Economic Sanctions of Japanese Government on Korea and Their Impacts on Korea-Japan Economic Interdependence

Abstract

Liberalists have long claimed that economic interdependence promotes interstate peace while its validity has been questioned by scholars of other schools. Korea-Japan relations before July 1, 2019 used to be a good case to endorse liberalists argument. Despite continuous diplomatic, historical and nationalistic antagonism, Korea and Japan have not been sacrificing their economic cooperation. However, Japanese government has taken an unconventional policy decision on July 1, 2019. Many observers evaluated that Korea-Japan relations have been the worst ever recently especially due to the Koreas Supreme Court ruling to order compensations for the wartime forced labour victims. This thesis aims to explain Japanese governments extraordinary behaviour using the concept of interdependence posed by Robert Keohane and Joseph Nye. Impacts of the economic sanctions and Koreas reaction to the sanctions are examined with three behavioural patterns of organisation members suggested by Albert Hirschman; Exit, Voice and Royalty. Analysis suggests that Japan has intended to disturb Vulnerability of Korea in the semiconductor industry in order to induce its compromise on the wartime forced labour issue. Due to Japans dominance in the semiconductor components market and Koreas dependence on Japanese materials, Japan itself presumed that it holds Sensitivity in the industry. However, detailed observation showed that the sanctions were not the best choice to seriously damage the Korean semiconductor and display industry. The sanctions were not imposed on items that are used for key products of Korean semiconductor industry. In addition, Japanese companies made their best efforts in order not to lose their Korean customers by establishing subsidiaries or factories or negotiating with Korean semiconductor manufacturers. As a result, the sanctions imposed back in July 2019 did not critically hit the Korean economy. The unintended results of sanctions were Japanese firms behaviours to remain in the global semiconductor supply chain in response to Samsung and SK Hynixs supply diversifications. The most meaningful impact of Japans economic sanctions was observed in the global semiconductor supply chain. Samsung and SK Hynix has diversified sources of semiconductor materials, which led to the smaller existence of Japanese companies and increasing influence of Korean and other foreign enterprises. Despite desperate efforts of Japanese firms, Korean semiconductor producers eventually partly exited Japans export market. Korea has continuously voiced their dissents to the sanctions while expanding domestic production and finding non-Japanese trade partners. Domestic chemical producers and foreign suppliers took it as their opportunity to provide their products with global semiconductor giants such as Samsung and SK Hynix.