It has been 3 years and 8 months since Japan strengthened its export control in July 2019. Recently, Japan said that it would lift restrictions on the export of semiconductor materials to South Korea, and South Korea withdrew its complaint to the WTO. The semiconductor industry in Japan and South Korea, which has been overthrown by politics, is full of expectations for the improvement of relations between the two countries. The Korean semiconductor company said: "At a time when the global division of labor is very important and necessary, we welcome the decision of the two governments. ”
South Korean President Yoon Seok-yue
In addition, South Korean President Yoon Seok-hyeol recently announced that South Korea will no longer require Japanese companies to compensate South Korean victims of forced labor during World War II as one of the most important measures to improve relations between the two countries. Instead, Seoul will create a government fund to pay victims directly, paving the way for the semiconductor industry's ice release.
South Korea-Japan relations suddenly froze: the Japanese side was tough, and the South Korean side was bitter
In July 2019, Japan suddenly launched export controls on South Korea, shaking the semiconductor supply chain between Japan and South Korea. South Korean President Moon Jae-in expressed strong opposition, saying that "we will face Japan's mismanagement and follow the path of self-reliance." The South Korean government and some people have also criticized this, and the boycott of Japanese goods in South Korea has intensified.
This export control, specifically, Japan restricted the export of hydrogen fluoride, photoresist and fluorinated polyimide to South Korea. The following month, South Korea was also removed from Japan's white list for easing trade procedures.
SK Hynix plant in South Korea
These three materials are used to produce advanced semiconductors and display panels, and given that South Korea relies heavily on Japanese materials (as early as 2019, Japan accounted for 44% of the country's imports of hydrogen fluoride and 92% of photoresists), according to the Korea International Trade Association), this move is undoubtedly firmly stuck in the neck of South Korea's semiconductor manufacturing industry.
South Korea also responded quickly to Japan's move, announcing a plan to localize products and technologies for the three materials. The Moon Jae-in government advocates "getting rid of Japan" and promoting the localization of semiconductor-related materials and manufacturing equipment in South Korea: 2 trillion won in subsidies for R&D expenses in 338 categories every year.
Samsung Electronics, which is in the midst of a whirlpool, said that "transactions with Japanese companies that can steadily procure high-performance materials may stall due to political issues," and the sense of crisis has increased. The reason is that due to the complexity of the semiconductor manufacturing process, as long as the supply of one material is stopped, the entire plant will be shut down, which may cause huge losses.
The most affected in this case is hydrogen fluoride, which is the subject of management strengthening measures. South Korea's imports of hydrogen fluoride from Japan fell sharply in July 2019, according to the Korea International Trade Association. Although Japan issued export licenses months later, it did not recover, and imports in 2022 were only $8.3 million, 88% less than in 2018.
Korean perspective: How Japan's resumption of trade restrictions affects South Korea's own material technology development
Regarding South Korea and Japan's plan to refer disputes over trade-restricted areas to the World Trade Organization, which will undoubtedly ease concerns about supply chains in the South Korean chip industry, those in the semiconductor industry particularly welcomed the news because they believe that it eliminates potential risks and reduces uncertainty. However, South Korea's biggest concern is that it will reduce the incentive of its own companies to develop materials, components and equipment.
Some companies have achieved success, especially in hydrogen fluoride and photoresists for extreme UV processes. According to South Korea's Ministry of Trade, imports from Japan for chip production accounted for 34.4% of the total in 2018, but this proportion fell to 24.9% by 2022.
Rino Choi, a professor at Inha University, said imports of the three materials have continued over the past four years with few restrictions on South Korean companies: "Japan's trade restrictions are not outright bans, and the impact is not as severe as some people claim." ”
Meanwhile, South Korean companies Soulbrain and SK Materials have made great strides in hydrogen fluoride development in the past four years. As of last year, imports of hydrogen fluoride from Japan fell by 87.6% by revenue compared to 2018.
However, the development of photoresists has mostly failed in Korean companies. But Dongjin Semiconductor did successfully develop EUV photoresist last year and is developing inorganic photoresist materials. In December last year, Samsung Electronics used Dongjin's photoresist for one of its semiconductor process (layer) lines. A process line is only a very small part of Samsung Electronics' overall process, but because it does not rely on imported products at all, it is very valued by the authorities.
Biden visits Samsung 3nm factory
Japan's trade restrictions have also affected domestic companies. Most Japanese companies that are suppliers to tech giants such as Samsung have started building production lines within South Korea to avoid restrictions.
Dongyu Precision Chemical, a subsidiary of Sumitomo Chemical, invested 10 billion yen to build an EUV photoresist production line in 2021 and put it into operation in mid-2022. Tokyo Ohka Kogyo also produces EUV photoresist in Incheon.
However, Ahn Ki-hyun, executive vice president of the Korea Semiconductor Industry Association, said that as Japan's unprecedented trade restrictions have taught them the importance of their supply chains, South Korean companies may continue to work to develop their own materials as safety nets.
Japanese perspective: Actively consider potential areas of cooperation between the two sides in the future
The head of Japan's top business establishment said the group would consider joint economic and environmental projects with its South Korean counterparts and praised Seoul's new efforts to improve bilateral relations that have historically been contentious.
Masakazu Tokura, president of the Federation of Japan Economic Groups, told a news conference on Monday: "I want to actively consider what the business community can do for the future." ”
Yoon Seok-yue and Fumio Kishida
Tokura said proposals for joint projects would be discussed with the Korea Federation of Industries, where environment and energy were potential areas for cooperation.
Tokura's comments came after the South Korean government announced on Monday plans to compensate some South Korean laborers forced to work for Japanese companies during World War II. Tokura welcomed the proposal, saying it "reflects a future-oriented cooperative attitude of Japan and South Korea in the face of rising geopolitical risks."
His Government would establish a compensation fund with contributions from the private sector, and Japanese companies had been urged to make voluntary contributions. The former South Korean wartime workers' campaign for compensation reached South Korea's Supreme Court, which upheld the plaintiffs' claims against Japanese companies. Some plaintiffs have objected to the government's settlement. Tokura expressed hope that increased business cooperation between the two countries will help change the South Korean public's perception of the matter.
In recent years, however, the Federation of Korean Industries has deepened ties with each other and urged their respective capitals to mend relations at the government level. Tokura led a Keidanren delegation to South Korea in 2022 as the two business groups resumed high-level contacts that had been interrupted by the pandemic.
Other Japanese business leaders have also welcomed Yoon's initiative on wartime workers' compensation.
Kengo Sakurada, Chairman of the Japan Business Executives Association, said: "We appreciate the compromise reached by the two governments and seeking practical solutions. ”
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Eurasia Group analyst Jeremy Chan said that ideally, the Seoul-Tokyo truce "would accelerate the deepening of trade, investment and cultural ties, however, given that this announcement was largely driven by Yoon and Kishida personally, the full extent of the rapprochement will depend on whether the future leaders of the two countries share their 'future-oriented' worldview," Chan added. But for now, Japan is supporting the foreign policy of South Korea and the United States.
Recently, when talking about historical disputes, Yoon Seok-yue said that Japan has "expressed deep remorse and heartfelt apologies for past colonial rule through successive governments" and that relations between the two countries should no longer be confrontational over historical grievances. But history is that simple, what do you want to erase? It can only be said that now the positions of the two sides are the same, and infighting should not continue, nothing more.
He went on to say that closer ties between Japan and South Korea would help global supply chains and build a more "stable" economic relationship with China, which is quite intriguing. In view of his proposal that "the United States, Japan, and South Korea must further strengthen security cooperation to contain the North Korean threat", it can only be said that he is stabbing a big knife while accompanying a smile.
Not only Japan and South Korea, but also the new Philippine president, Ferdinand Marcos Jr., is also turning to the path of Washington, not Beijing. In contrast, China is working more closely with Russia. In the final analysis, in today's Sino-US confrontation between semiconductors and even semiconductors, these are normal. There are no eternal friends, no eternal enemies, only eternal interests, and it is a fitting phrase to put on the position of the state. (Proofreader/Wu Shouzhe)