Businesses mired in uncertainties

Japan has started implementing its restrictions on exports of three key supplies for South Korea’s semiconductor industry. Japanese exporters of the three items have received comprehensive permits every three years so far, but are now required to win the Ministry of Economy, Trade and Industry’s export approval for each contract. The export review process is said to take about 90 days. Experts say that although South Korean semiconductor makers have about four months’ worth of the supplies, Japan’s prolonged export curbs could wreak havoc on the global supply networks, including South Korea and Japan.

Japan’s retaliatory restrictions are not definitive but changeable. Therefore, it is hard to estimate the impact on the South Korean economy. While Japan’s moves will make the export procedures more complicated, they are not a total ban on exports. How long it would take for Japanese exporters to win government approval is also changeable. There is also plenty of room for Tokyo to make arbitrary decisions in its screening process, indicating the Japanese government’s intention to control the situation by maximizing its discretionary power and have the upper hand in its row with Seoul.

In fact, one cannot deny the fact that Japan has the upper hand under the current situation. In addition to the export curbs, Japan is considering its second retaliatory measures of excluding South Korea from its list of “white states,” which refers to Japan’s security allies. If implemented in August as planned, such measures could lead to a worst case scenario. The automobile and chemical industries are also anxious, let alone the semiconductor and display industries. It is also unclear whether the dispute will be taken to the World Trade Organization and whether Tokyo will impose export restrictions on additional products.

Such huge uncertainties could intensify confusion among South Korean companies. Some businesspeople say that uncertainties themselves are “negative” factors. As the current situation was triggered for political reasons, businesses cannot find a solution. The government must do its best to relieve the corporate anxiety by getting an accurate grasp of the situation. Instead of simply having a vague expectation that the situation could change once Japan’s July 21 parliamentary elections are over, Seoul should draw up measures by closely studying each possible scenario Tokyo could take.

While criticisms of the Abe government for undermining the free-trade principle by using international trade as a political tool will likely escalate, the South Korean government should draw up measures in consideration of the possibility that Abe will stick to his hardline drive to please his hardline supporters. Innocent businesses have fallen victim to politics. While maintaining a quiet and careful response posture, Seoul should remember that the current situation is a serious crisis and make thorough preparations for any situation that could arise in order to minimize the fallouts on South Korean companies and economy.