In a move that South Korea had warned would massively escalate bilateral tensions, Japan’s Cabinet today took the decision to strike South Korea from a 27-country “white list” that offers trusted nations preferential access to dual-use industrial items. Korea retaliated almost immediately.

Japan’s Chief Cabinet Secretary Yoshihide Suga said that henceforth, Korea would be treated the same as other countries in the region. “We don’t believe there would be any impact on global supply chains,” he said.

Just hours later, in a televised address at an emergency cabinet meeting, President Moon Jae-in –  speaking under a banner reading, “A rightful nation” – called the Japanese move “a very reckless decision” and continued:  “I unequivocally warn the Japanese government that it will be entirely held accountable for what will unfold going forward.”

He said his government would help Korean firms diversify their import sources and localize production. He also said that Korean was preparing counter measures and that while there “may be hardships” ahead, Korea can “fully triumph over Japan.” After he’d urged Koreans to “join forces” the meeting ended as Moon and his Cabinet stood for the national anthem.

Minister of Economy and Finance Hong Nam-ki, getting specific about retaliation, was next to appear in a separate televised statement. “We also have a white list of 29 countries and Japan is currently on the list,” he said. “We will announce a comprehensive plan to apply different [trade] process to Japan.”

Japan’s actual de-listing of Korea will be carried out on 28 August, while its list covers 1,120 items. Among those believed to be critical for South Korean manufacturers – who will now no longer benefit from a fast-tracked export process – are capital machinery, battery components and essential supplies for the petrochemical and auto industries.

Hong said 159 imports are key for Korean firms. He vowed that the government would assist affected companies in every way including fiscal support for R&D, exploring alternatives and cutting tariffs on alternative goods.

How it got this far

While Tokyo’s Cabinet decision was a shock, it was hardly a surprise to South Korea: Tokyo had signaled the move in advance. Prior to Friday’s announcement, Korean government officials, anticipating the action, had urged Japan not to take the measure.

“If Japan decides to exclude South Korea from the list, the relations between the two countries will deteriorate uncontrollably,” Foreign Minister Kang Kyung-wha told the National Assembly on Tuesday. In a grim-faced meeting, Kang had spoken with her Japanese counterpart Taro Kono on the sidelines of the ASEAN Forum in Bangkok on Thursday in a last-minute attempt to avert the step – to no avail.

Today’s decision by Tokyo follows an earlier action, taken on July 4, to lengthen the approval process for three chemicals essential to South Korea’s flagship chip and display industries to 90 days.

That decision sparked nationwide fury, protests and product boycotts. Koreans see it as Tokyo’s retaliation for a Supreme Court seizure of Japanese assets in January to compensate wartime forced laborers, and Japanese Prime Minister Shinzo Abe has said that he does not consider Seoul trustworthy.

Tokyo’s position is that compensation was built into a 1965 treaty-and-financial-aid package that opened diplomatic relation between Seoul and Tokyo and also paved the way for Japanese firms to do business in South Korea. Due to the recent legal precedent, there are fears that Japanese firms could be subject to hundreds of thousands of similar complaints. That would make it impossible for Japanese firms to operate on Korean soil.

Last year bilateral trade was over $80 billion, Japan is the second-largest aggregate investor in Korea, and is its largest supplier of high-tech components for chips and displays.  The two countries are also key to the US security posture in Northeast Asia. Many have suggested the spat will not only hamper US military coordination in the region but will also hammer global supply chains, notably in electronics.

But not all agree with the latter contention.

Mole hill?

Amid thundering reactions in South Korea, a source familiar with the Japanese position told Asia Times that the issue is being massively blown out of proportion.

South Korea was placed on the white list in 2004 and has been the only Asian country on the list. This indicates the South Korea’s removal is hardly apocalyptic: It simply means it will henceforth revert to the same trade terms with Japan that countries such as Singapore and Taiwan enjoy.

Moreover, the source continued, Tokyo’s actions are simply reversions to previous “normal procedures” that – while they may be more bureaucratically onerous for companies to comply with – are not product embargoes. He added that he did not foresee any problems with Korean companies receiving products they apply for.

Tokyo’s removal of Seoul was due to serious questions hanging over export monitoring, the source said. He cited a “catch-all” provision within Japanese trade protocols which covers dual-use items that can be used in both weapons of mass destruction and conventional weapons. He indicated – without offering details – that the alleged South Korean violations were in the latter category.

He added that Japanese authorities had, for the last three years, been seeking consultations with their colleagues in Seoul’s trade ministry on the issue of dual-use export monitoring. Those approaches had been ignored, he said; the Japanese side were not offered a single meeting on the issue.

Japan is not alone in its approach. Although Korea has a free trade agreement with the EU, it is not on the EU’s list of countries that receive waivers on export controls of dual-use technologies – the EU General Export Authorisations. (Japan, however, is on the EU list.)

Political retaliation?

Yet while the source argued that Japan’s motives were purely economic, there are indications of political motives at work.

The source noted that Tokyo’s Friday move was carefully considered in advance: The trade ministry canvassed public opinion on the matter in the lead-up to the Cabinet decision, he said. Responses were overwhelming: There were some 40,000 – 90% in favor of the mooted action – he said, adding that in similar cases, only a few hundred responses would customarily be received.

This, he conceded, mirrored the level of emotion that has been rising in Japan since Korea’s Supreme Court decision.

The question of an exit ramp is problematic. The source opined that, as Seoul had bounced a long-standing dispute from the historical sphere to the economic sphere with the court decision, it should be Seoul that should initiate moves to resolve the problem.

However, the Moon Jae-in administration has made clear that, under the principle of separation of powers, it cannot interfere in a judicial decision.  While governments in South Korea have customarily influenced the judiciary through the offices of the Minister of Justice, a senior presidential advisor clarified reporters last week that there is – officially at least – no constitutional mechanism under which the executive can influence the judiciary.

Things could be radically worse in the near future, when the Supreme Court liquidates assets confiscated from Japanese firms to compensate the plaintiffs.

Escalation?

The source said that Japan was Korea’s largest accumulative foreign investor until last year (when it was knocked into the number two slot by the United States) and that an estimated 80,000 Koreans are currently employed by Japanese firms in South Korea. The source expressed fears about their job stability.

The potential impact of Japan’s actions is likely to take weeks or months before filtering down to the household economy, and the Moon administration looks unlikely to back down. A black-and-white image posted by the presidential Twitter account this week showed a determined looking Moon, with the text “This is not over yet” emblazoned across the image.

Indications are that Moon’s political machine, the Democratic Party of Korea, sees gains in leveraging anti-Japanese sentiment ahead of next April’s National Assembly elections. Opposition parties have slammed a report from a Democratic Party-linked think tank issued Tuesday that said parties that push a stern response toward Japan will benefit politically at the ballot.

Some local governments, including that of Busan, Korea’s second city, have suspended exchange programs with Japan. Even so, Korea’s economy is just one third the size of Japan’s – offering Korea limited muscle in an all-out trade war.

And Tokyo’s moves looks calculated. The Nikkei Asia Review estimates that the loss of Korean customers for the three chemicals whose exports processes were extended this year would be a relatively piddling US$500 million. Meanwhile, the chemicals are critical for Korean flagships like Samsung Electronics and SK Hynix. The paper also noted that Japan is the largest single supplier of South Korea’s high-tech imports for semi-conducters and displays, with a 32% share.

One counter move that is the subject of media  and public discussion in Seoul is the scrapping of a military intelligence sharing agreement between Seoul and Tokyo – the only official security protocol that binds America’s two Northeast Asian allies.  But that move could anger Washington, Seoul’s only possible partner in the dispute.

But so far, despite repeated South Korean entreaties, the US has declined to mediate.

‘No, no Japan!’

While politicians may be trammeled, the Korean public is not. Banners and posters lambasting Japan and Abe have appeared on Korean streets, many using the iconic red sun motif as the “o” in “No” for “No Abe.”

Boycotts of Japanese products are widespread.  High-profile consumer targets include Japanese beer – previously, Korea’s favorite beer imports – and fast-fashion brand Uniqlo. Koreans are cancelling travel to Japan in such numbers that airlines are cutting routes between the two countries. Some gas stations are reportedly refusing to serve Japanese autos.

A hugely-popular website, No No Japan, offers Koreans information on what products to boycott and related Korean products to buy in their place. One of its offerings is an app via which the user can scan a product’s label to find out whether or not it is Japanese.

Marketers are getting into the act. According to local press reports, plastic surgeons, tour companies, hotels and even local government service providers are offering discounts to customers who can prove that they have canceled Japan trips.

Although Japan is a huge market for the Korean Wave of pop cultural products, stars are getting into the act.

Lee Si-young, an actress, went public with the information that she had replaced her table tennis gear with a Korean-made set, and singer Kim Kyu-jong of group SS501 rolled out the kind of language usually associated with disgraced conglomerate chairmen to apologize after posting images online of himself and his Japanese girlfriend traveling in Japan.

Blazing emotions

Koreans tend to view the colonial period as the darkest era in their national history; some consider the 35-year rule a crime against humanity equivalent to the Holocaust.

With endless bilateral historical spats now being overshadowed by what is widely perceived as a trade war, strong emotions have been unleashed. One man has already committed suicide outside the gates of the Japanese embassy; another is in serious condition after attempting self immolation.

While there have been no reports of Japanese citizens being assaulted, the bureaus of two Japanese media outlets have been stormed by student activists and their staffs harassed.

Emotions are expected to peak on August 15 – the anniversary of the end of World War II in the Pacific, which is also Korea’s Liberation Day. A public holiday, Liberation Day is usually marked by parades, rallies and street performances recalling Japanese brutalities and independence fighter’s heroism.

Opening that day is a hugely anticipated film: The Battle: Roar to Victory, about an action fought between Korean independence fighters and Japanese troops in Manchuria in 1920, in which a Japanese battalion was decimated.