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High-purity hydrofluoric acid solutions used for semiconductor etching and cleaning processes

“We’ve developed the courage to boldly tackle obstacles we would never have even attempted to deal with before [in response to Japan’s export control measures], and we’ve gained experience and confidence from having it actually work out,” Minister of Trade, Industry and Energy Sung Yun-mo declared in a “second post-coronavirus industry strategy dialogue” on May 11.

The South Korean government’s official position is that “clear progress has been achieved in substantive supply stabilization” as the result of an all-out campaign to move beyond dependence on Japan and achieve domestic supply self-sufficiency for 100 key materials, components, and equipment items following Japan’s imposition of export controls on key components and materials in July 2019. But with conflict still flaring between the two sides in the wake of Japan’s provocations, some observers are insisting preparations should be made for the possibility of Japan implementing a second round of export controls on “non-sensitive strategic items” where South Korea still relies on Japan.

According to accounts on June 30 from the South Korean government and Korea International Trade Association (KITA), the major production setbacks that were initially feared by the heavily Japan-dependent semiconductor and display industries after the export controls never actually came to pass. KITA statistics showed that among the three items subjected to controls, imports of Japanese-produced hydrogen fluoride gas (used in semiconductor manufacturing) stood at US$7 million for the post-controls period from July 2019 to May 2020 -- a decrease of 89.4% from US$63 million during the pre-controls period from July 2018 to May 2019.

While South Korea is 100% dependent on overseas sources for hydrogen fluoride, its diversification to other regions besides Japan has resulted in Japan’s proportion of total imports dropping all the way from 42.4% before the export controls to 9.5% currently. The decreased imports from Japan have been replaced by an increase in imports from China (66.0% of post-controls imports) and Taiwan (21.9%). Rapid progress has also been made in domestic production: after successfully developing a hydrogen fluoride prototype, SK Materials began mass-producing 15 tons of ultra-high-purity hydrogen fluoride gas at its factory in Yeongju, North Gyeongsang Province.

Full-scale domestic development efforts have also been under way for photoresist, an exposure material used in semiconductor manufacturing. SK Materials announced plans to complete the construction of a production facility that would begin producing 50,000 gallons of photoresist annually as of 2021, while also successfully attracting investment from the US company DuPont in photoresist development and constructing production facilities in Cheonan, South Chungcheong Province. Samsung Electronics has found an immediate workaround through Belgian imports -- a joint venture alternative to Japanese companies. The percentage of photoresist imports from Belgium has increased over 10 fold from 0.6% before the export controls to 7.0% after them. Imports from Japan have not changed significantly, standing at 92.8% (US$265 million) before the controls and 86.7% (US$275 million) after them. In December 2019, Japan eased its controls slightly by allowing special bulk permits for photoresist.

Little change has also been observed with fluorinated polyimides, with Japan accounting for 92.7% of imports (US$22 million) before the export controls and 92% (US$30 million) after them. Analysts noted that while the South Korean government and industry has worked to diversify import sources and achieve domestic production, Japan has also avoided fully cutting off exports to the South Korean market as a way of minimizing the losses to its own companies exporting items there, even as it has moved to remove South Korea from its “white list” of countries benefiting from expedited export procedures. Conversely, this also shows that South Korea is not in a position where it can abruptly shed its reliance on Japan for materials and components even as the division of labor between the two sides is structurally damaged.

The key question is whether South Korea’s material, component, and equipment companies will be able to catch up with and replace Japanese production in technology and quality terms within the next few years. The technology standard for the “100 top strategic material, component, and equipment items” selected by the South Korean government averages just 61% of the level for advanced economies; the numbers are even lower for semiconductor components (38%) and display components (50%). The technology lag relative to the advanced economies amounts to 6.4 years for equipment, 4.9 year for machinery, 4.8 years for electronic components, 7.0 years for carbon nanomaterials, and 6.5 for fiber materials.

Another potential variable is the lingering possibility that Japan will decide to abruptly proceed with a second round of retaliation using export bans as a weapon. In a report titled “A Year of Japanese Export Controls” the same day, KITA said, “It’s notable that Japan’s export controls were not one-off measures concerning specific items, but focus institutionally and comprehensively on items that [South Korea] depends heavily on Japan for and cannot easily produce or substitute domestically.”

“A strong possibility exists that the ‘100 top items’ where Japanese imports exceed US$1 million and dependence on Japanese imports exceeds 70% will be designated as subject to additional export controls in the future,” it predicted. This means that while special regulations are currently being imposed for three items (including photoresist and hydrogen fluoride) out of 1,120 total strategic items (263 sensitive, 857 non-sensitive), the possibility of additional non-sensitive strategic items being designated as subject to special regulation cannot be ruled out.

By Cho Kye-wan, staff reporter

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