By Hyunjoo Jin and Hyonhee Shin
SEOUL (Reuters) – South Korea is bracing for Japan’s decision to drop it from a “white list” of countries that enjoy minimum trade restrictions, which could come as soon as Friday, Seoul’s foreign minister said, as companies prepared for the possible fallout.
Japan reined in exports of high-tech materials to South Korea as ties worsened this month, fuelled by a compensation row over South Koreans forced to work in Japan’s factories when it occupied the Korean peninsula from 1910 to 1945.
Media in Japan have said its cabinet could meet as soon as Friday to decide on stripping South Korea of the trade status, a move that Seoul has called a very grave matter that would undermine the two nations’ economic and security partnership.
The South Korean government is “preparing for various possible options” if Japan drops Korea from its list, Foreign Minister Kang Kyung-wha told parliament on Tuesday.
Without detailing the options, she added that if Japan made its decision this week, she expected it to be implemented by late August.
“If we are removed from the white list, we are concerned that relations between the two countries would worsen to uncontrollable levels,” Kang added.
Japanese officials were reviewing public comments and steadily working on procedures, but a date had not been set for a cabinet decision, Trade Minister Hiroshige Seko told a news conference on Monday.
Kang said she was highly likely to meet Japanese counterpart Taro Kono and U.S. Secretary of State Mike Pompeo at a forum of the Association of Southeast Asian Nations (ASEAN) in Bangkok this week, with working-level talks aimed to finalise details.
Asked by lawmakers if the United States had agreed to mediate between its biggest Asian allies, Kang said only that Washington had listened to the positions of both, but it “wouldn’t be easy” for the country to openly mediate.
Some of South Korea’s largest industries are preparing for the dispute to intensify.
From September, Asiana Airlines Inc <020560.KS> plans to switch to smaller planes for some of its Japan routes, in the face of declining demand amid the row.
Top carrier Korean Air Lines Co Ltd <003490.KS> said it would suspend flights between the South Korean city of Busan and Japan’s Sapporo from Sept. 3, citing lean demand.
The South Korea government launched closed-door briefings this week for officials in 20 major industries, including chips and autos, a source familiar with the matter said.
The Korea Strategic Trade Institute says South Korea is one of 27 white-list countries that benefit from relaxed export rules for many strategic items, such as products and technology that can be used for conventional weapons, WMDs and missiles.
If South Korea is dropped, it would have to seek individual approval for shipments of 857 non-sensitive items out of a total of 1,120 strategic items from Japan. The other 263 now require individual approval.
As more South Koreans boycott Japanese products in protest, some firms have seen their shares surge.
Korean apparel maker TBH Global Co Ltd <084870.KS> and underwear maker Sbw Inc <102280.KS> both jumped nearly 30% on Tuesday, on expectations of higher sales as buyers shun Uniqlo, owned by Japan’s Fast Retailing Co Ltd <9983.T>.
Stationery-maker Monami <005360.KS> also jumped as much as 26.2%, with investors expecting its sales to grow as buyers steer clear of Japanese pens. Its shares have gained about 170% this month, outperforming a 4.2% fall in the benchmark <.KS11>.
Hitejinro Holdings <000140.KS>, the parent of Hite Jinro <000080.KS>, a maker of alcoholic beverages, rose up to 18% following a surge of nearly 30% in the previous session, as thirsty Koreans stay away from Japanese beers.
(Reporting by Hyunjoo Jin and Hyonhee Shin; Additional reporting by Heekyong Yang, Hayoung Choi, Choonsik Yoo and Ju-min Park in SEOUL and Linda Sieg in TOKYO; Writing by Josh Smith; Editing by Clarence Fernandez)