Japan Cites ‘National Security’ in Free Trade Crackdown. Sound Familiar? - The New York Times

Japan Cites ‘National Security’ in Free Trade Crackdown. Sound Familiar? - The New York Times:

Japan Cites ‘National Security’ in Free Trade Crackdown. Sound Familiar? By Ben DooleyJuly 15, 2019 Last month, before an audience of world leaders, Prime Minister Shinzo Abe of Japan forcefully defended the global trade order that President Trump has so dramatically fractured. “A free and open economy,” he told leaders of the Group of 20 nations in Osaka, Japan, “is the foundation of global peace and prosperity.” Two days later, Mr. Abe became the latest world leader to strike a blow against free trade, when he moved to limit South Korea’s access to Japanese chemicals that are essential to its vast electronics industry, citing vague and unspecified concerns about national security. In doing so, Japan joined the United States, Russia and other countries that have used national security concerns as a justification for cutting off trade. Once rarely invoked by world leaders, such arguments are wearing away at long-established global rules intended to keep trade disputes from spiraling out of control. Once they are weakened, experts say, damaging trade wars could become more common. Subscribe to With Interest Catch up and prep for the week ahead with this newsletter of the most important business insights, delivered Sundays. “If this is used too often, there’s a real potential to absolutely destroy the entire international trading system,” said Bryan Mercurio, an expert on international trade law at the Chinese University of Hong Kong. “If not one or two or three but 10 or 15 countries decide they’re going to take measures, really unilateral measures, based on some ill-defined national security exception, it devalues the rules.” Japanese officials have said some South Korean companies have inadequately managed the chemicals, which fall under the category of “controlled items” — goods with potential military applications. The officials have not named companies or said how supplies may have been mismanaged. South Korean officials suspect a different motive: retaliation over an escalating political dispute between the two countries concerning reparations for Japan’s World War II-era conduct. To some, Mr. Abe’s move seemed to take a page from Mr. Trump’s playbook, turning trade into a cudgel. “The really troubling thing about it is that it represents the increasing weaponization of these trade or economic interests to coerce another country over completely unrelated issues,” said Gene Park, an expert on international political economy and Japanese politics at Loyola Marymount University. “Japan has a lot of legitimate grievances,” he said, but trade measures are “not the right way to address them.” South Korea on Friday called on the United Nations to investigate Japan’s claims. “If the investigation concludes that our government has done nothing wrong, Japan should immediately withdraw its retaliatory export restrictions,” Kim You-geun, a senior South Korean national security official, said at a news briefing. “Of course, there should be a thorough investigation into whether Japan is violating the rules as well.” Japan’s move is the latest challenge to the global trade rules that have underpinned decades of commerce and economic growth. Countries began setting the rules in the aftermath of World War II, hoping to avoid a repeat of the trade wars that had worsened the Great Depression. But they carved out exceptions, including for restrictions imposed in the name of national security. For years, governments have been reluctant to use that exception because the idea of “national security” is open to broad interpretation that makes it ripe for abuse. “If we just all point to national security, there’s a potential for all of the rules to fall apart,” said Tania Voon, an expert on international trade law at the University of Melbourne in Australia. She added that “it’s pretty easy to see how almost anything might be related” to national security. Now more countries are citing the exception. Mr. Trump has mixed national security and economic priorities as he has escalated his attacks on major trading partners, allowing him to label European and Japanese cars as national security threats and use the threat of tariffs to force Mexico into tightening its stance against illegal immigration into the United States. Russia cited national security when imposing traffic restrictions in and out of Ukraine. Last year, Saudi Arabia, Bahrain and the United Arab Emirates also cited national security to justify a blockade against Qatar. The World Trade Organization, the global trading referee, is grappling with the issue. In April, it ruled in Russia’s favor over the Ukraine restrictions. The United States sided with Russia in that dispute, though the W.T.O. rejected the American argument that a country’s definition of national security is not subject to review by the group. China has long combined its economic and political priorities, using trade as a weapon in recent years in territorial disputes with Japan and the Philippines and to protest South Korea’s installation of an antimissile system. Nevertheless, “I would be very surprised if Japan would have done this without the U.S. doing it in the very recent past,” said Mr. Mercurio of the Chinese University of Hong Kong. If it lasts, Japan’s clash with South Korea could add one more pressure point to global growth. It could also require global technology companies to scramble for the microchips and other parts they need to make everyday gadgets. “The Japanese have really muddied the water by characterizing the export restrictions as a security move,” said Daniel Sneider, who studies the Japan-South Korea relationship at Stanford University. “Now, what do you do if the South Koreans are unwilling to back off?” Japanese officials said on July 1 that they would restrict exports of specialized chemicals — fluorinated polyimide, resists and hydrogen fluoride — needed in the production of semiconductors as well as smartphone and television screens. South Korea depends on Japan for much of its supply. To continue to sell to South Korean customers, Japanese exporters will need to apply for licenses for each one, a process that can take up to 90 days. Additionally, Japan has indicated it may remove South Korea from a list of countries that are exempt from licensing requirements for exports with possible military applications. While at least one of the chemicals could be used to make weapons, South Korean officials accuse Japan of limiting supplies for an unrelated reason: disagreements over Japan’s colonization of the Korean Peninsula in the lead-up to the Second World War. The long-simmering issue took new life after South Korea’s Supreme Court ordered a Japanese company to pay compensation to a man who had been forced to work in one of its steel mills during the war. When the company refused, the court ordered the seizure of some of its South Korean assets. Lee Chun-sik, center, was a victim of Japan’s forced labor during the Japanese colonial rule of Korea.Jeon Heon-Kyun/European Pressphoto Agency, via REX Lee Chun-sik, center, was a victim of Japan’s forced labor during the Japanese colonial rule of Korea. Lee Chun-sik, center, was a victim of Japan’s forced labor during the Japanese colonial rule of Korea.Jeon Heon-Kyun/European Pressphoto Agency, via REX Japan says that case and others were covered by a 1965 pact that declared claims from that era “settled completely and finally.” “Everyone on both sides of the confrontation clearly knows that this is about the settlement,” said Bong Young-shik, an expert on Korean politics at Yonsei University. Tensions had already been worsening. In November, South Korea said it would dissolve an agreement with Japan intended to settle the issue of women forced to work in Japanese wartime brothels. Relations soured further in December after Tokyo accused a South Korean warship of locking its radar on a Japanese patrol plane. Still, economic relations had remained stable. The export limits appear calculated to force big South Korean chip makers like Samsung Electronics to pressure South Korea’s president, Moon Jae-in, to resolve the claims, said Mr. Sneider, of Stanford. If so, the move may have backfired. South Korean business leaders have rallied around Mr. Moon. South Korea challenged the move before the W.T.O. on Tuesday. South Korean companies are looking for new suppliers for the chemicals, fearing that Japan could cut off exports entirely, according to Akira Minamikawa, an analyst at IHS Markit. For now, manufacturers have enough stockpiles to meet demand, which has weakened in Europe and China. The main impact will be on the production of high-tech products like advanced non-memory chips and flexible screens that are not yet being produced on a large scale, according to Sanjeev Rana, an analyst at CLSA, a brokerage. “This issue is a little bit of noise,” Mr. Rana said. “Japan is just trying to make a point.” Still, he said, there is widespread concern about the possible consequences. “People are asking, ‘Is this really a one-off thing?’” Mr. Rana said. “‘Or is it the start of something bigger?’” Hisako Ueno and Choe Sang-Hun contributed reporting.