halting our clients' production lines," he said. "But what can we do? There is nothing we can do."
"It's very unfortunate that the issue is mixed up with emotions," Ono said. "We hope to keep our business stable, without being affected by the public sentiment between the two countries."
Japan looks unlikely to reverse its plan to drop South Korea from its list.
South Korea's trade ministry has acknowledged that from 2015 to March 2019 the government detected 156 cases of unauthorized exports of sensitive materials that could be used for military purposes. It said the cases show its monitoring system is working and is more transparent than Japan's.
A report by the Japanese network Fuji TV that cited government data said the illegal shipments included thermos-cameras, carbon fibers, zirconium and sodium cyanide, among other items, and went to countries like China, Russia, India, Pakistan, Iran, Syria, Turkey and Sri Lanka. It's unclear if any of those cases involved imports from Japan or if they were the main reason for Japan's decision to impose stricter export controls.
The dispute with Japan, slowing demand and the U.S. trade war with Beijing have hammered South Korea's export sector, with economic growth forecast to drop to 2% this year, the slowest pace in a decade.
South Korea exported $127 billion of memory chips in 2018, mostly to China and the U.S. But such shipments fell by nearly a quarter from the year before in January-March.
"If the Japanese government decides to remove South Korea from its 'white list,' this could substantially increase the negative impact of trade frictions with Japan on the South Korean economy," Rajiv Biswas, chief economist for at IHS Markit, said in a commentary.