Dive Brief:

• LG Display is beginning to prepare for the potential impact of a trade dispute between South Korea and Japan on chemicals used in chip and display manufacturing. LG Display's CFO Dong-Hee Suh said the company is looking into alternative suppliers for the impacted chemicals, according to the company's second-quarter earnings call this week.
• "There are so far no concerns that significantly affect the company, but we are making preparations by ensuring uninterrupted sourcing for the short term and diversifying sourcing channels over the medium term," Suh said. Japan recently placed export restrictions on three chemicals — hydrogen fluoride gas, fluorinated polyimide and photoresists — used in technology manufacturing.
• The Computing Technology Industry Association, Consumer Technology Association, the Information Technology Industry Council and three other technology trade groups sent a letter to the Japanese minister of economy, trade and industry and the South Korean minister for trade asking the two countries to find common ground and end the restrictions, according to a copy of the letter reviewed by Supply Chain Dive.

Dive Insight:

Japan exported about $54.8 million worth of hydrogen fluoride in 2017 and 81% of this went to South Korea, according to data collected by The Observatory of Economic Complexity. In addition, Japan produces about 90% of the world's fluorinated polyimides, making it exceptionally difficult to find alternative suppliers, according to Sankei newspaper numbers cited by Reuters.

Officially, Japan is pointing to national security concerns for these export restrictions, saying these chemicals also have potential military uses and South Korea is not adequately overseeing their use. But many experts agree the real reason for the new rules dates back to World War II when Japan used forced labor during its military occupations. Some recent rulings in the South Korean Supreme Court have found large Japanese companies guilty of using forced labor during Japan's occupation of Korea, according to Foreign Policy.

At least one of these rulings has called for the Japanese company to issue shares as compensation for a South Korean individual who experienced forced labor under the company during the war. Japan's Prime Minister Shinzo Abe warned earlier this year that if South Korea enforced these rulings then there could be economic retaliation, according to The New York Times.

The new trade restrictions add paperwork and slow the materials' export process and it has resulted in South Korean companies, like LG Display, stockpiling and looking for other suppliers, according to Reuters.

The entire trade value of these chemicals between South Korea is much smaller than the value of goods targeted under the China and United States trade war, but the larger technology sector relies on the chips and displays for its products.

"Non-transparent and unilateral changes in export control policies can cause supply chain disruptions, delays in shipments, and ultimately long-term harm to the companies that operate within and beyond your borders and the workers they employ," reads the letter from the trade groups. "We therefore urge both countries to expeditiously seek resolution of this issue and refrain from actions that could escalate the situation further in order to avoid potentially long-term damage to the global ICT and manufacturing industries," it read.