Possibility of Japan's Export Regulation Withdrawal Brings Semiconductor Industry "Positive for Supply Chain Stability" (Comprehensive)

Temporary Suspension of Korea-Japan WTO Dispute Resolution Procedure
Still Temporary Suspension, Regulations Must Be Clearly Lifted
"Positive for Attracting US Alternative Japanese Equipment Companies"

South Korea and Japan have agreed to temporarily suspend export restrictions on key semiconductor materials, but analysis suggests that the immediate benefits for the South Korean semiconductor industry are limited. This is because South Korea has already achieved domestic production of high-purity hydrogen fluoride (etching gas) since Japan's regulations in 2019. Negotiating power to attract Japanese equipment manufacturers is expected to increase. This is a positive development for South Korea, which urgently needs to diversify its supply chain following U.S. semiconductor subsidy pressures. If the restrictions are officially lifted as early as the second quarter, the current individual permit system?requiring daily reporting to Japanese authorities on the purpose, use, and final destination of imported items?will likely be replaced by a general permit system.

The government announced on the 6th that it has decided to temporarily suspend the World Trade Organization (WTO) dispute resolution procedures while conducting talks with Japan on semiconductor core material export restrictions. Both governments agreed to swiftly proceed with bilateral consultations to restore the situation to the state before Japan implemented the regulatory measures in July 2019.

Previously, in July 2019, the Japanese government strengthened regulations by changing the export system for three essential materials for semiconductor and organic light-emitting diode (OLED) manufacturing?photoresist (PR), high-purity hydrogen fluoride (etching gas), and fluorine polyimide (FPI)?from a general permit to an individual permit system for exports to South Korea. In August of the same year, South Korea was removed from Japan’s whitelist of preferred trading partners. In response, the South Korean government filed a complaint with the WTO, arguing that Japan’s export restrictions violated WTO agreements. According to data from the Korea International Trade Association at the time of the export restrictions, imports of Japanese hydrogen fluoride accounted for 44% of the total, and photoresist accounted for 92%.

Researchers are conducting semiconductor material and component development research in the 12-inch semiconductor testbed cleanroom at the Daejeon Nano Convergence Technology Institute.
[Daejeon=Photo by Jinhyung Kang aymsdream@]

The industry reduced its dependence on Japanese products through domestic production of materials, parts, and equipment, as well as diversification of suppliers. SK Hynix domestically produced etching gas. The U.S. company’s domestic factory successfully attracted production of EUV (extreme ultraviolet) photoresist, which is a key material used in EUV lithography equipment essential for sub-7-nanometer (nm) fine processes. The share of imports from Japan in 100 core strategic technologies related to materials, parts, and equipment decreased from 32.6% in 2018 to 21.9% in 2022, a drop of 10.7 percentage points. In the semiconductor sector, the share of imports from Japan fell from 34.4% in 2018 to 24.9% in 2022, a decrease of 9.5 percentage points.

The semiconductor industry expects no immediate major changes following the talks but views the development positively for stabilizing the supply chain. An Ki-hyun, Executive Director of the Korea Semiconductor Industry Association, said, "If the export restrictions are officially eased rather than temporarily suspended, the uncertainty in semiconductor factory operations will disappear." An industry insider said, "At the time of the export restrictions, companies had to consider shutting down factories, but they steadily diversified their supply chains to resolve the issue. This measure will provide more capacity to receive Japanese products more reliably."

Inside and outside the government, it is expected that the restrictions will be officially lifted as early as the second quarter. If this happens, Japan could revert the import permit system from individual permits back to general permits as it was before the 2019 restrictions. The industry views this as a positive development. An industry official said, "If Japan’s export restrictions are lifted, the preparation of export documents could be simplified."

There is also analysis that, in the long term, negotiating power with Japanese equipment manufacturers will increase, providing greater capacity to respond to risks such as U.S. subsidy policies. Kim Yang-peng, Senior Research Fellow at the Korea Institute for Industrial Economics & Trade, said, "Since South Korea must maintain its leadership in memory semiconductors, it is crucial to increase domestic attraction of material and equipment companies or strengthen relationships. After the easing of restrictions, cooperation with Japanese companies, which are geographically closer than the U.S., can proceed smoothly."

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