[One Year After Japan's Export Restrictions] A Wake-Up Call for Accelerated Localization... Dependence Remains High

[Asia Economy Reporters Hyewon Kim, Soyeon Park, Chaeseok Moon] Semiconductor equipment manufacturer Company A, which counts Samsung Electronics as a client, breaks into a cold sweat when recalling July of last year, when Japan suddenly imposed export restrictions on key semiconductor and display materials. The company was not fully prepared but had to expedite the completion of material development at Samsung Electronics' urgent request. Over the past year, employees worked together diligently, successfully obtaining product approval from the client, and proudly made it onto the government's list of 100 promising small and medium-sized enterprises in materials, parts, and equipment (SoBuJang). Company A sells domestically developed materials using Korean technology to local customers requiring transparent electrode films and plans to export to China starting next year. To this end, they aim to complete mass production verification and infrastructure setup within this year and begin full-scale commercialization next year. A representative from Company A stated, "It is true that Japan holds an absolute competitive advantage in SoBuJang and may lead in precision, but our strength lies in quickly responding and pushing forward during crises. The more severe the economic retaliation, the faster we will overcome it and secure technological independence."

Next month on the 4th marks one year since Japan implemented export restrictions on three core materials targeting South Korea's semiconductor and display industries. Lee Ji-pyeong, a resident advisor (Ph.D.) at LG Economic Research Institute and a 'Japan expert,' summarized the one-year anniversary of Japan's export restrictions in an interview with Asia Economy on the 29th using two four-character idioms: "Jeonhwa Wi-bok (轉禍爲福, turning misfortune into blessing)" and "Gyeongjeok Pilpae (輕敵必敗, underestimating the enemy leads to certain defeat)."

Ultimately, when Japan first played the "export restriction" card on three items?hydrofluoric acid, photoresist, and fluorine polyimide?a year ago, concerns that semiconductor and display factories such as Samsung Electronics and SK Hynix would immediately halt production proved to be unfounded. Hydrofluoric acid, which is relatively easier to localize, saw increased domestic production and diversified supply sources to China, Taiwan, and the United States, reducing Japan's import share from 43.9% to 12.3% within a year. The advisor noted, "Contrary to concerns, domestic companies experienced little production disruption, but Japanese companies suffered significant damage, including Nissan withdrawing from the Korean market due to the 'No Japan' boycott movement. Hydrofluoric acid has become fully replaceable with domestic products, and the SoBuJang industry has rather strengthened, with positive effects on coexistence between large and small businesses."

Recently, SK Materials began mass production of ultra-high purity hydrofluoric acid and started developing EUV (extreme ultraviolet) photoresist, showing that large and small companies are working together to accelerate strengthening SoBuJang competitiveness. However, industry consensus holds that there is still a long way to go. Although achievements have been made in enhancing competitiveness through localization and diversification in the SoBuJang industry, which heavily depends on specific countries, massive government and private sector expenditures have been inevitable, and advanced materials still rely heavily on Japanese imports. According to the Korea International Trade Association, from January to May this year, imports of hydrofluoric acid from Japan plummeted by 85.8%, while imports of photoresist and fluorine polyimide increased by 33.8% and 7.4%, respectively.

Moreover, with the upcoming August issue concerning the seizure and sale of Nippon Steel's domestic assets, South Korea-Japan relations are expected to reach a critical turning point, heightening concerns about when Japan's second wave of economic retaliation might erupt. An executive from a semiconductor company said, "There is great concern that dark clouds may gather over the semiconductor industry, the only sector making money amid the COVID-19 pandemic. Although we have endured through indirect imports and partial localization of materials since Japan's export restrictions, the aftershocks of economic retaliation could escalate beyond the three restricted items."

Warnings have also emerged from the experience of the past year, cautioning against underestimating or provoking Japan recklessly. The advisor emphasized, "Our government faced the burden of investing over 7 trillion won in a short period to strengthen the SoBuJang industry, and considering that the entire industry wobbled due to export restrictions on just three items, we must not be complacent or take Japan lightly." He added that even if localization is technically feasible, economic viability must be considered, and it is wise to continuously cooperate with Japan to resolve conflicts.

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