Japan has stressed to the World Trade Organisation (WTO) that the tighter trade measures it has imposed on South Korea since last Thursday are rooted in "security concerns" and in effect amounts to only an end of preferential trade treatment for its neighbour.
The ongoing spat over the export of three sensitive raw materials - hydrogen fluoride, fluorinated polyimide and photoresists - that form the lifeblood of South Korea's semiconductor industry comes as Tokyo digs its heels in amid a breakdown of trust over wartime labour issues.
Yesterday, a list leaked to Japan's Fuji News Network appeared to back up Tokyo's claim that sensitive materials with military warfare potential are being smuggled out of South Korea.
The list, said to be compiled by Seoul, showed 156 instances of raw materials being illegally shipped out of the country over four years ending this March.
In one such case, raw material for the VX nerve agent was allegedly smuggled from South Korea to Malaysia, though no direct link was drawn to the 2017 murder of North Korean leader Kim Jong Un's half-brother Kim Jong Nam at the Kuala Lumpur International Airport.
Japan-made hydrogen fluoride also allegedly found its way to the United Arab Emirates, the list said.
South Korean envoy Paik Ji-ah argued at the WTO in Geneva on Tuesday that Japan was in breach of free trade rules over the curbs that "will upend the global supply chain".
Japan controls up to 90 per cent of the world's supply of these materials, which are vital in smartphones and semiconductors.
But Japanese representative Junichi Ihara retorted that the measures are "not a trade embargo but an operational review necessary for the proper implementation of Japan's export control system, based on security concerns".
The crux of Japan's position is that South Korea has, since 2004, benefited from favourable trade measures as a "trusted" country, and the "restrictions" are in effect a return to the norm.
Japanese companies exporting the materials to South Korea will now have to seek government approval for each contract, a process that may take up to 90 days.
This same procedure is in effect with other countries that are not on the trade white-list, such as China. Tokyo has said Seoul can continue buying Japanese materials so long as the green light is given.
Still, this is being seen as a retaliatory move as Tokyo cites a collapse in trust, coming after Seoul refused to take steps towards arbitration over an order by South Korea's Supreme Court last October for Japanese steelmakers to compensate forced wartime labourers.
The courts have also ordered the seizure of assets of Japanese companies in South Korea.
Mizuho Research Institute senior economist Junichi Sugawara told The Straits Times that he does not see any basis to claims that Japan's measures violate WTO rules, but warned of the political fallout.
Japanese Economy Minister Hiroshige Seko told a news conference: "We ended preferential treatment (given to South Korea) and now treat it the same as other countries. Is that a problem from the standpoint of the WTO?"