Japan-South Korea relations ebbing again, threatening trade and diplomacy

South Korea has warned the United States of the potential damage from "undesirable" Japanese restrictions on exports of high-tech material to South Korea, as a trade row between the East Asian U.S. allies intensifies.

As South Korea sought U.S. help in the dispute, triggered by disagreement over the issue of compensation for South Koreans forced to work for Japanese firms during the Second World War, it also took steps to limit the damage to its companies.

South Korea's ruling party announced up to 300 billion won ($333 million Cdn) would be included in a supplementary budget to cope with Japan's curbs on exports of three materials, crucial for advanced consumer electronics, by speeding localisation of their supply.

The ruling Democratic Party said about one-third of the proposed budget would be for supporting South Korean materials and equipment makers to help them get their products to market.

Relations took a turn for the worse this week when Japan said it would tighten curbs on exports of the materials used to make chips and display panels because trust with South Korea had been broken over the forced labour dispute.

S&P Global Rating's Asia-Pacific chief economist Shaun Roache said the dispute was as unpredictable as the U.S.-China trade war and was likely to affect South Korea's growth.

The Japanese restrictions will affect companies such as Samsung Electronics Co Ltd and SK Hynix Inc., which supply chips to companies such as Apple Inc .

South Korean Foreign Minister Kang Kyung-wha told U.S. Secretary of State Mike Pompeo in a phone call late on Wednesday that Japan's restrictions may not only damage South Korean companies, but could also disrupt the global supply chain and hurt U.S. firms.

Kang "expressed concern that this is undesirable in terms of friendly relations between South Korea and Japan and trilateral co-operation among South Korea, the U.S. and Japan," Kang's ministry said in a statement.

South Korea hoped Japan would withdraw the curbs and that the situation would not deteriorate further, it said.

Pompeo said he understood, and they both agreed to strengthen communication between the three sides, it said.

U.S. envoy soon to visit both countries

However, analysts say the United States is unlikely to become a mediator in the dispute.

South Korea and Japan also clashed at the World Trade Organization (WTO) this week.

Kim Hyun-chong, deputy chief of South Korea's National Security Office, arrived in Washington on Wednesday. He told reporters he would meet officials from the White House and Congress to discuss issues that included Japan's export curbs.

A former Japanese ambassador to the United States, Ichiro Fujisaki, questioned the need for U.S. mediation.

"I don't think we need the United States to mediate, just like Japan would not mediate U.S.-Mexico ties or U.S.-Canada relations," Fujisaki told Reuters on Wednesday.

"This is an issue to be solved between Japan and South Korea."

The East Asian neighbours share a bitter history dating to Japan's colonization of the Korean peninsula from 1910 to 1945.

Japan's export restrictions follow its frustration over what it sees as South Korea's failure to act in response to a ruling by one of its courts last October ordering Japan's Nippon Steel Corp to compensate former forced labourers.

Japan says the issue of forced labour was fully settled in 1965 when the neighbours restored diplomatic relations.

The issue of South Koreans who have been euphemistically described as comfort women — those who worked in Japanese brothels during the Second World War — has repeatedly flared between the countries. Japan considers the matter settled owing to language in the 1965 negotiations as well as a 2015 agreement in which the country agreed to finance a victims' fund.

Some South Korean officials and activist groups believe the previous deals did not go far enough in terms of contrition and compensation.

David Stilwell, the new U.S. assistant secretary of state for East Asian and Pacific Affairs, arrived in Japan on Thursday on the first stop of a 10-day visit to Asia.

He is also scheduled to visit South Korea next week, but did not mention the South Korea-Japan trade dispute when he spoke to reporters.

Sheila Smith, senior fellow for Japan studies at the Council on Foreign Relations, said it may be too early for Stilwell to assess what the United States could do to help.

"He is likely to begin with what I would call deep listening."

Shares in South Korean chip giants rose for a third day on Thursday on expectations that Japanese export curbs may ease a supply glut of South Korean memory chips.