South Korea steps up effort to get U.S. help in export row with Japan

SEOUL (Reuters) – South Korea’s foreign minister told U.S. Secretary of State Mike Pompeo that Japan’s export curbs against Seoul are “undesirable”, the Foreign Ministry said on Thursday, as a trade row between the East Asian neighbors grows.

South Korea’s ruling party also announced on Thursday that up to about 300 billion won ($254.8 million) would be included in a supplementary budget bill to cope with Japan’s export curbs by speeding localization of materials supplies for chips and display panels.

The ruling Democratic Party said about one-third of the proposed budget would be for supporting South Korean materials and equipment makers to commercialize their products.

Also on Thursday, S&P Global Rating’s Asia-Pacific chief economist Shaun Roache said the dispute was as unpredictable as the U.S.-China trade war and was likely to affect South Korea’s economic growth.

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Japan tightened curbs last week on exports of three materials crucial for smartphone displays and chips, saying trust with South Korea had been broken in a dispute with Seoul over South Koreans forced to work for Japanese firms during World War Two.

The restrictions will affect companies such as Samsung Electronics Co Ltd (005930.KS) and SK Hynix Inc (000660.KS), which supply chips to companies such as Apple Inc (AAPL.O).

CLASH AT THE WTO

South Korea and Japan clashed at the World Trade Organization (WTO) earlier this week and Seoul is stepping up diplomatic overtures to their mutual ally, the United States, to step in. However, experts said the United States is unlikely to become a mediator in the dispute.

South Korean Foreign Minister Kang Kyung-wha told Pompeo in a phone call late on Wednesday that Japan’s trade restrictions may not only cause damage to South Korean companies but could also disrupt the global supply chain and hurt U.S. firms.

Kang “expressed concern that this is undesirable in terms of friendly relations between South Korea and Japan and trilateral cooperation among South Korea, the U.S. and Japan”, the ministry said. Seoul hoped Tokyo would withdraw the curbs and that the situation would not deteriorate further, it said.

Pompeo said he understood and both men agreed to continue to cooperate and to strengthen communication between the three sides, the Foreign Ministry said in a statement.

Kim Hyun-chong, deputy chief of South Korea’s National Security Office, arrived in Washington on Wednesday and told reporters he was there to meet officials from the White House and Congress to discuss issues that included Japan’s export curbs.

DOUBT ON MEDIATION

A former Japanese ambassador to the United States, Ichiro Fujisaki, told Reuters on Wednesday “I don’t think we need the United States to mediate, just like Japan would not mediate U.S.-Mexico ties or U.S.-Canada relations.”

“This is an issue to be solved between Japan and South Korea,” Fujisaki said.

New U.S. Assistant Secretary of State for East Asian and Pacific Affairs David Stilwell is visiting Asia until July 21, including stops in Japan and South Korea, to work on a shared vision for the Indo-Pacific region, the State Department said in a statement.

It did not say whether the Japan-South Korea dispute would be discussed.

Sheila Smith, senior fellow for Japan studies at the Council on Foreign Relations, said it may be too early for Stilwell to assess what the United States could do to help.

“He is likely to begin with what I would call deep listening,” she said.

Shares in South Korean chip giants rose for a third day on Thursday on expectations that Japanese export curbs may ease a supply glut of South Korean memory chips.

At 0345 GMT, Samsung Electronics gained 2.1% and SK Hynix was up 3%, outperforming the broader market’s .KS11 1.2% rise.