Recently, the famous Japanese brand UNIQLO or unmanned goods shops can no longer attract people's attention. Just a month ago, people used to line up to buy goods, but now there is an increasing number of consumers shouting 'NO JAPAN' in Korea. In addition, the semiconductor industry, which, without exaggeration supports our country, is in crisis. These things all started with Japan's export regulations. Let's see why Japan made this decision and how we can go forward.
Export Regulations of Japan
The Japanese government officially enforced Korea's export regulations since July 4, 2019. The main content was to strengthen Japan's export regulations on three items needed for semiconductor and display core materials (fluorine polyimide, resist, and high-purity hydrogen fluoride). Furthermore, starting in August 2019, Japan is considering removing Korea from its White List. 'White List' is a country with relatively free exports of key materials, technology and software because it is said that there is no controversy over security issues with each other. Europe (21 countries including Germany and the UK) and North America (USA and Canada) are included, and Korea is the only Asian country. If removed from the list, other high-tech materials exported from Japan to Korea will also require all permission from the Japanese government. In the end, it means strengthening export regulations.
In response to this tightening of export regulations, Japan's Ministry of Economy, Trade and Industry cited security reasons for confronting North Korea. However, the Korean government sees these regulations as a follow-up to the October and November 2018 Judgment for compulsory employment. On October 29, 2018, the Supreme Court ruled that companies such as Nippon Steel Corporation should compensate victims who were forcibly recruited by Japanese war criminals during the Japanese occupation. Based on this, victims of compulsory recruitment asked the company several times for apologies and consultation, but Japanese companies and the government consistently responded with silence because of the ‘1965 Korea-Japan claim agreement’. At that time, Korea accepted this agreement, and the Korean government decided not to ask Japan for compensation in the future, and received about 500 million dollars. Japan claims that there is no further remuneration based on the provisions of Article 2, paragraph 1 of this Agreement which says "confirming the claim has been fully and finally resolved." However, the Korean Supreme Court asserted that the judgment they ruled was correct on the basis of the principles of international law that the rights of individual claims are valid at any time regardless of the agreement of the state. In other words, reparations between individuals and individual victims of forced recruitment and Japanese companies are irrelevant to this agreement. The Korean government therefore regards the export restrictions as retaliation in Japan for this court decision. Therefore, Korea is considering filing a World Trade Organization (WTO) complaint against Japan, which has imposed export restrictions for unfair reasons.
Damage and Prospect of Semiconductor Companies in Korea
‘Fluorinated polyimide’, ‘Photoresists’, and ‘High-purity hydrogen fluoride’ are all three key materials, as semiconductors account for 25% of Korea's exports. Therefore, Korean semiconductor manufacturers such as Samsung Electronics and SK Hynix are expected to experience significant loss. Previously, Japanese companies exported their products to Korea without restriction. This new action will put the brakes on semiconductor exports. Japan's global market share of the three core materials ranges from 70% to 90%. In particular, ‘Photoresists’ and ‘High-purity hydrogen fluoride’ used in semiconductors are difficult to replace due to their superior quality and price competitiveness. Even if we find for another supplier, if the material is changed, we will have to change the process itself.
Fortunately, many experts in the semiconductor industry argue that the hydrogen fluoride problem can be found among the three items regulated. Since 2010, Samsung Electronics and SK Hynix are reportedly testing to replace Japanese liquid hydrogen fluoride with domestic products. According to the semiconductor industry, on July 15, 2019, the two companies completed the reliability and consistency tests for domestic hydrogen fluoride and put it into the semiconductor device D RAM production line. Meanwhile, the government has responded to Japan's retaliation and expressed a willingness to reduce its dependence on Japan by investing KRW 6 trillion in developing materials, components, and equipment, including semiconductors, for 10 years. However, if materials companies invest in research and develop the technology, there are ways to invest in government expansion to match facilities and to match them with large companies to find the right material in demand. In this way, the government should have a long-term plan in the material parts market in advance to investigate the technologies that they need in the future and to create optimum conditions.
Boycott against Japan
The public made the first move on the news that the semiconductor industry could be in danger. The people who were angry at the Japanese government's action of export control without reflecting on the history are the ones who began the Japanese boycott. On July 1, 2019, a Blue House petition was posted under the title of "I request the government's retaliation measures for economic sanctions in Japan." By the 24th of July, 45,000 people had signed the petition. According to the actual online survey agency Realmeter, participation in boycotts increased from 48% to 54.6%, and from 45.6% to 39.4% in just the week following July 10. On the other hand, the site that shows Japanese products and alternative Korean products is gaining popularity. For example, a site called 'No-No-Japan' provides Japanese brand and product information. They also provide Korean product information that can be used to replace with Japanese products. The ‘No-No-Japan 'site became more famous, and as of July 20, the number of visitors exceeded 1.3 million. In addition, consumers have been sharing phrases such as' BOYCOTT JAPAN,' ’Do not go, Do not Buy', along with links to the site through various SNS activities. For example, some of the products on this site promote boycotting by listing car brands such as Lexus and Honda, electronics brands such as Sony and Canon, and Japanese clothing and shoe brands such as Descente, Uniqlo, and ABC Mart. In addition some unions, such as courier service and marts, expressed their intention to participate in the boycott of Japanese products. Indeed, on July 24, 2019, the Korean Confederation of Trade Unions (KCTU) announced that they would stop presenting Japanese products to customers at large marts. The KCTU also decided to refuse to deliver UNIQLO products to Japan's large-scale manufacturing clothing (such as Fast fashion and SPA brands) brands. In addition, the sales of Japanese products in the large marts will decline as the workers of three major marts, including E-Mart, Lotte Mart, and Home Plus, have declared their refusal to provide customers with information.
The boycott of Japan has affected travel as well as goods. According to the SBS CNBC report, as of 2018, there were about 7 million Japanese tourists in Korea and about 3.5 million Korean tourists in Japan. It is not an exaggeration to say that the first place Koreans want to go is Japan. The biggest impact of the boycott was the Japanese tourism industry, especially in smaller cities. In particular, smaller cities in Kyushu, which is close to Korea, were hit by the attack. Kyushu is the southernmost of the four large islands of Japan and is important for industry and tourism. JTBC, one of the Korean broadcasters, reported on July 23, 2019, in Japan that the towns that were usually crowded with Korean tourists during the summer holidays were deserted with empty streets. Among them, Tottori Prefecture in Honshu, Japan, where more than six out of 10 tourists were Koreans until Japan's export control war, suffered from the situation. The official of the domestic travel agency Hana Tour also said, "The number of new travelers to Japan was usually 1,100 people per day, but decreased to 600 people after the incident." Modu Tour also said that "the number of tourists to Japan has decreased from 1000 to 500." In fact, a 50-year-old Busan citizen, who was about to travel to Tsushima, Japan, said on July 24 that he had canceled his scheduled boarding of the passenger ship. Mr. Lee said, "I felt uncomfortable because of critical people. So, I decided not to go.” Most low-cost airlines, such as Eastar, T-way, and Jin Air, which anticipate full enthusiasm in the boycotts, are planning to eliminate or reduce routes scheduled for regular flights to Japan from September.” For this reason, domestic accommodation reservations increased by 35.7% compared to last year, as tourists who canceled or refused to travel to Japan were attracted to domestic tourist destinations.
Effect of Japanese boycott
As the Japanese boycott spreads, the sales of some domestic products are on the rise. According to the distribution industry, UNIQLO's sales fell by 26% and that of MUJI KOREA by 19%. On the other hand, SPA brands in Korea are enjoying the benefits of more sales, in particular Jeil Industries' Eight-Seconds and Shinsung's Top-Ten. In fact, according to an Internet News Daily report, Top-Ten and Eight-Seconds Yongsan, were crowded with customers throughout the month of July 2019. Top-Ten expects annual sales of 280 billion won. It had sales of 120 billion won in the first half alone. This is a 45% increase compared to the same period last year. Some say that Korean companies should make this boycott into a big opportunity. Since domestic SPA brands are already competitive in terms of price and quality, they can secure loyal customers through this boycott.
On the other hand, there is a high concern that consumption activities may be delayed in product ranges that do not have a substitute for Japanese products. Actually, Japanese restaurants, which are popular in Korea, are difficult to replace right now and are suffering from the aftermath of the boycott. According to the Jeju News on July 24, a Japanese ramen restaurant, a Japanese pork cutlet restaurant, and a Japanese pub in the Jeju area have been in trouble since the Japanese boycott. These restaurants were popular because customers could taste Japanese food at reasonable prices, but only 10 guests visited the restaurant on July 23. In this regard, the Japanese pub owner said, “We were prepared to removing sake (Japanese drinks) from the menu due to the Japanese boycott, but the pub itself is also being affected.” he sighed and, "If this situation continues without customers, I will have to close the store.” Also, he said “Our store is decorated in a Japanese style and sells Japanese snacks, but most of the ingredients are domestic and have nothing to do with Japan. I understand the boycott itself, but consumers should make the right judgments so that self-employed people like us are not harmed,” he complained.
In addition, the proliferation of boycotts is exacerbating the Korea-Japan relationship. Uniqlo, a representative Japanese fashion brand, was selected as a major target for boycotts due to problems of employees of the headquarters. Okazaki Takeshi, chief financial officer at UNIQLO headquarters, said in an interview related to the incident on July 11, 2019: “Boycotting movements in Korea have a certain impact on sales. But I don't think it will continue in the long term even if there is an impact.” The boycott of UNIQLO intensified as such remarks were reported in major news and newspapers including SNS. In response, UNIQLO Korea said, “We did not convey our heartfelt feelings to our customers. I'm sorry for the trouble I heard from the officers.” However, the public is angry because the Japanese headquarters did not post a single apology on their website. In fact, a woman even damaged a product at a UNIQLO store. Besides, Korea-Japan relations are getting worse as various online communities are posting a language that promotes dislike of Japan and articles requiring the retirement of entertainers with Japanese nationality. The Japanese locals who heard such news as No-no-Japan gained popularity says, "We shouldn't buy Korean products.", also says, “We do not teach Korea.”
How should we work this out?
This boycott is a very hot issue these days but it is likely to be temporary, so we need to find a solution in the long term. First, the government's diplomatic response is necessary. To solve the situation, the Moon Jae-in administration is seeking a solution not only by filing a WTO complaint, but also by diplomacy with the United States. Kim Hyun-jong, Deputy Director of the National Security Office of the Blue House, traveled to the United States on July 10, 2019 to meet with the White House, to announce that Japan's trade retaliation measures were unfair. President Trump met with reporters at the White House on July 19, 2019 and said "If they need me, I'll be there. But I hope they can solve it." It also suggested that mediation could take place with Japan. In addition, Kim Seung-ho, deputy director of the industry, showed the government's willingness to take a tough stand. He attended the WTO General Council in Geneva, Switzerland, on July 23 and 24, giving notice of the unfairness of Japan's export control measures and urging prompt withdrawal of regulations. Foreign Minister Kang Kyung-hwa and Japanese Foreign Minister Kono Taro exchanged opinions on the Japanese government's export restrictions on July 26. Japan's Foreign Ministry did not answer much, but the direct communication between the Korea's and Japan's foreign ministers is meaningful since it is the first time since Japan's export regulations to Korea, and the plan is to proceed with the bilateral talks. It is necessary to show diplomacy enough to continue through ongoing negotiations in public forums such as future summit meetings and international conference organization meetings.
Second, government efforts should be made to help domestic companies and people who have been substantially damaged. According to a report released by the Economic Research Department of the Daegu Chamber of Commerce and Industry on July 22, 2019, 55.3% of local companies are looking for a smooth solution to export regulations. Among them, 6.9% of companies are directly affected by Japanese export regulations, and 45.2% of companies are expected to be directly or indirectly affected by the prolonged situation. In addition, 40.3% are reported to be concerned about the expansion of regulated items after Korea was excluded from Japan's white list. Large companies know whether imported Japanese items are strategic items and respond separately to regulation organizations. However, small and medium organizations have difficulty becasue they don't know which imported items are regulated. These SMEs ask directly for confirmation from their Japanese counterparts, but they point out that fundamental solutions are necessary because they often do not get accurate answers from their Japanese counterparts. In order to minimize the damages of these companies, the Korean Party Incheon City established the “Japan Export Control Damage Report Center” (JCDC) in Incheon City on July 26, 2019, and began accepting damage reports from companies in accordance with Japanese export regulations. In addition, the Busan Chamber of Commerce and Industry will work with Busan to prepare measures such as those being used by JCDC and monitoring companies' damage in real time. This seems to be an effort to prepare countermeasures for people and businesses against unfair Japanese export regulations.
The boycott of Japanese products should be seen not just a happening but it should be used to correct our history and protect our industry. Only people's patronage of domestic products and significant interest and effort in the semiconductor industry will solve this challenge. Therefore, the government and the people must join forces to stop the long history of fighting with Japan and to create a new future with Japan as a neighboring country rather than a making a hateful relationship.
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