Photo/IllutrationA semiconductor plant now being constructed by Samsung Electronics in the outskirts of Seoul (Provided by Samsung Electronics)

South Korea reacted angrily to Japan's implementation of tighter restrictions on exports of materials to produce semiconductors, while Japanese companies in the same industry expressed concern the move may backfire in the long-term.

Japan asserts its action was not a retaliatory measure for Seoul's refusal to enter into arbitration proceedings over South Korean Supreme Court rulings ordering Japanese companies to pay compensation to wartime Korean workers or have their assets seized.

But South Korea views the situation differently.

While the measure directly affects Korean manufacturers of semiconductors, there are fears that manufacturers in Japan and elsewhere of products such as smartphones and TV sets, which use semiconductors, could soon experience a decline in parts inventory and production delays.

The restrictions took effect from midnight of July 3.

South Korean Foreign Minister Kang Kyung-wha blasted the step as an "illogical retaliatory measure that goes against common sense."

She accused Japan of not observing the minimum level of protocol and said its decision would damage the "international trust and industrial relationship developed by the two nations over many years."

The new regulations affect three materials used to produce semiconductors: fluorinated polyimide used in smartphone and TV displays; a sensitized material called "resists" that is applied to semiconductor substrates; and hydrogen fluoride used to clean semiconductors.

Until now, Japanese manufacturers of those three materials could obtain approval for up to three years' worth of exports to South Korea in one go.

But from July 4, companies will be required to obtain approval for every specific contract it has with a South Korean business partner.

Officials of the Ministry of Economy, Trade and Industry said the standard appraisal time for each application is about 90 days.

That means three months might pass before the exports can go through, if the application is approved.

The government is also preparing to remove South Korea from a list of 27 nations given preferential treatment with regard to export controls of items that could be converted for use in weapons.

If South Korea is removed from the list, companies will have to obtain approval for exports of a much wider range of products, covering such items as machine tools and carbon fiber.

Despite the government's insistence that the new measure is not retaliatory, South Korea plans to raise the issue with the World Trade Organization on grounds the tighter regulations violate WTO rules.

South Korean government officials have been consulting with conglomerates that have under their umbrellas companies such as Samsung Electronics and SK Hynix Inc., which are major semiconductor-manufacturing companies.

Seoul has already decided to earmark about 6 trillion won (550 billion yen, or $5 billion) to develop materials and parts used in producing semiconductors.

But because Japanese companies hold such a dominant share of the materials covered by the regulations, one official with a South Korean semiconductor manufacturer said, "Due to technological issues, it will not be possible for South Korean companies to immediately start producing those materials."

According to the Korea International Trade Association, South Korea depends on Japan for more than 90 percent of its fluorinated polyimide and resists. Its dependence on Japan for hydrogen fluoride stands at 43.9 percent.

An official with the materials industry said most companies had inventories for only a few months at most.

With new assessments by Japan taking up to three months, some companies are expected to run out of the materials needed to produce semiconductors.

It would would hurt Japanese companies that, for example, produce semiconductor-manufacturing equipment.

"If (South Korean companies) reduce their plant investment outlays because of the regulations, our business performance will also be affected," said one company official.

Concerns have been voiced about the effect this could have on the supply chain for such items as smartphones and TV sets because of the large dependence on South Korea for semiconductors and organic electroluminescence panels.

But not all Japanese business leaders are opposed to the government's move.

Akio Mimura, chairman of the Japan Chamber of Commerce and Industry, told reporters on July 1, "I believe it is one proposal about how to resolve the (worsening) Japan-South Korea relationship."

Mimura is honorary chairman of Nippon Steel Corp., one of the companies ordered by the South Korean Supreme Court to pay compensation to wartime laborers.

(This article was compiled from reports by Akihiro Nishiyama in Tokyo and Takeshi Kamiya in Seoul.)