FKI "Despite Partial Success in Domesticizing Materials, Parts, and Equipment, Greater Benefits from Korea-Japan Cooperation"

[Asia Economy Reporter Changhwan Lee] Regarding Japan's export restrictions on materials and components industries that began in July last year, some items such as hydrogen fluoride have seen significant localization and substitution, but items like photoresist and fluorine polyimide have recently experienced an increase in imports from Japan, indicating that the results of export restrictions vary depending on the item.

It has been analyzed that if the international division of labor system for materials, components, and equipment between Korea and Japan functions properly, the value added created in the manufacturing sectors of both countries in 2018 would amount to 136 trillion won (123.3 billion USD). This suggests that easing export restrictions and strengthening cooperation in materials, components, and equipment would greatly benefit both economies.

This argument was presented during the keynote speech at the "One Year of Japan's Export Restrictions: Evaluation and Challenges Seminar," held by the Federation of Korean Industries (FKI) on the afternoon of the 29th at the FKI Conference Center in Yeouido, Seoul.

The seminar was organized to explore the economic and industrial impacts of the one-year export restrictions imposed by Japan last July on three strategic items related to semiconductor and OLED (organic light-emitting diode) manufacturing?etching gases, photoresist, and fluorine polyimide?and to discuss the desirable future direction of Korea-Japan economic relations.

Professor Jaegun Park of Hanyang University's Department of Convergence Electronics Engineering and president of the Korean Semiconductor Display Technology Society, who delivered the first presentation, stated, "In response to Japan's export restrictions, domestic companies have pursued localization of materials, components, and equipment and diversified overseas vendors. As a result, from January to May this year, the share of hydrogen fluoride imports from Japan decreased from 44% to 12% compared to the same period last year, showing rapid localization and import substitution for some items." However, he added, "For photoresist and fluorine polyimide, imports from Japan actually increased compared to the same period last year, indicating varied responses depending on the item."

Professor Park also noted, "The ratio of R&D expenditure to sales for leading semiconductor material companies in Japan and Korea is not significantly different at 3.8% and 2.6%, respectively. However, the average R&D expenditure per company is vastly different, with Japan spending 153.4 billion won compared to only 13 billion won in Korea." To strengthen competitiveness in materials, components, and equipment, he emphasized the need for "encouraging mergers and acquisitions (M&A) among small and medium enterprises or strengthening support for promising companies through focused selection and concentration."

Regarding the government's role in enhancing competitiveness in materials, components, and equipment, he proposed strengthening support for localization of materials, components, and equipment and vendor diversification, promoting R&BD (Research & Business Development) projects linked to commercialization, and actively attracting global companies' R&D centers and production bases to Korea.

He also pointed out that in the globalization of semiconductor and display materials, components, and equipment, technology development in equipment is most urgent for semiconductors, while technology development in components is most urgent for displays, proposing the establishment of a global semiconductor and display materials, components, and equipment consortium.

The second presentation was given by Professor Hongbae Lee of Dong-Eui University's Department of Trade and president of the Korean Northeast Asian Economic Society, who stated, "For the domestic materials, components, and equipment industry to secure global competitive advantage, paradoxically, close cooperation with Japan is not an option but a necessity."

Professor Lee analyzed, "The Korea-Japan materials, components, and equipment industry created approximately 81.1 billion USD in value added through a strong division of labor system in 2018, which increases to about 136 trillion won when the entire manufacturing industry is expanded."

Therefore, from the perspective of Korean companies, Professor Lee suggested, "To achieve stable cost reduction, localization, and global market preemption, the government should establish specialized industrial zones for materials, components, and equipment in both countries in the mid to long term, activate R&D projects between companies, promote joint technology development and production, and expand exchanges of highly skilled technicians and managers."

FKI Vice Chairman Taeshin Kwon, in his opening remarks, positively evaluated that "after Japan's unilateral measures, the government established a comprehensive competitiveness strategy for 100 key materials and components items, early localization of related items through public-private cooperation, and secured alternative import sources, preventing global supply instability in semiconductors and displays and reducing dependence on Japan for materials and components to some extent."

In fact, since the third quarter of last year when export restrictions fully began, the deficit in materials and components trade with Japan has been decreasing. However, Vice Chairman Kwon expressed regret, saying, "Since the Korea-Japan summit in Chengdu, China, on December 24 last year, there have been no signs of normalization in diplomatic relations, and the failure to resolve export restrictions through dialogue, leading to entering the WTO dispute settlement procedure, is unfortunate."

This content was produced with the assistance of AI translation services.