Samsung Electronics Co. postured itself to cope with the possibility of a drawn-out and widened export protectionism from Japan on strategic items that could shake its component leadership after its chief returned from Tokyo to study future moves from Japan.

Jay Y. Lee, vice chairman and de facto leader of the Korean tech giant, convened an emergency meeting with the heads of the company’s semiconductor and display divisions on Saturday upon returning from his five-day trip to Japan after Tokyo announced regulations on Korea-bound shipments of three key chemicals necessary for chip and display production.

He ordered managerial executives to formulate a “contingency plan” in case Tokyo could expand its export curbs against Korea.

The Japanese government has removed Korea from the list for fast-track treatment for shipping three key materials for memory chip and display production, questioning Seoul’s management over sensitive strategic materials that can be employed for military purpose. The change took effect on July 4, meaning Japanese exporters of the three materials now need government permission for every shipment bound for Korea.

It also warned that it could entirely remove South Korea from the “white country” list, which would put some 1,100 items under “catch-all control” regulations on “sensitive dual-use” goods and technology. The change could become effective from next month after the Japanese government holds a hearing and cabinet meeting.

Since Japan introduced “weapons catch-all control” export rule in 2008 to regulate shipments of sensitive dual-use goods and technologies ranging from carbon fiber to machinery tool that could be used in terrorist acts, South Korea along with 26 other countries have been exempted from the strict screening on recognition of their solid export control.

Seoul has denounced the sudden change in Korea’s export status as punitive response to Korean court rulings ordering Japanese companies to compensate former forced Korean workers during World War II.

The thee materials under the de facto trade embargo from Japan are fluorine polyimide used in smartphone displays, photo resist for chip boards, and high-purity hydrogen fluoride or etching gas for chip cleaning. Semiconductors are responsible for nearly 80 percent of Samsung Electronics’ income, with display as another big pillar of the company’s business. Electronic components make up a quarter of Korea’s total exports.

Some media earlier reported that Lee has successfully secured emergency supplies of the three materials. A Samsung Electronics official who asked for anonymity denied the reports saying “Lee did not secure additional inventory from the Japan trip, but has ordered the management to prepare for future impact” after he returned from his trip to Japan last week.

Samsung Electronics is reportedly seeking for various ways to secure supply of the key materials, including procuring the materials through overseas offices of the Japanese suppliers or finding alternative suppliers in other countries. With the current inventory levels, the company is expected to avoid immediate production halt. But should the situation persist, the company may have to cut chip production or even stop some lines for one or two months, some industry observers warned.

Japan is responsible for 90 percent of global output in fluorine polyimide and photo resist, and 70 percent of etching gas.

“It is almost impossible to replace supplies from Japan in a short period of time,” said an unnamed semiconductor industry official. “Moreover, we cannot also rule out the possibility that the trade restriction will expand to other sectors.”

Industry experts warn that the production trouble at Samsung Electronics’ chip lines would not stop at the company alone. Samsung Electronics and another Korean chipmaker SK Hynix account for three-quarter of global DRAM output, with the first commanding 44 percent as of the end of 2018.

By Kim Gyu-sik and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]