DS590 Korea Dispute
DS590 Korea Dispute
DS590 Korea Dispute
马新杰
刘海静
Jeong Yuna
Javier Fernandez
2019-11-15
Table of content
How did the Korea and Japan trade dispute emerge? ……………………………. pag 10
1
Overview of the trade dispute in Korea
Since the inauguration of the WTO, international trade disputes have increased. There has
been a large number of disputes due to the expansion of the scope of the agreement.
We through 4 parts to review the trade disputes in South Korea, the first part looks back the
South Korea’s trade dispute in WTO from 1995-2019, the second part review South Korea
launched the anti-dumping investigation to the main countries during 1980-2015, the third
part is South Korea's Antidumping and countervailing to other countries 2000-2018(final
measures in force), last but not least, reviewing antidumping investigations launched by
major countries against South Korea in 1980-2015.
From table 1, it describes the trade disputes of Korea from 9 June 1995 to
30 September 2019, 166 cases which had happened during this period in WTO. Korea as a
dispute complainant has 21 cases, as the respondent has 18 cases and as dispute third party
has 127 cases. There were 14 cases that Korea as complainant who against American used
anti-dumping measures and safeguard measures for Korean products. Those products mainly
were color television, dynamic random access memory semiconductors, steel, and large
residential washers. There are 7 dispute cases that happened between Japan and Korea. The
disputes mainly on radionuclides, stainless steel bars, and commercial vessels, dynamic
random access memories and high-tech products.
as as
Nation as third party
complainant respondent
DS89, DS99, DS3, DS5, DS46, DS54, DS55, DS59, DS62, DS64, DS67,
DS179, DS20, DS68, DS139, DS141, DS142, DS146, DS152,
DS202, DS40, DS175, DS184, DS212, DS214, DS234,
DS215, DS41, DS244, DS248, DS249, DS252, DS253,
Korea
DS217, DS75, DS254, DS258, DS260, DS268, DS277,
DS251, DS84, DS294, DS315, DS316, DS317, DS322,
DS296, DS98, DS332, DS334, DS335, DS337, DS343,
DS299, DS161, DS344, DS347, DS350, DS353, DS362,
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DS301, DS163, DS363, DS375, DS376, DS377, DS381,
DS307, DS169, DS382, DS383, DS384, DS386, DS389,
DS323, DS273, DS392, DS394, DS395, DS398, DS404,
DS336, DS312, DS412, DS413, DS414, DS422, DS426,
DS402, DS391, DS431, DS432, DS433, DS434, DS435,
DS420, DS495, DS437, DS438, DS440, DS441, DS442,
DS464, DS504, DS444, DS445, DS447, DS454, DS455,
DS488, DS553, DS456, DS457, DS458, DS460, DS462,
DS539, DS571 DS467, DS468, DS471, DS472, DS475,
DS545, DS476, DS477, DS478, DS479, DS482,
DS546, DS483, DS484, DS485, DS487, DS489,
DS590 DS491, DS494, DS496, DS497, DS502,
DS505, DS508, DS509, DS510, DS511, DS512,
DS513, DS516, DS517, DS518, DS521,
DS523, DS526, DS529, DS531, DS533,
DS534, DS537, DS541, DS542, DS543,
DS562, DS567, DS573
Amount 21 cases 18 cases 127 cases
Source: WTO data base
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According to the WTO statistic base, we can see that Korea has initiated 463 anti-dumping
negotiations (final measures in force). During 1980-2015, Korea had launched 41 anti-
dumping investigations to China and 26 cases to Japan. Through chart, Korea’s antidumping
investigation to the other countries shows a state of fluctuation and rise in the 18 years. Korea
had launched 101 times countervailing to the other countries in 2000-2018, and the amount of
countervailing is stable around six times every year.
Cases 21 41 26 20 166
10 Countervailing
5
0
2000
2001
2002
2003
2004
2005
2007
2009
2010
2011
2012
2013
2014
2015
2017
2006
2008
2016
2018
Based on the Global Anti-dumping Database concluded the following table 3, from this table,
the antidumping investigations launched by major countries against South Korea during
1980-2015, China have launched 35 anti-dumping investigations on South Korea’s products,
which occupied 15.1% on China initiated the anti-dumping investigations to the other
countries, which mainly including some chemical products and materials imported from
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Korea. And Korea suffered the anti-dumping investigations from Japan also occupied higher
proportion of Japan total anti-dumping investigations to the other countries, which anti-
dumping disputes on the Polyester Staple Fibre and Potassium Hydroxide imported from
Korea
DS590 Dispute
In July 2019, the Japanese Goverment imposed export restrictions on various goods to Korea,
including key chemical materials and machinery used in semiconductor production. To
understand the implication of the trade tension between Japan and Korea is important to
know the semiconductor industry supply chain, which is most globalized in its production1
flow and concentrated among a few leading firms.
According to the announcement, Japan began subjecting three specific products and their
related technologies to extrict export licesing policies and procedures whenever export of
such products and technologies are destined for Korea. The specific products are: fluorinated
polymide, resist polymers and hydrogen fluoride.2 These products are used principally in the
production of Smartphone, TV displays and semiconductors.
1 Low international trade costs have significally contributed to globalize semiconductor industry’s supply
chain. Since 1996, WTO ecouraged tariff and non-tariff trade costs related to semiconductor supply chain.
2 The polymides are a high class of polymers, they technologically important because of their different
properties such as: termal, mechanical and electrical. The hydrogen fluoride is a colorless, corrosive gas
liquid made up of a hydorgen atom and fluorine atom.
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Japan allegations are relative to some sensitive items that have been exported to Korea with
an inadequate management by the companies. So it’s neccesary to apply more strict export
licesing procedures in relation to those products and their techonolgies.
Korea, considers that the changes to Japan’s export control treatments have been based on
political considerations unrelated to any legitimate export control.
Due to the Amended Export Licesing Policies and Procedures, Japan removed Korea from
category “Region I” and placed it in a new category “Region Ri”. According to this new
category, there are some consecuences:
i. “bulk licenses”3 are no longer applicable to these three products
ii. all the granted “bulk licenses” are effectively terminated
iii. exporters of these products can now apply for export licenses on individual contracts
when those are destined to Korea
iv. the licesing of those products will be adminestred exclusively by METI’s Security
Export Licesing Division
v. Exporters will be seeking a strict complex and burdensome export formalities
The export controls mean Japanese companies must apply for a license for each shipment of
exports these ítems. The impact of these export controls of these specialized chemicals on
Korea’s semiconductor industry wil be significant. This trade tensions have introduced
supply chain disruptions due to unexpected single events in their investment and sourcing
decisions, but supply chain disruptions and risks due to trade policy among major producing
countries is largely uncharted territory for the industry.
Korea considers that Japan’s implementation of it’s new Export Licenses is “inconsistent”
with it obligations under some agreements related to:
The GATT 1994, respect to all rules and formalities in connection with exportation, Japan is
not allowing “bulk licenses” when the exportation of these products is destinated to Korea,
while it is not imposing the same restrictions on other WTO members. These restrictions
constitute a duty, a tax, that is made effective through an export license on the exportation or
sale to these products to Korea. Also, Japan no allows “bulk licenses” on the exportation of
these three products and their related technologies, the reason is the impose of complex
administrative formalities and excessive fees and charges.
3 They are used for the transport of certain goods, in products such as clorine, which is very dangerous and must
be transported under certain safety conditions. Therefore it is very difficult to obtain licenses for transport.
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Other relative breaches are related to TFA because Japan fails to administer its regulations
related to the restrictions on exports, also because didn’t provide Korea the opportunity to
comment and consultation. The unilaterally and abruptly implementation of the restrictions
fails to provide additional trade facilitation measures for authorized operators based on
objective criteria, creates arbitrary or unjustifiable discrimination.
The TRIMs and TRIPS Agreement because the restrictions constitute an investment
measure related to trade in goods. They create certain obstacles for Korean products, Japan
has failed to accord to Korean nationals treatment no less favorable than accorded of any
other country with the protection of intellectual property of these three products. Also, Japan
fails to ensure a patent owner's rights to assign or otherwise transfer the patent and conclude
licenses related to these products.
The GATS, because Japan fails to adminístrate its regulations affecting the trade services in
an impartial and objective way, these commitments constitute a restriction on the supply of
relevant service.
To end, the Marrakech Agreement Establishing the WTO because Japan's implementation
of the restrictions, is not in conformity to its laws, regulations, etc.
4 Korea International Trade Association
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Figure 1: Sources of Semiconductor Chemicals Imports for Korea(January-May 2019)
Source: KITA
This export control actions from Japan to semiconductor equipment and material can have
important consequences on the Korea industry in the short and long term.
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Of the products in Table 1, Processors and controllers and memories are integrated circuits
likely most directly impacted by a potential shortage of specialized chemicals, which are 95%
of Korea's integrated circuits exports.
This action will likely spur long term changes in Korea, this product is an important portion
of Korean exports, this supply chain vulnerability can’t be tolerated in the long term.
The Korean government is taking some actions to encourage its manufacturing capacity by
relaxing regulatory requirements for replacements of previously imported substances.
Otherwise, the impact on Japanese exporters also depends on the delays due to export
licensing procedures. Korea imported around $33.6 million monthly of these chemicals
related to semiconductor manufacturing from Japan in the past year (Table 2).
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How did the Korea and Japan trade dispute emerge?
Japan removed three specific products which are fluorinated polymide, resist polymers and
hydrogen fluoride and excluded Korea from the white list.
On July 4, the Japanese Government's Abe Ministry announced export restrictions on items
essential to semiconductor and display production, and on August 2, Japan removed Korea in
the white list; is defined in advance as a list of goods designated by the Japanese government
to handle the relevant procedures simplified when exporting strategic materials, technologies,
software, etc., which can be used for the development of foreign-related weapons.
Japan's position, which was expressed by the Ministry of Economy, Trade, and Industry,
noted that relations between Korea and Japan were severely damaged as an example of an
inappropriate incident surrounding export management. In doing so, Korea has stated its
position that Korea would not keep its international commitments and trade management as
well.
Before Japan restrict export for three products, Korea filed a lawsuit against a Japanese steel
company for compensation for the victims of forced labor.
Although no official cause has been officially identified, experts based on trade and
economic predict that in October last year, the Supreme Court of Korea issued a reparations
lawsuit which is based on the four victims of forced labor during Japanese colonial period
against Japanese company, Shin Il-Cheol, (now Japan Steel Corporation) that, for 100 million
per victim.
In response, Japan claimed that Korea – Japan Claims Agreement had eliminated the
individual claims of victims as the Korea-Japan Claims Agreement formed in 1965. But the
Supreme Court denied this, and in May 2019, Japan Steel Corporation forced the sale of
assets in South Korea.
Accordingly, there is a strong view that Japan has implemented export restrictions to deal
with an economic impact on Korea. As Korea is a powerful nation with a semiconductor, the
three materials were the core materials, and it was expected to be a devastating blow because
they were produced through imports. However, when this situation was revealed, Korea also
took a closer step in retaliation not buying Japanese stuff at all.
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Because of international measures, export restrictions were too narrow. Domestic public
opinion was infuriated and the relationship between Korea and Japan have become even
worse, so the Korean began to boycott Japanese products.
Korea and Japan held first negotiation meet-up after restriction of export by Japan.
A formal bilateral consultation took place 19.10.11, and the Korean government has filed a
lawsuit against the WTO for the three-party sanctions, which held in Switzerland -Geneva. If
a smooth agreement is not reached between the two countries, the WTO will likely require
the establishment of a dispute handling committee, which is a panel of judges, for a third
party to decide. Depending on whether there will be a smooth consultation with Japan, it is
expected that there will be a major change in economic flows between South Korea and
Japan.
Nowadays, the trade dispute is still going on without any symbol of being settled in a short-
term. There are two ways in which this dispute can be develop in the future.
This trade dispute can be settled peacefully and appropriately, which shows a positive
attitude towards the future of the bilateral relations. Several reliable reasons are listed as
follows. The first and foremost one is that both countries are unwilling to get into a lose-lose
situation because of the escalating trade dispute. The exports of goods and services account
for 17.77% of Japanese GDP and the imports of goods and services account for 38.89% of
South Korean GDP, from which we can see that the two countries involved in this trade
dispute are highly dependent on import and export trade with each other. If the trade dispute
keeps going on and the relation between the two countries keeps deteriorating, neither of
them can benefit. Korea is one of Japan’s most active trade partners. These three products
which are crucial to producing semiconductors are highly controlled by Japan and become
harder to be imported to Korea.
The instability in their relationship will cause both economic and national security problems
in the end. So, we may safely conclude that neither of the two countries want to make the
situation worse. What they are trying to do now is to negotiate with each other to find a way
that is both beneficial and acceptable to each other.
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Secondly, the removal from “the white list” does not mean Korea is deleted from Japan’s
trade partners but it only indicates that it would be harder and takes longer time for obtaining
the export licenses of Japanese companies. From what we have found, the time for scrutiny
and approval is supposed to be 90 days after the new regulation takes into effect. Three
products can still be exported from Japan to Korea after 90 days’ checking process. Besides,
the inventory of the three products can still support three months’ manufacturing and
production, so the effect of the “white list” event does not exert a strong influence on Korea’s
economy.
Thirdly, Japan has approved a “special permit” for photoresist, which is one of the three
products restricted by Japan after 34 days of the former restriction. And to faster the process,
Japan has increased the working staff to specialize in dealing with the situation. Last but not
least, as it known to all, memory products have a strong futures property, whose price
changes with the global supply and demand. Although the trade friction between Japan and
South Korea does not cause a reversal in the price trend of bulk memory contract, the
fluctuations in the spot market with a smaller volume are still relatively obvious. The latest
situation also shows that both countries are willing to manage frictions and believe that the
Korean storage capacity crisis will be eased later, from which it presents a positive attitude
towards the future development of the dispute.
Last but not least, at the meeting between the President of South Korea and Japanese Prime
Minister on November 4, the two had reached an agreement that the issues can be solved by
negotiations with a pleasant atmosphere. It was the first meeting between the leaders of South
Korea and Japan after the UN general assembly in New York in September 2018 and since
the two countries became embroiled in a trade dispute in July this year. This special meeting
ended in a satisfactory way, which can also be regarded as the starting point of the further
communication between the two countries. As far as we are considered, although the single
meeting is not sufficient enough to support that there are signs of reconciliation, it is indeed a
sign that at least shows both countries have the willingness to solve the ongoing dispute issue
and can accept the negotiation method to settle it.
Other option is that the dispute continue, based on the analysis, this situation is not good for
both countries. Just as the U.S.-China trade war has put a global burden on the world, and
South Korea has been affected by it.
However, Korea seems to be not afraid of such damage, and is attempting to clarify its
relationship with Japan through this opportunity. If the trade war is prolonged, it will have an
adverse effect not only on Korea and Japan, but also on the world. Japan recently hosted the
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G20 and emphasized the importance of free trade, but has retaliated against Korea. On the
surface, there is a recurring claim that it is the Korea’s fault. If this condition continues, it
seems likely that the trade war will end with both Japan and South Korea suffering economic
damage.
Conclusion
The recent trade tensions between Japan and Korea pose risks in the availability of
specialized and necessary chemicals that are not easily substitutable without imports.
There are no clear winners, and strong supplier-customer relationships face an uncertain
future. Japanese firms with clear competitiveness in the manufacturing of these chemicals
risk losing customers in a market where there are currently no obvious alternative buyers.
Korean firms with clear competitiveness in semiconductor manufacturing may be forced to
invest in or source form alternative sources that are inferior to their current sources.
These actions can be an ongoing risk in the semiconductor supply chain for Japan and Korea,
with consecuences for the global semiconductor industry.
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Sources
• WTO
• Yonhap(Nov 8, 2019) S. Korea, Japan to hold 2nd round of talks over WTO dispute
• Yen Nee Lee(Jul 16, 2019) Japan-South Korea dispute is called “disturbing and helpful”
for the global economy.
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