White List of Japan and South Korea's Mutual Export Returns: Are There Hidden Worries in South Korea's Expectations? Beneficial for the restructuring of the semiconductor supply chain in the United States? Supply Chain | White List for Mutual Export | Japan and South Korea

After South Korea reintroduced Japan into the export preferential "whitelist" in April, the Japanese government decided on June 27th to bring South Korea back to the export "whitelist" and officially took effect on July 21st. At that time, Japanese companies will export to South Korea more smoothly.

The public opinion believes that this is the latest sign of a warming relationship between the two countries, marking the end of a four-year "trade war" and a "melting ice" in the economic field. However, what the latest developments will bring to the key industries of both countries, and what impact they will have on the efforts of the United States to restructure its semiconductor supply chain, are of great concern.

Complete the "Final Puzzle"

On the 27th, the Japanese government finalized a partial amendment to the Export Trade Administration Order at a cabinet meeting, bringing South Korea back on the white list of exports enjoying preferential treatment.

Japanese Minister of Economy, Trade and Industry, Yasumi Nishimura, stated that the decree will be issued on June 30th and officially take effect on July 21st. At that time, Japan can apply a package license when exporting products or providing technology to South Korea, and South Korea will be excluded from the comprehensive control of conventional weapons.

The South Korean government welcomes this and praises the complete restoration of trust in export controls between the two countries, as well as the proper resolution of the four-year trade dispute.

Looking back four years ago, in retaliation for South Korea's Supreme Court ruling that Japanese companies compensate South Korean workers during World War II, Japan suddenly "drew the sword" in July 2019, restricting exports of three key semiconductor materials to South Korea, and the following month kicked South Korea out of the "white list" of trade partners subject to simplified export procedures.

Subsequently, the South Korean government launched countermeasures and filed a lawsuit against Japan for export restrictions with the World Trade Organization in September of the same year, removing Japan from the South Korean trade "white list".

The "trade war" between the two countries has thus begun.

Since then, Japanese companies have had to obtain a license to export chemicals, advanced sensors, electronic components, and other products to South Korea. Japan's exports to South Korea have sharply decreased. Bilateral relations have fallen to their lowest point in recent decades.

However, earlier this year, with the exchange of visits between the leaders of the two countries in March and May, the peak of Japan South Korea relations turned around, and export control disputes saw a turning point.

In March, the Japanese Ministry of Economy, Trade and Industry lifted restrictions on exporting three key semiconductor materials to South Korea. In April, South Korea issued a strategic material import and export notice, taking the lead in re listing Japan on the "whitelist"; Japan has started the approval process for reintroducing South Korea into the "whitelist". Afterwards, economic exchanges between the two countries in various fields such as materials, components, and equipment became increasingly active.

Now, after extensive consultation, Japan has re granted South Korea a preferential export status, which is equivalent to completing the "final puzzle" of lifting trade restrictions on South Korea, and the "trade war" between the two countries has come to an end.

"Expand diplomatic options"

What does returning to the "whitelist" mean for South Korea, Japan, and other countries? The public opinion is inconsistent.

Firstly, it is undoubtedly good news for Korean semiconductor manufacturers. They are no longer restricted in purchasing key raw materials from Japan.

Some Japanese and Korean people have begun to look forward to the vast space for deepening cooperation between the two countries in strategic industries such as semiconductors. They believe that with semiconductors as the center, the latest reconciliation between Japan and South Korea is expected to become an opportunity to strengthen supply chain cooperation between the two sides and also contribute to the growth of bilateral trade volume.

Secondly, some South Koreans are concerned that returning to the "whitelist" is a double-edged sword that may have a negative impact on the localization and localization of key semiconductor materials, thereby increasing the difficulty for South Korea to break free from its dependence on foreign technology.

Four years ago, when Japan suddenly implemented export controls on South Korea, South Korean semiconductor companies had a high degree of dependence on Japan.

According to data, at that time, the self-made rate of semiconductor production equipment in South Korea was only 18.2%; In terms of semiconductor related raw materials, South Korea's dependence on Japan has reached nearly 50%.

Afterwards, South Korea had to strive to increase its domestic production ratio, promote supply chain diversification, and fill the "hole" from Japan with substitutes from other countries.

At present, the independent capability of the semiconductor industry in South Korea is gradually improving, and the dependence on Japan for semiconductor materials, components, and equipment has decreased to 24.9%. However, South Korea still relies heavily on Japan for ultra-high purity products. Therefore, some industry insiders call for South Korea to continue promoting the localization policy of raw materials, components, and equipment.

Once again, some American media quoted scholars as saying that in the context of the United States restructuring its semiconductor supply chain in response to China, Japan and South Korea returning to the "whitelist" will be more conducive to the United States controlling and laying out strategic materials such as high-tech products and chips.

Currently, China is the largest trading partner between Japan and South Korea. In the semiconductor field, the three countries have already formed a supply chain that uses Japanese made components, produces finished products in South Korea, and exports them to China. Under the control of the United States, some high-end technology products will be more difficult to sell freely outside a certain range, which will help the United States reshape its geopolitical advantage.

However, from the perspectives of Japan and South Korea, blindly following the instructions of the United States may harm their own interests. Therefore, strengthening cooperation between Japan and South Korea will broaden their diplomatic choices, increase bargaining space with the United States, and thus reduce the risks they may face.

Restarting the Finance Ministers Meeting

It is noteworthy that as Japan and South Korea take great strides towards normalizing trade relations, the long interrupted financial dialogue between the two countries is also resuming.

Tomorrow, Japanese Finance Minister Junichi Suzuki and South Korean Planning and Finance Minister Yoshiaki Gun will gather in Tokyo, Japan to hold the 8th Japan South Korea Finance Ministers Conference.

This will be the second meeting between the finance ministers of the two countries after a 7-year hiatus. Both sides are expected to exchange views on international financial issues, exploring third-party infrastructure markets, as well as financial and tax cooperation between the two countries.

Among them, restarting the currency swap agreement will be a major highlight.

The agreement aims to ensure that both countries receive sufficient US dollar funding to withstand market turbulence in the event of a financial crisis. The two countries signed an agreement in 1997, but after the agreement expired in February 2015, it could not be renewed due to historical and territorial issues.

According to Japanese media, this is the biggest remaining issue in the economic field of Japan and South Korea, and with the achievement of reconciliation between the two sides, the momentum to restart the agreement is high.

However, some experts believe that as time changes, the necessity for the two countries to reach this agreement is diminishing, and it is more of a symbolic measure to highlight the continuous improvement of economic and financial relations. As of the end of May, South Korea's total foreign exchange reserves reached $421 billion, more than 10 times that of the Asian financial crisis; Even during the 2008 global financial crisis, the currency swap between Japan and South Korea was not initiated.

Yokohama sensitive topic

Despite the restoration of diplomatic relations and the melting of economic ice, it cannot be denied that there are still a series of sensitive issues between Japan and South Korea, including historical issues, territorial disputes, and the discharge of Fukushima nuclear wastewater into the sea.

Japanese media reported that in recent months, the Japanese government has been striving for South Korea's understanding of the Fukushima nuclear power plant's sewage discharge plan into the sea. This move is highly controversial and has sparked strong opposition from South Korea, other neighboring countries, and local fishing groups. A recent joint survey by the Korean Daily and Yomiuri Shimbun showed that 84% of Koreans do not support the discharge of nuclear wastewater into the sea. Recently, several South Korean lawmakers announced the start of a hunger strike protest.

According to the schedule set by the Japanese government for starting emissions before and after summer, the final decision is urgent and may cast a shadow over the improvement of Japan South Korea relations.

The public opinion generally believes that from the difficulty in resolving the nuclear wastewater issue, it can be seen that the current foundation of reconciliation between Japan and South Korea is not solid.

Many scholars have pointed out that the rapid improvement of Japan South Korea relations is largely manipulated by the United States and closely related to its active promotion of trilateral security cooperation with the United States. The United States hopes to use the reconciliation between Japan and South Korea to build a trilateral military cooperation system, incorporate two Asian allies into the strategic track of "sealing off" competitors in the high-tech field, and strengthen the containment of Russia from the northeast Asian direction.

However, while South Korea and Japan are rapidly approaching, their internal dynamics are insufficient, structural contradictions are difficult to resolve, and the relationship between the two countries still faces many uncertain factors.