South Korea has warned of removing Japan from its own friendly trade list and ending a security information sharing pact signed with the neighbor, stepping up countermeasures against Tokyo that has slapped Seoul with a series of trade restrictions.

South Korea’s Prime Minister Lee Nak-yon on Saturday reaffirmed the country’s determination to firmly deal with Japan’s decision to remove Korea from its list of trusted trade partners, a move that will require Japanese exporters to seek case-by-case approvals of more than 1,100 items bound for South Korea.

The Japanese government on Friday removed Korea from its trade whitelist just a month after it tightened control of exports of three key high-tech materials essential to manufacture semiconductors and displays, South Korea’s mainstay export items.

“(This is) the second retaliatory action against Korea after tightening export control on key chip-related materials bound for Korea,” said Prime Minister Lee. “Japan’s such moves could threaten bilateral relations as well as international free trade and interdependent economic cooperation system, and create fissures in Korea-U.S.-Japan security alliance regime.”

Lee’s comments, which were made during an emergency Cabinet meeting on Saturday, echoed President Moon Jae-in’s stern warning against Japan on Friday with pledges to take strong countermeasures against Japan’s latest moves to weaponize trade for political purposes.

The Japanese government announced that the latest moves were made based on unknown national security grounds, denying the Korean government’s accusation that Tokyo took the latest steps to retaliate against South Korean court rulings ordering Japanese companies to compensate wartime workers forced to work for Japanese companies before and during World War II.

The Japanese government claims the 1965 basic treaty that normalized relations between the two countries has already settled wartime issues including damages against forced labors and sexual slaves.

Immediately after Japan removed South Korea from its preferential trade list, South Korea’s Deputy Prime Minister and Economy and Finance Minister Hong Nam-ki on Friday said the country will also take steps to remove Japan from its own whitelist countries “as part of a measure to enhance export control” while seeking to solve the problems through dialogue.

South Korea has designated 29 countries including Japan to receive preferential treatments for importing and exporting strategic materials under the directive of the Ministry of Trade, Industry and Energy to allow comprehensive export approval. If Japan is removed from Korea’s whitelist of countries, Korean exporters will have to request government approval for each item to export them to Japan.

“We will strongly request the Japanese government to withdraw its latest action using various channels and urge resumption of bilateral dialogue” Hong said. “We will continue to put out efforts for diplomatic solutions, while in the meantime, enhancing security measures starting with tourism, food, and waste sectors that are related to the safety of the people.”

Hong reiterated that Japan’s export curbs are completely in violation of World Trade Organization rules and that Korea will accelerate its move to bring the issue to the WTO.

In another tit-for-tat measure, which suggests there would be no immediate way out for the two countries whose relations have hit their worst level since normalization of diplomatic ties in 1965, Seoul said it will consider ending the General Security of Military Information Agreement (GSOMIA) with Japan.

GSOMIA is an intelligence sharing accord that facilitates three-way intelligence gathering with Washington, Japan and South Korea in dealing with North Korea’s nuclear and missile threats. The deal is automatically renewed on Aug. 24 every year.

South Korea’s Foreign Minister Kang Kyung-wha is said to have warned of cancelling GSOMIA as a countermeasure against Japan’s latest trade retaliation during a three-way foreign ministers’ meeting among Korea, the U.S., and Japan, on Friday in Bangkok, Thailand.

“GSOMIA is a considerably important part in security cooperation among Korea, the U.S., and Japan,” Kang was quoted as saying by a senior government official. “(But) we cannot but consider all [options] on the table,” she said.

Kang’s remarks underscoring the importance of GSOMIA in Korea-U.S.-Japan security cooperation is seen as a move to urge Japan to withdraw its economic retaliatory actions against Korea and send a message to the U.S. to play a more active role in pushing Japan to step back to maintain cooperative ties among the three countries.

As part of efforts to help South Korean companies that are expected to be affected by Japan’s stricter trade restrictions, South Korea’s National Assembly on Friday passed a 5.8 trillion won ($4.8 billion) supplementary budget bill, which includes 273.2 billion won to tackle Japan’s measures, 99 days after it was sent to the assembly for approval. The extra budget will be spent on developing technologies that can foster the growth of the country’s material and components industries and funding companies affected by Japan’s latest actions.

The Korean government expects the loss of preferential trade status would immediately affect 159 items of 1,194 strategic material items.

The government also plans to support local companies with emergency budget, tax and financial benefits. It will review options to reduce existing tariffs by up to 40 percentage points for companies that import items and raw materials, extend national tax payment period, delay tax collection and audit, and provide early refund of value added taxes.

The government will also operate an around-the-clock customs clearance support system to help speed up the import clearance process of those items subject to enhanced export regulations.

With regard to the 159 items on the managed object list, the Korean government will extend storage period within bonded areas and exempt additional taxes upon delay in import declaration.

The country’s financial authority will also set up 6 trillion won ($5 billion) worth funds to support the companies to be affected by Japan’s trade restrictions and extend maturity on existing loans, in particular, for large companies. The authority will also offer a new policy finance support program if damages from Japan’s trade restrictions on companies are deemed to expand.

The ruling Democratic Party of Korea, the government, and Blue House on Sunday held a high-level meeting to discuss countermeasures against Japan’s actions on removing Korea from its whitelist.

They decided to add a budget specifically allocated to counter Japan’s heightened trade retaliations, which would amount at least 1 trillion won, to next year’s budget. They will also amend laws to expand government support for not only material and components companies but also equipment manufacturers.

By Park Yong-beom and Lee Eun-joo

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