South Korea could move further away from a China-centric supply chain as it attempts to restore relations with Japan, analysts say, as President Yoon Suk-yeol arrived in Tokyo on Thursday to meet Japanese Prime Minister Fumio Kishida.
The summit between Yoon and Kishida is aimed at moving forward cooperation in the areas of security, economy and culture, the South Korean presidential office said ahead of the two-day trip.
The two nations, which have been at odds over history, are trying to restore relations amid shared security threats from North Korea, and a more assertive China.
In a sign of goodwill, South Korea’s trade ministry announced on Thursday that Japan had agreed to remove curbs on its exports of critical materials for smartphone displays and semiconductor chips while Seoul will drop a World Trade Organization complaint against Tokyo.
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South Korea and Japan, as well as Taiwan, are part of the US-led Chip 4 alliance, that aims to strengthen the semiconductor supply chain after a global chip crunch caused by the coronavirus pandemic.
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“There are a lot of possibilities that South Korea can reorganise its supply chain through cooperation with Japan and the United States,” said Choo Jae-woo, professor of Chinese studies at Kyung Hee University in Seoul.
“As the ‘Chip 4’ is realised and access to the Chinese market becomes harder, there must be a discussion over the Western market and supply chain … so the restoration of relations with Tokyo and the [Group of 7] summit in May can allow [supply chain reorganisation] to come true.”
The visit could see Kishida invite Yoon to the Group of 7 summit in Hiroshima in May and then visit Seoul.
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Park Ki-soon, a senior adviser to Dentons Lee Law Firm with expertise in the Chinese economy, said the meeting between Yoon and Kishida will improve bilateral relations and once Japan lifts sanctions, South Korean supply chains for advanced industries would benefit.
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“I think it will be more advantageous for South Korea … South Korea is purchasing 20 per cent of its semiconductor equipment, and between 80 and 90 per cent of materials, from Japan,” said Park.
“South Korea can have a more stable supply chain in semiconductor production.”
Yoon’s predecessor, Moon Jae-in, last visited Japan in 2019 to attend the Group of 20 summit in Osaka.
“The very fact that I am visiting Japan is a big step forward,” said Yoon during an interview with the Yomiuri newspaper before the trip.
“We hope that the normalisation of bilateral relations will not only serve the common interests of both countries but also send a very positive signal to the international community.”
Earlier this month, South Korea announced plans to compensate victims of Japan’s wartime forced labour, with money taken from Korean companies that benefited from a 1965 reparations deal with Tokyo to compensate victims and their families.
In 2018, 15 Koreans won lawsuits against two Japanese firms – Mitsubishi Heavy Industries and Nippon Steel Corporation – accused of forced labour during World War II when Korea was under Japanese occupation.
Tokyo refused to accept the rulings and insisted that compensation for the victims during Japanese occupation had been resolved in the bilateral treaty in 1965, while Seoul asserted the rulings were independent from the government’s official stance.
The dispute resulted in Japan’s retaliatory economic sanctions against South Korea in 2019, restricting the export of key materials for display and semiconductor production, such as hydrogen fluoride and photoresist.
In a written interview with the press released on Wednesday, Yoon said both South Korea and Japan have “close economic ties” with China, stressing that cooperation between Seoul and Tokyo would help the two countries advance economic relations with Beijing in a “stable manner”.
“If Korea and Japan – both global trade powerhouses and manufacturing industry leaders – work together on technology, I expect that it will create an enormous synergy,” said Yoon.
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Washington is keen to enhance cooperation and mend ties between Japan and South Korea to help contain China.
In August, the Biden administration passed the Chips and Science Act, which grants subsidies for domestic research and manufacturing of semiconductors. Firms that receive grants from the US government are barred from investment in China for 10 years.
In October, the US banned semiconductor factories located in China from using US advanced chip production technology. Although the two leading South Korean chip makers operating fabrication plants in China – Samsung Electronics and SK Hynix – received a one-year grace period, it is unclear if the exemptions can be extended.
Yoon will also meet US President Joe Biden next month at the White House, with negotiations expected to focus on US export controls.
In January, Japan and the Netherlands also agreed to tighten their export controls of chip manufacturing equipment and technologies to China, such as extreme ultraviolet lithography machines, adding to the hardship faced by some South Korean chip businesses.
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Beijing has repeatedly urged South Korea not to side with the US. In December then-Chinese foreign minister Wang Yi urged Seoul to oppose American export controls during a meeting with his South Korean counterpart, Park Jin.
Choo said while China would view the reconciliatory atmosphere between Seoul and Tokyo negatively, it would not be able to interrupt relations between its two Asian neighbours because that would create more solidarity between Washington and its allies.
“China will wait and see for a while. Forestalling will be disadvantageous for them,” he said.
“Sanctioning South Korea will rather push it to initiate closer cooperation with Japan and the US and accelerate the ‘Chip 4’ [alliance].”
Park echoed the view, saying China’s weaker position in the semiconductor industry would restrain assertive action on key chip producers like South Korea and Japan. But he stressed that Beijing would be alert to actions against its interests in advanced technology.