Industry Minister Sung Yun-mo (4th from right) speaks during a press conference in Seoul on Aug. 5, 2019. [Photo by Lee Chung-woo]

South Korea pledged 7.8 trillion won ($6.42 billion) over the next seven years to wean the country off Japanese components, materials and equipment amid the intensifying trade rift with Tokyo.

The Korean government said Monday after a ministerial meeting on Japan’s export controls that it would strategically groom 100 key sectors with high Japanese reliance by channeling state funds and spurring consolidations with an aim to achieve self-sufficiency in the value chain for key industries within the next five years.

Japan last Friday removed Korea from its list of countries with preferential trade status, broadening the scope of its trade restrictions after hitting Seoul in early July with export curbs on three chemicals needed to make memory chips and display panels – Korea’s pillar industries.

The government vowed to employ “all possible” means to cushion the shock on local companies from the disruptions in Japanese supplies by seeking substitutes in China, Europe and the United States and assisting firms in the testing of non-Japanese materials. It also will allow tariff quota or favorable tariff rates on substitute imports to ensure stable supplies and industrial activity for Korean companies.

The government would first work on stabilizing supplies of 20 items that face immediate disruptions from the Japanese restrictions. These include hydrogen fluoride etching gas, photoresist and other materials subject to the July curbs as well as key parts needed for producing secondary batteries.

The 273.2 billion won in extra budget passed last week by the parliament would be devoted to core industries where technological development needs to start early on, the government said.

Investment on the remaining 80 items would aim toward localizing production within the next five years. To this end, 7.8 trillion won would be injected over the next seven years on research and development. Preliminary feasibility studies would also be waived to speed up development of the technologies.

Tax credits would be granted to companies that buy players in components, materials and equipment sectors overseas. State banks like Korea Development Bank and the Export-Import Bank of Korea would also back local companies in their financing of global M&A deals.

The government will offer other exemptions for the affected industries in the new statutory 52-hour workweek and regulations on chemical control.

By Lim Sung-hyun and Kim Hyo-jin

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