The Restrictions Imposed by Japan on South Korea May be “Upgraded Tactics”! Does South Korea "Detour Plan" Work?

Japan imposes restrictions on the export of key semiconductor raw material for South Korea, which makes all walks of life in South Korea worried. South Korean President Moon Jae-in has repeatedly spoken to Japan to cancel the ban on South Korea. Otherwise, he will take further measures to deal with it. Even the once famous in South Korean semiconductor giant Samsung "Prince" Lee Jae Yong also went to Japan to Stella, JSR, etc., Japanese semiconductor raw material companies, to propose to supply goods through overseas factories, and meet with Japanese financial elites and powerful business people to assist in mediation

Japanese Industry Minister Hiroshige Seko (Source: REUTERS)

However, Japan does not care about South Korea’s efforts. According to Reuters, Japanese Industry Minister Hiroshige Seko said today that Japan is not considering canceling the restrictions on Japan’s export of high-tech products to South Korea, and said that the restrictions did not violate the provisions of the World Trade Organization. On the other hand, according to Digitimes, Japanese government has announced that it will limit three products for South Korea, which include machine tools (large equipment such as machine tools) and carbon fiber. People is worried that if Japan’s restrictions on export for south Korean continue to escalate, it will damage many industries such as South Korean industrial manufacturing, semiconductors and automobiles, which will have a certain effect on global supply and demand structure.

In addition to materials: South Korea is also heavily dependent on Japanese equipment
The restriction on semiconductors for South Korea is just the first step of Japan. Next, if the performance of South Korea does not meet the demands of the Japanese, Japan will take further measures to suppress key industries in South Korea. After all, whatever semiconductor devices field or industrial manufacturing equipment field, today's South Korea is heavily dependent on Japan and cannot escape.

From the perspective of semiconductor production equipment, although Japan has been defeated by South Korea in some industries, it has used the core mechanical technology to hold the throat of South Korea. It is reported that today's Japanese companies account for 37% of the global market share of semiconductor equipment, including 93% electron beam drawing equipment, 98% coating / development equipment, 70% cleaning equipment, 83% oxidation furnace, 79% reduced pressure CVD equipment and other important high-end equipment as well as the important back-end packaging equipment represented by 97% scribing machine and important test equipment represented by 94% prober . Japan is in a monopoly position. (Source: New Era Securities Research Institute)

Generally speaking, among the 15 kinds of high-end key equipment, Japanese companies accounted for 38% of the average market share. Among the 9 types of back-end key equipment, Japanese companies accounted for 41% of the average market share. As far as semiconductor devices are concerned, almost one-third of the devices used in South Korean semiconductor companies are made in Japan. For instance, the current mainstream OLED display panel products are controlled by Nikon and Canon. An OLED vapor deposition machine is almost $120 million. In the manufacturing of key components, such as robotic lathes that manufacture aluminum alloy metal bodies for smart phones, most of them are purchased from Japan FANUC. What’s more, in the production of high-density parts and various equipment and chemical products required for and optical measuring equipment, the market share of Japanese products has also exceeded 40% to 50%.

Does South Korea Efforts to “Detour Tactics" Work?
In order to prevent Japan from taking further measures to crack down on the South Korean industry, it is probably the most tentative means for the South Korean industry to try to mediate while circling. However, Japan has clearly stated that it will not relax restrictions on South Korea, and it is more likely to be intensified. What’s more, the Japanese business community has also reacted negatively to Lee Jae Yong’s proposal. Faced with such a situation, the only way of South Korean companies under the leadership of Samsung can only adopt the detour tactics, but how much is the feasibility?

As we all know, although the key semiconductor material manufacturer Stella in the previous round of export restrictions has factories in Taiwan and Singapore, JSR also produces high-purity hydrogen fluoride in Belgium. Legally speaking, it is possible that Japanese companies can continue to cooperate with Korean companies through overseas factories. However, after the introduction of the South Korean restrictions, Japan will undoubtedly exercise further long-armed jurisdiction over such behaviors. And ultimately various transactions between South Korean and Japanese companies are still difficult to bypass the Japanese review. Therefore, this approach still has greater risks.

Of course, it is said that South Korean companies are also seeking alternative channels besides Japanese suppliers, but editors believe that this only be feasible in certain aspects, such as some mechanical/high-precision equipment that is not subject to Japanese monopoly and carbon fiber that may be included in the restricted list.
However, in terms of the key semiconductor materials in the first round of restrictions, South Korea has to pay a considerable price to circumvent Japan’s purchase from other countries’ buyers. After all, Japan accounts for 90% of the world's production of fluorinated polyimides and 70% of the world's production of high-purity hydrogen fluoride gases. And most of the raw materials in the hands of other merchants can only rely on Japanese imports. Even as South Korean chip makers said that these materials are not something we can find and buy in another store. Even if we can find Japanese alternatives, we must ensure that the quality is enough to keep high production of chips.

Summary:
In the face of Japanese technology pressure, the South Korean industry is now facing a dilemma. If the Japanese increase further pressures, the future development of South Korea in many fields will slow down and the losses will be huge, which will also have an impact on the global market. But for South Korea, this is also a "wake up dream", so that South Korean companies are once again aware of the need to develop a domestically-developed independent industrial chain and to seek for alternatives. In the short term, South Korea, whatever the semiconductor industry or the manufacturing industry, it is impossible to get rid of the constraints of the Japan. Although the "detour tactics" can alleviate the pressure on South Korean companies to a certain extent, after all, the detour tactics in fact will not help South Korean companies.

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