July 2, 2019 / 9:30 AM / 3 months ago

Factbox - The high-tech materials at the heart of a Japan-South Korea row

TOKYO/SEOUL (Reuters) - Japan said it would tighten curbs on exports of high-tech materials used in smartphone displays and chips to South Korea amid a widening dispute over South Koreans who were forced to work for Japanese firms during World War Two.

The following are some facts about the materials targeted in the curbs, their importance, and about the row itself:

WHAT IS BEING CURBED AND WHAT ARE THEY USED FOR?

The tighter export curbs due to go into effect will target three materials: fluorinated polyimides, photoresists and hydrogen fluoride.

Fluorinated polyimides are used in smartphone displays. Photoresists are thin layers of material used to transfer circuit patterns onto semiconductor wafers.

Hydrogen fluoride is used as an etching gas in the chipmaking process.

WHY DOES IT MATTER?

Japan produces about 90% of fluorinated polyimide and about 70% of etching gas worldwide, Japanese media have said. It produces around 90% of photoresists, according to a government report. That makes it difficult for South Korean chipmakers to find alternative sources of supply.

A source at one of South Korea’s top memory chipmakers said chipmakers would have to try to build stockpiles, adding that it relies on Japan for more than 70 percent of its photoresists and etching gas.

WHAT FIRMS ARE LIKELY TO BE IMPACTED?

South Korean tech giants such as Samsung Electronics, SK Hynix and LG Display are all expected to be impacted.

In the first five months of this year, South Korea bought $103.52 million of photoresists from Japan, $28.44 million of hydrogen fluoride and $12.14 million of fluorinated polyimides.

Japanese suppliers of photoresists include JSR, Tokyo Ohka Kogyo and Shin-Etsu Chemical. Makers of etching gas include Showa Denko KK, according to the Nikkei newspaper.

Kanto Denka Kogyo, a fluorochemicals maker, is also likely to be impacted.

HOW WILL THE CURBS WORK?

Japan will stop preferential treatment for shipments of these three materials to South Korea and will require exporters to seek permission each time they want to ship, which takes around 90 days, a government official said.

Japan also plans to strip white list status from South Korea under a trade control law, requiring Japanese exporters to seek a licence for items that could be used in some weapons-related applications.

On Japan’s white list are 27 countries, from Germany to South Korea, Britain and the United States.

WHAT’S BEHIND THE ROW?

Tokyo has been frustrated by what it calls a lack of action by Seoul over issues stemming from a top South Korean court ruling last October that ordered another Japanese company, Nippon Steel, to compensate former forced labourers.

Japan has rejected a South Korean proposal to create a joint compensation fund for victims with contributions from both nations’ companies.

The neighbours share a bitter history dating to the Japanese colonisation of the Korean peninsula from 1910 to 1945, including forced use of labour by Japanese companies and the use of comfort women, a euphemism for girls and women, many of them Korean, forced to work in its wartime brothels.

Japan, says the issue of forced labour was fully settled in 1965 when the two countries restored diplomatic ties. It has called for the launch of an arbitration panel.

WHAT ABOUT THE WTO?

South Korea has denounced Japan’s moves as a violation of World Trade Organisation (WTO) rules, saying it would take the necessary countermeasures including filing a complaint.

Japan has said the moves are not in violation of WTO rules.

Reporting by Makiko Yamazaki in Tokyo and Heekyong Yang in Seoul; Writing by David Dolan; Editing by Kim Coghill

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