TOKYO - South Korea will be formally struck off a list of trusted export destinations at the end of this month over security concerns, Japan said on Friday (Aug 2), prompting reciprocal action from Seoul just a few hours later as it warned that its countermeasures would inflict "major damage" on Japan.
Japanese Trade Minister Hiroshige Seko told a news conference that the trade measure was not intended to hurt bilateral ties with South Korea, and was not in any way a trade embargo or a ban.
What it does is to bring South Korea, which has enjoyed fast-track and preferential trade treatment since it was white listed in 2004, in line with the "normal" trade procedures for territories outside the list, Mr Seko said, as he played down any impact on the global supply chain.
But the removal, which will be effective Aug 28, will have wider implications beyond the stricter export controls that choke off supplies of three high-tech materials - fluorinated polyimides, photoresists and hydrogen fluoride (etching gas) - that took effect last month.
Japan controls up to 90 per cent of the global market share for these chemicals, for which companies will now have to apply for permission for each contract. More than 1,000 products, including electronic parts and machinery, may yet be subjected to more stringent export controls.
South Korean President Moon Jae-in, warning of a stern response but without elaborating on the countermeasures, accused Japan of moves that "carry the clear intention to attack and hurt our economy by impeding our future economic growth".
Hours after Tokyo's move, Seoul's finance minister announced that South Korea will remove Japan from its "white list" of trusted trading partners.
"We will continue making efforts to solve this issue diplomatically," said Mr Hong Nam-ki, "but we will also remove Japan from our white list and go through a process to strengthen our export controls."
Mr Moon branded Japan's move as very reckless, selfish and destructive at the outset of a Cabinet meeting in Seoul.
"It's become obvious that the Japanese government is responsible for having made the situation worse," he said. "Accordingly, I unequivocally warn that the Japanese government will be entirely held accountable for what will unfold going forward."
Warning of potential countermeasures, Mr Moon said: "If Japan - even though it has great economic strength - attempts to harm our economy, the Korean government also has countermeasures with which to respond.
"We will never overlook such circumstances where Japan, the instigator of these wrongs, is turning on us."
In his speech, Mr Moon noted that this year (2019) marks the 100th anniversary of the Korean independence movement, as he sought to draw parallels between Japan's latest trade move and its wartime colonisation.
"We will never again lose to Japan."
The growing chasm between the two neighbours over their bitter shared history has spilled into trade, and may yet threaten to damage security ties.
A decision on whether to renew their joint military intelligence sharing pact - known as General Security of Military Information Agreement (GSOMIA) - is due by Aug 24.
Japan has said it has no intention to cancel this pact, but South Korean Foreign Minister Kang Kyung-wha said in Bangkok on Thursday, of a removal from the trade list: "We cannot help but see this as affecting the framework of security cooperation between South Korea and Japan."
A cancellation of this military pact will complicate efforts by the two United States allies on regional security issues such as North Korea - which on Friday morning conducted its third short-range projectile test in a week - and China's growing military might.
The US this week urged both sides to find a "standstill agreement".
US Secretary of State Mike Pompeo is scheduled to meet Dr Kang and Japanese Foreign Minister Taro Kono in Bangkok on Friday afternoon, on the sidelines of the Asean Regional Forum.
Tokyo has stressed that South Korea's place on its list of trusted export destinations, which enjoy fast-track and preferential trade treatment, is a privilege and not a right.
Japan's trade white list, which will have 26 nations after South Korea is struck off, includes such countries as Australia, Germany and the US. This list refers to export destinations which Japan has ascertained to have strict export controls against the smuggling of materials or chemicals.
South Korea has been the only Asian country on the list. Its removal from Aug 28 means all exports to South Korea will be subject to "normal" procedures that countries like China and Singapore face.
Tokyo has, in the past month, also pointedly said that South Korea is not on the white list of other jurisdictions like Australia and European Union, whose lists include Japan.
It has said it cannot turn a blind eye to what it sees as Seoul's lax export controls that have led to the smuggling of materials that can be found in everyday objects like smartphones and telephones but, under the wrong hands, can be subject to military warfare in making weapons of mass destruction.
Mr Kono, at the opening of the Asean Plus Three meeting in Bangkok on Friday morning, said "maintaining effective export control over sensitive goods and technology from a security perspective is Japan's responsibility as a member of the international community".
"Japan's necessary and the legitimate review of its export control is fully compatible with the free trade regime including the WTO (World Trade Organisation) agreement and the relevant rules," he said.
Dismissing Dr Kang's complaints, he said that the removal of South Korea from the preferential list puts it in line with trade requirements for Asean nations.
"I have not heard any complaints from our Asean friends about our export management measures. I don't know what is the source of complaint by Foreign Minister Kang."
The Japanese government has emphasised that the move, which strikes at the heart of South Korea's vital semiconductor industry, has nothing to do with a separate dispute over wartime labour which Japan may yet bring to the International Court of Justice.
Japan's stance is that all wartime compensation - US$500 million in grants and loans, or the equivalent of US$4 billion (S$5.5 billion) in today's terms - has been fully paid out under a 1965 treaty that formed the basis of their bilateral relations today.
A decision by a South Korean Supreme Court last October, however, said that this treaty does not deter individuals from making civil claims.
Japanese firms, acting on Tokyo's advice, have not followed this ruling, leading to the seizure and potential liquidation of their assets in South Korea.
Seoul sees Japan's trade measures as a form of retaliation, as it argued that there appears to be no other trigger.
Moody's Analytics economist Katrina Ell told The Straits Times that the move adds to existing, heightened downside risks that plague the global economy.
"South Korea and Japan are already struggling with a weakened export and manufacturing environment from the cyclical slowdown in global demand being exacerbated by the disruption from the US-China trade war," she said.
"The stakes are high if this dispute escalates and trade flows are further disrupted given the interdependence of global tech supply chains."
Japan's trade move has triggered a wave of nationalism in South Korea, where protests broke out outside the Japanese Embassy in Seoul on Friday.
An ongoing boycott has hit Japanese brands such as Sony, Kirin and Uniqlo, while Korean airlines have also cut flights to Japan amid a struggle to fill seats.
Meanwhile, South Korean cities including Busan, Changwon and Seosan, have suspended exchange programmes with Japanese municipalities, citing the difficult bilateral relationship.
Two South Koreans have also set themselves ablaze to protest against Japan.
On July 18, a 78-year-old man died after self-immolation near the Japanese Embassy in Seoul, while on Thursday, another man in his 70s suffered critical injuries after setting himself ablaze.
Separately, the Seoul Foreign Correspondents' Club (SFCC) on Wednesday issued a statement expressing concern that "protesters have targeted a number of Japanese media bureaus in recent days, invading their premises and disrupting their operations".
"Citizens have a right to express their views on current issues," said Mr Sebastian Berger, SFCC President and Seoul bureau chief for the AFP news agency.
"But threats of violence are not appropriate and private media organisations - of whatever nationality - are not representatives of their home countries' governments."