What are the concerns of South Korea in the face of the Japanese-South Korean semiconductor dispute?

Not only the blue house has been actively seeking diplomatic solutions, but also business community and academia has also given different responses since the Japanese government officially issued on July 1st a regulation restricting the export of three kinds of semiconductor core materials to South Korea. The JoongAng Daily said on July 9th that the response of major Korean TV and smartphone enterprises is different.

Jiang Renbing, chief technology officer (CTO, vice president) of LG Display, said on the 9th that “the impact of export restrictions is not great”. However, vice chairman of Samsung Electronics Lee jae-yong is struggling to break the export restrictions and avoid answering media questions.

Despite the excellent performance of its semiconductor and display industries, South Korean academics still worried that the impact of this export restriction will give competitors a chance to catch up.

It was reported by the Chosun Ilbo on the 10th that Samsung Electronics currently accounts for 43.7% of the NAND flash market but the dispute will undoubtedly send large orders to the second-ranked Toshiba, the third-ranked Western Digital and the fourth-ranked Microsoft.
Meanwhile, experts worried that the technological dependence caused by the industrial structure will further increase the trade deficit with Japan, the Yonhap News Agency reported the 7th.

The three products restricted for export to South Korea are Fluoro polyimide used to make TV sets and smartphone displays, Photoresist necessary for the production of semiconductors, and high-purity hydrogen fluoride commonly known as “etching gas”. The three products will be excluded from "broad export licenses" since July 4th and require individual export licenses.

Some analysts believe that the move is Japan’s retaliatory measures against the Korean Supreme Court’s judgment on Japan’s forced recruitment of workers during World War II.

Major Korean companies react differently

Among the three cutting-edge semiconductor materials, hydrogen fluoride is the most concerned. Since hydrogen fluoride is toxic and cannot be stored for a long time, this material is supplied in an unstocked manner.

High purity hydrogen fluoride is used in LG's flagship organic light-emitting diode (OLED) panel, the JoongAng Daily reported.
In response, Jiang Renbing, chief technology officer (CTO, vice president) of LG Display, said on the afternoon of July 9th at the “Industry Future Strategy Forum” hosted by the Korea Engineering Academy: "The recent export restrictions imposed by the Japanese government have had a very limited impact on the display screen industry, so you don't have to worry. We have started testing hydrogen fluoride purchased from China and Taiwan and domestic hydrogen fluoride for use in production." 

Currently, there are two ways to obtain high-purity hydrogen fluoride. The direct purchase of high-purity hydrogen fluoride can only be imported from Japanese enterprises apart from LG's purchase of ordinary hydrogen fluoride for high-purity processing.
According to the JoongAng Daily on the 9th, "Although hydrogen fluoride can be used in chemical forms such as gas or liquid after processing, it is still necessary to use high-purity hydrogen fluoride (imported from Japan) in order to ensure the quality of the project." an anonymity related to semiconductor industry said.

Lee Jae-soo, vice chairman of Samsung Electronics, arrived at Haneda Airport in Japan on July 7th . He plans to meet with business people from the Japan Trade Office. He hopes that Japanese material company STELLA will supply high-purity hydrogen fluoride to South Korea through a factory located outside Japan. The company has production facilities in Taiwan and Singapore. However, the export license for strategic materials such as hydrogen fluoride is in the hands of the Ministry of Economy, Trade and Industry. It is understood that STELLA responded to the request of Samsung Electronics, saying that only the final approval of the Japanese government can export hydrogen fluoride products to South Korea through Taiwan and other places.

Japanese company TOK, which produces another export restricted product Photoresist, is also likely to be visited by Mr Lee. TOK related people recently said that TOK has a production base in Incheon, so it will not be affected too much.

It is difficult to solve technical dependence by funds alone

Societe Generale estimates that Japanese companies meet more than 90% of South Korean companies' needs for Fluorinated Polyimides and Photoresist and 44% of their needs for Hydrogen Fluoride.

According to Bloomberg Global Finance on the 10th, although the inventory level of each material is different, Samsung's average inventories less than a month. If the current situation continues, Samsung is ready to cut production or even halt production.

Taking this opportunity, competitors may come up to make up. Micron Technology will benefit from being the only other major memory chip manufacturer. TSMC's leading edge in Samsung in the field of custom chips may further expand and grab Samsung customers such as Qualcomm and NVIDIA.

In addition to the existing disputes, South Korea’s trade deficit with Japan for 54 years is also of concern.

According to the statistics of South Korean Trade Association (KITA) and Korea Customs Service (customs), South Korea against Japan trade deficit from 1965 to 2018, accumulative total $604.6 billion. In the 54 years since the establishment of diplomatic ties in Korea and Japan, South Korea trade to Japan never in vantage position where exports is greater than imports and the deficit grew as South Korean economy growing.

Seong tae-yin, an economics professor at Yonsei University, said the main problem behind the huge trade deficit with Japan is the gap in technological strength. Despite its growing semiconductor and display industries, South Korea still relies on Japanese technology for materials and components. These are parts and materials that require long-term technical accumulation to produce, and Japan has an overwhelming advantage in the world market occupying a large share.

Meanwhile, South Korea has the largest trade surplus with Japan in the categories of fossil fuels ($3.19 billion), natural pearls and precious metals ($560 million) and fish and shellfish ($370 million), all of which are easily replaced by Japan.

While the South Korean government is actively formulating policies to support for core components, materials and equipment heavily depended on foreign imports, Seong tae-yin believes that localization and independent supply are a long-term issue. "If money could solve the problem, it would have already been solved. There is a problem of talent and technical learning."

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