[New Wave] Lessons Left by Japan's Economic Provocation

In July last year, Japan imposed export restrictions on three key semiconductor and display materials, claiming without evidence that the hydrogen fluoride it exported to South Korea was diverted to North Korea and used to manufacture lethal weapons. Japan exploited the fact that Samsung Electronics and SK Hynix heavily rely on Japanese equipment, materials, and components for their semiconductor memory production to attack South Korea's Achilles' heel. This export restriction was essentially a political and diplomatic issue expressed through industrial trade sanctions. It is a situation unlike typical trade disputes and one that South Korea is experiencing for the first time.

Japan's economic provocation has strengthened the awareness of the urgent need to localize materials and components. However, it is necessary to examine whether a systematic system is in place to prepare for the 21st-century silent war. In particular, the global trade order is transitioning from neoliberalism to an era of 'hegemony' and 'protectionism.' Diplomatic order prioritizes national interests above all, regardless of whether the counterpart is a competitor or an ally. Considering recent US-China trade conflicts and the strong trade sanctions the United States imposed on its ally Japan in the mid-to-late 1980s, which caused Japan's prolonged economic stagnation, it is more important than ever to review South Korea's current 'industrial security' situation.

Industrial threats like Japan's export restrictions can occur at any time. Next, the United States, China, Russia, or the European Union (EU) could pose threats. Although this time the restrictions were limited to materials and components, future attacks could target growth industries such as data, software, and manufacturing services on a large scale. It is now time to establish fundamental measures for industrial security.

Currently, the concept of industrial security is not clearly established in South Korea. The fortunate aspect is that the concept of industrial security, which protects companies' and institutions' core assets from industrial espionage, emerged in the early 2000s and has developed since the enactment of the 'Industrial Technology Leakage Prevention Act' in 2006. However, industrial security remains a passive concept focused on protecting existing core assets (especially industrial technology). Therefore, there is a need to establish industrial security as a new concept that actively addresses industrial challenges and compensates for our weaknesses.

In response to the recent Japan incident, the solution proposed was the 'de-globalization' of materials and components, that is, increasing research and development (R&D) investment for localization. South Korea enacted the 'Materials, Components, and Equipment (MCE) Special Act' in 2001 to support the MCE sector, but the technological gap with Germany and Japan has hardly narrowed. While strengthening R&D to solve MCE issues is natural, it is a short-sighted policy that fails to address the fundamentals of industrial security. Japan has thoroughly analyzed our industries, products, and even materials and components, understanding them as well as knowing the number of spoons next door, yet we have not realized our own shortcomings.

Industrial security involves comprehensively utilizing various means such as R&D, M&A, key personnel, diplomacy, export controls, and cooperation with third countries. It excludes industrial threats from competitors and anticipates them in advance to compensate for our weaknesses. To this end, a promotion system, legal basis, and policies are needed to establish the foundation of industrial security. Since industrial security is directly linked to national security and requires a cross-ministerial response, strong leadership from the head of state is essential. Countries like the United States, Japan, and China monitor competitors' industrial and technological trends in advance, gather opinions from their companies operating overseas, and provide support through diplomacy, policies, and laws when problems arise. Now, South Korea must also prioritize the value of industrial technology and establish research, policies, and organizational systems for industrial security to enable companies to operate smoothly.

Seungwoo Son, Professor, Department of Industrial Security, Chung-Ang University