Trade
Weaponising trade in the Japan–South Korea dispute
Author: Kazuto Suzuki, Hokkaido University
Japan’s decision to remove South Korea’s ‘white country’ status and shift the licensing arrangement of three chemical products critical to South Korea’s semiconductor industry is seen as a ‘weaponisation of trade’ by some, and a ‘Trumpianisation of the Abe administration’ by others.
The decision to change the licensing arrangement for three products — hydrogen fluoride, photoresist and fluorinated polyimide — was made at a volatile time in Japan–South Korea relations. It came after the administration of President Moon Jae-in, late in 2018, terminated the foundation that had been created with the formal agreement in 2015 to compensate ‘comfort women’ for the abuses suffered under Japanese occupation. The agreement stated that it settled the question of compensation ‘finally and irreversibly’ but was reversed by President Moon.
Then, also late in 2018, the Supreme Court of South Korea ruled that Japanese companies must compensate victims of forced labour, despite the existing 1965 Japan–South Korea Claims Settlement Agreement. The Japanese government regarded this ruling as a violation of international law but the Moon administration maintained that it could not intervene in the court’s decision.
Subsequently, the Japanese government decided to change the export control regulations on the chemical products and remove South Korea’s ‘white country’ status, with Prime Minister Abe, Chief Cabinet Secretary Yoshihide Suga and Minister for Economy, Trade and Industry Hiroshige Seko stating they had lost confidence in South Korea.
The South Korean government and its people saw this as Japanese retaliation but the Japanese government argues that the action is aimed simply to change South Korea’s export control system and practices to ensure that Japanese products were not transferred to foreign destinations of concern.
This action should not be regarded as ‘weaponisation’ or economic statecraft because it does not aim to change South Korea’s view on the forced labour issue. Weaponisation of trade means that one country forces its political will upon another country by using restrictive trade measures.
Japan’s decision to change export control regulations had a similar impact to the weaponisation of trade because it targeted three ‘choke point items’ of critical importance to South Korea. If Japan decided to restrict or embargo these items, it would effectively choke South Korea’s semiconductor industry.
Japan has not restricted or embargoed these items. It has issued licences on hydrogen fluoride and photoresist already, while an export licence for fluorinated polyimide was granted in September. Although the export volume is still small and it took time to assess individual exports, all three items continue to be exported to South Korea.
Japan has not used trade as a weapon to corner the South Korean semiconductor industry. Its actions were driven by a genuine concern that South Korea’s export controls were not being implemented appropriately, and that Japanese exports to South Korea were being diverted to end-users in China as well as countries in the Middle East and Africa.
The South Korean government sees it differently. It regards Japan’s actions as a retaliatory response to the ‘forced labour’ ruling that deliberately targets the choke point items. South Korea took the issue to the WTO General Council blaming Japan for distorting free trade principles. It also removed Japan from its preferential export licensing country list, ironically doing exactly the same thing that it blames Japan for.
Since Japan’s actions were within the framework of a national export control regime, it appears unlikely that they will be considered a violation of WTO rules. South Korea has since upped the ante, deciding to terminate the General Security of Military Information Agreement (GSOMIA) with Japan.
The decision presents a challenge to both countries. The sour relationship between them is rooted in historical grievances. The overall relationship has so far been insulated from historical issues because of the importance of the bilateral economic and security relationship.
The decision to terminate GSOMIA linked historical issues to issues of security. Though Japan shares some of the blame for failing to address the past, Tokyo believed security to be outside the scope of bilateral historical spats — particularly since North Korean nuclear and missile activities increasingly threaten both Japan and South Korea.
The…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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