Japan begins procedure to re-designate South Korea on whitelist... Domestic 'banseok'

Japan's Ministry of Economy, Trade and Industry has decided to initiate the procedure to re-designate South Korea as a "white list" country (a preferential export screening country). The domestic industry is welcoming this, expecting export and import procedures to become smoother. However, companies in the semiconductor sector and others believe there will be no significant immediate changes, as they have been focusing on diversifying supply chains since Japan's export restrictions in 2019.

Previously, the Japanese government imposed export restrictions on three key semiconductor materials?hydrogen fluoride, fluorinated polyimide, and photoresist?against South Korea in July of the following year as a de facto retaliatory measure for the South Korean Supreme Court's forced labor compensation ruling in 2018. Subsequently, South Korea was removed from the white list.

The domestic semiconductor industry originally had a high dependence on Japanese materials. According to data from the Korea International Trade Association at the time of the export restrictions announcement, 44% of hydrogen fluoride imports and 92% of photoresist imports were from Japan. However, as the industry actively pursued localization of materials, parts, and equipment (SoBuJang) and diversified suppliers, dependence on Japanese products has steadily decreased.

Recently, following the Korea-Japan summit, the two governments have been discussing the restoration of the white list. Since the Ministry of Economy, Trade and Industry withdrew export restrictions on the three semiconductor-related items to South Korea last month, once the white list re-designation procedure is completed, all export restrictions against South Korea that have been in place since 2019 will effectively be lifted.

However, this is not expected to bring major changes to the industry.

A semiconductor industry official said, "Re-designation to the white list will not have a significant impact on the industry," adding, "This is because supply chain diversification has already progressed significantly since the Japanese export restrictions."

He also added, "However, being included in the white list again is positive in that procedures are simplified when sourcing materials or equipment from Japan."

According to the Ministry of Trade, Industry and Energy, the share of imports from Japan in the semiconductor sector among the top 100 core strategic SoBuJang technologies decreased by 9.5 percentage points from 34.4% in 2018 to 24.9% in 2022.