Front End I Electronic Components Supply Network
Weaponising trade impacts the electronics industry…
and financial compensation agreed. It’s perhaps understandable that despite the accord and the intervening half century diplomatic relations between the two nations remain somewhat fraught.
In 2018 Nippon Steel, a South Adam Fletcher T
he electronic components supply network is a complex inter- dependant web of organisations
all of which are regulated by the international and/ or local government legislation applicable in each country in which they operate, regardless of the location of their administrative headquarters. Thus far European-based organisations in the electronic equipment market have experienced little disruption as a result of the current US / China Trade War but another problem is looming on the horizon that may prove significantly more disruptive across international markets. In this article, Adam Fletcher Chairman of the Electronic Components Supply Network, provides an insight into the escalating technology trade spat between Japan and South Korea, that threatens to effectively ‘weaponise’ global trade… The Japanese surrender at the end of WW2 ended the country’s extended period of colonial rule in the Korean peninsula and drew a line under the atrocities - including slave labour and forced prostitution - that the colonists routinely perpetrated against the indigenous population. Diplomatic relations between Japan and South Korea were not re-established until 1965 when an uneasy accord was reached between the two countries
10 September 2019
Korean subsidiary of a large Japan- headquartered organisation, lost a case in the South Korean Supreme Court and was ordered to directly compensate a number of South Korean survivors of Japan’s former colonial rule. It also moved to seize Nippon Steel shares in order to ensure a settlement. This was not the first time the South Korean Supreme Court had taken such an action: Earlier in 2018 a similar ruling was handed down to Mitsubishi Heavy Industries and currently many smaller claims for direct compensation are being heard in lower courts against less notable Japanese companies operating in South Korea. Combined, these compensation claims are estimated to exceed US$175M. The Japanese government headed by Prime Minister Shino Abe appears unrepentant about the country’s past activities, prompting an increase in tension between the governments and populace of Japan and South Korea. The governments of the two countries seem to be playing to populist sentiment within their electorate rather than actively seeking a constructive solution, apparently prompting the South Korean people to unite in boycotting Japanese imports and even take to the streets in anti-Japanese protests.
Japanese Economic Measures The Japanese Government is arguing that a full and final settlement was made to South Korea in 1965 and has accordingly demanded an end to the class actions in the country. It has also threatened retaliation if South Korean courts continue to seize the assets of Japanese organisations. Following intimations that it may take economic measures against its neighbour, the Japanese government chose the 4th July ‘19 to announce a tightening of the rules it applies to the export of three chemicals essential for the manufacture of semiconductors and display technologies - Fluorinated Polyimide, EUV Photoresists and Hydrogen Fluoride Gas, citing reasons of “national security. Without these
Components in Electronics
specialty chemicals companies such as Samsung, SK Hynix, LG etc., will have to cease production in South Korea, causing huge economic damage to them and the local economy whilst threatening massive supply problems for the entire electronic components supply network. Unsurprisingly, Japan’s action has drawn many unfavourable comparisons with the current US / China trade war.
Further Escalation
Japan-based chemical manufacturers and distributors are the dominant suppliers to the global technology market and in particular, to South Korean technology manufacturers. In order to sell these products to South Korea these companies will now have to apply to their government for an export licence and in the current climate there is no guarantee that a licence will be granted. It is thought that large South Korean users of essential speciality chemicals currently only hold in-house inventory equivalent to between one and two month’s demand.
The US administration has declared
itself reluctant to get involved in the current stand-off but given the degree of trade that passes between the three countries it must be working hard behind the scenes to find a solution that “saves face” for both South Korea and Japan In the meantime the Japanese government has removed South Korea from its “White List” of 27 trusted export countries, effective on 28th August ’19. In a tit-for-tat response the South Korean government announced on12th August that is removing Japan from its list of trusted trading partners. These moves will foist a new and demanding approval process on organisations importing and exporting a wide range of goods in both countries, but in an unprecedented move the Japanese Trade Ministry has approved an export order for EUV Photoresists for a South Korean-based manufacturer. Sadly, no announcement has been made concerning exports of the two remaining specialty chemicals, but it is a step in the right direction.
Final Thoughts
Whilst the Japanese Government may be aggrieved by the recent actions of
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the South Korean judicial system its response will probably come to be viewed as a mistake as it can only undermine the trust that Japanese companies have painstakingly established with their many trading partners and customers since the end of WW2. ‘Weaponising’ trade of just a few chemicals has the potential to destabilise the economy of South Korea and subsequently impact growth throughout the global electronics industry. Hopefully this dispute will act as a ‘wake-up call’ for all governments and they will come to realise that ‘Weaponising trade’ in a global market for domestic and international gain can have severe economic and social consequences well beyond their borders. In the meantime, we must all hope that wider international diplomatic efforts will quickly resolve the current situation which I believe has the potential to make the current issues around Brexit seem like a ‘walk in the park’. Until better council prevails my best advice is to continue to communicate your organisation’s real needs and demand forecasts with your partners both up and down your organisations supply network. Adam Fletcher is Chairman of the
Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also chair of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to share best industry practice.
Further information about The
Electronic Components Supply Network and afdec may be found at the following website:
www.ecsn-uk.org with regular industry updates available to all on the Breaking News pages.
ecsn-uk.org
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