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August 29, 2019
Japan announces stringent licensing procedures for exports to Korea
The Japanese Government announced on 1 July 2019 that it would tighten controls on some exports to Korea. Accordingly, procedures for obtaining export licenses to Korea have been made more stringent for certain items used in the manufacture of LCD screens and semiconductors as of 4 July. Furthermore, the Japanese Government also removed Korea from its Group A list (formerly known as “white country” list) on 2 August 2019 (Korea was officially removed from the list on 28 August).
Japan’s Ministry of Economy, Trade and Industry (METI) announced that it would strengthen export controls on certain goods exported to Korea to ensure the appropriate implementation of Japan’s export controls and regulations in accordance with the Foreign Exchange and Foreign Trade Act. With this action, hydrogen fluoride, fluorinated polyimides and resists, as well as the transfer of related manufacturing technology (including that accompanying the export of manufacturing equipment), will no longer be eligible for bulk export licenses. Whereas exporters of such items to Korea were previously able to obtain such licenses for up to three years, they will now be required to apply for a license for each individual export. The affected items will be subject to examination, which typically takes more than one month.
Items subject to stricter controls for export to Korea:
1. Hydrogen fluoride (as provided for in Appended Table 1, Provision 3-(1) of the Export Trade Control Order and Article 2.1.1-(f) of the relevant Ministerial Order)
2. Fluorinated polyimides (as provided for in Appended Table 1, Article 5-(17) of the Export Trade Control Order and Article 4.1.14-(b) of the relevant Ministerial Order)
3. Resists (as provided for in Appended Table 1, Article 7-(19) of the Export Trade Control Order and Article 6.19 of the relevant Ministerial Order)
The following resists (and substrates coated with such resists):
The three affected items are primarily used in the manufacture of LCD screens and semiconductors, and Japan’s market share of the three items is said to stand at around 90%. The tightened export controls may affect not only exports to Korea but global supply chains as well if they result in a reduction of Korean exports of semiconductors and other products which use these items.
In addition, the Japanese Government also sought public comments for removing Korea from its Group A country list, and after the conclusion of the public comments period, the Japanese Cabinet approved the removal on 2 August 2019. The term Group A (formerly referred to as “white countries”) is used unofficially by the Japanese Government to refer to a group of countries that have acceded to international agreements related to weapons of mass destruction (WMDs), are members of all international agreements related to export controls and are not deemed to be at risk of proliferating the export of WMDs. From a legal perspective, the Group A countries are those listed in Appended Table 3 of the Export Trade Control Order. After Korea’s removal from the list, 26 countries, such as the United States and some European Union member countries, are included on the list. Korea was the only Asian country on the list. The Group A countries are given preferential treatment with respect to the export of controlled items and the transfer of controlled technologies from Japan. This includes eligibility for bulk export licenses and exemptions from export licenses required under catch-all controls, which are triggered by specific purposes of export and consumer identities. Korea was officially removed from the Group A list on 28 August 2019.
The control of exports of conventional arms and dual-use goods and technologies has been an international effort since the Wassenaar Arrangement (1996) and other relevant international agreements were ratified and codified in domestic law by member countries. However, given that the measures taken by Japan are independent actions conducted in light of its relationship with Korea, further actions by both the Japanese and Korean Governments will be monitored closely.
Actions for businesses
Following the export controls, businesses should:
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Co., Chiyoda-ku
Ernst & Young LLP (United States), Japan Tax Desk, New York