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U.S. Urges Japan, South Korea to Reach Standstill in Trade Spat

Jenny Leonard and Isabel Reynolds

(Bloomberg) -- Japan and South Korea have both sought for weeks to get the White House on their side in their spiraling trade dispute, with little success. Now, the U.S. may finally be stepping in.

Secretary of State Michael Pompeo told reporters while en route to an Asian regional conference that he would urge the U.S.’s feuding allies to ease the tensions during meetings with his Japanese and South Korean counterparts. His comments came after a senior U.S. official said in Washington that the Trump administration was urging the two sides to reach a “standstill agreement” to give themselves room to negotiate.

The U.S. has been largely silent for months as a dispute over whether Japan has sufficiently compensated Koreans who suffered under the country’s 1910-45 occupation of the peninsula has escalated into a trade conflict. Earlier this month, Japan announced restrictions on exports to South Korea of some materials used in the production of memory chips and other components vital for smartphones, laptops and servers at U.S. tech giants such as Amazon.com and Microsoft Corp.

Pompeo said Tuesday that he would discuss the issue while in Bangkok this week for an annual Association of Southeast Asian Nations gathering of foreign ministers. He was scheduled to meet with Japan’s Taro Kono and South Korea’s Kang Kyung-wha individually, as well as together.

“We will encourage them to find a path forward,” Pompeo said. “If we can help them find a good place for each of the two countries, we’ll certainly find that important for the United States.”

The Asian nations in recent weeks have dispatched senior officials to Washington to meet with lawmakers and government officials to plead their case, and they’ve lobbied American media and business executives. Many worry that another Asian trade war -- in addition to the U.S.-China conflict -- would only further impede the global supply chain and could disrupt the production of the semiconductors and advanced screens that companies rely on to make their smartphones and tablets.

South Korean Trade Minister Yoo Myung-hee last week sought help from the American private sector and Capitol Hill to get the White House involved in a resolution. Japanese officials were in Washington this week to explain their position, people briefed on the plans said.

It could get even uglier if Japan this week decides to remove South Korea from a so-called “white list” of trusted export destinations. A public comment period on the matter ended last Wednesday and if Tokyo approves the plan as expected Friday, hundreds of products could be affected by the removal of the existing blanket approval.

Cranes, Gyroscopes

On Monday, the South Korean-government-affiliated Korea Strategic Trade Institute briefed local companies, providing a list of dozens of products that could be affected, including titanium alloys, gyroscopes and crane trucks.

Japanese officials say they don’t expect much long-term impact on industry from stricter oversight of exports. Taiwan, which also imports Japanese materials for its tech industry, is not on Japan’s “white list.”

Yoo told reporters Monday that U.S. Commerce Secretary Wilbur Ross “fully acknowledges” how Japan’s export curbs can affect the global supply chain, and that the U.S. will make an effort for a quick resolution, without further elaborating. A South Korean official said it felt like the U.S. administration and companies shared the country’s concerns with Japan’s move. A spokesman for Ross declined to comment.

According to a person familiar with the matter, Yoo even pitched her U.S. counterparts to include the issue in the bilateral trade talks with Tokyo. Those negotiations are set to resume at the ministerial level between U.S. Trade Representative Robert Lighthizer and Japanese Economy Minister Toshimitsu Motegi later this week.

Seo Jee-yeon, a spokeswoman for the trade ministry, declined to comment.

Stable relations between Japan and South Korea form a pillar of U.S. influence in Asia -- the world’s fastest-growing region where North Korea’s nuclear arms threaten peace and China’s territorial claims disrupt order from the South China Sea to the East China Sea. Both Japan and South Korea host a total of more than 80,000 American troops, while U.S. carriers routinely ply the waters for joint naval operations with the allies.

Wendy Cutler, vice president at the Asia Society Policy Institute, applauded the U.S. move on Tuesday. “It’s encouraging that the administration is finally getting involved,” she said. “A standstill could be a useful first step to deescalate tensions.”

Cutler said an example of the impact of the U.S. influence is when then-President Barack Obama in 2014 organized a three-way meeting with Japanese Prime Minister Shinzo Abe and then South Korean President Park Geun-hye to improve relations.

Five of the U.S.’s biggest tech industry groups in a letter to the Japanese and Korean trade ministers said the dispute could cause “long-term harm to the companies that operate within and beyond your borders and the workers they employ.”

Trump earlier this month said he got a call from South Korean President Moon Jae-in who asked him to get involved on his behalf.

“I said, how many things do I have to get involved in? Maybe if they would both want me to, I’ll be -- it’s like a full-time job, getting involved between Japan and South Korea,” Trump said on July 19. “But if they need me, I’m there, hopefully they can work it out but they do have tension.”

Evan Medeiros, who served in Obama’s National Security Council, in a Washington Post op-ed recounted the quiet intervention by Obama in what he called a low point in the Japan-South Korea relationship. “Washington is the only actor both sides will listen to.”

(Adds comments from Pompeo in fifth paragraph)

--With assistance from Sam Kim and Jennifer Jacobs.

To contact the reporters on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net;Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor

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