SEOUL (Reuters) - Japan’s export curbs on key materials used by South Korean tech companies could drag on despite diplomatic efforts to end the dispute, South Korea’s president said on Wednesday, pledging to help firms to reduce their reliance on Japanese suppliers.

South Korean President Moon Jae-in speaks during a meeting with executives from South Korea's top 30 conglomerates at the Presidential Blue House in Seoul, South Korea, July 10, 2019. Yonhap via REUTERS

Japan tightened restrictions last week on exports of three materials used in smartphone displays and chips, citing a dispute with Seoul over South Koreans forced to work for Japanese firms during World War Two.

The growing row threatens to disrupt supplies of chips and displays by South Korea's tech giants Samsung Electronics 005930.KS and SK Hynix 000660.KS, which count Apple Inc AAPL.O and other smartphone makers as customers.

“We can’t rule out the possibility that the situation would be prolonged, despite our diplomatic efforts to resolve the issue,” President Moon Jae-in said at a meeting with executives from South Korea’s top 30 conglomerates.

“It is a very regrettable situation, but we have no choice but to prepare for all possibilities,” said Moon, promising to ramp up government spending to help Korean firms source parts, materials and equipment domestically.

Samsung and SK Hynix have up to four months of stockpiles for some of the materials, according to experts. The companies denied a Korean media report that they planned to cut production of NAND chips as early as this month.

Shares in both chipmakers rose on Wednesday as investors bet the tighter restrictions, along with a supply glut, would eventually force production cuts and drive up chip prices.

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Japan has rejected South Korea’s calls to scrap the curbs and denied they violated World Trade Organization rules.

Japan told the WTO on Tuesday it had carried out a review needed to implement export controls based on security concerns, and had switched from applying “simplified” to “normal” procedures to South Korean trade.

South Korea raised the issue at the WTO meeting in Geneva, and planned to address it with U.S. officials in Washington.

“We will seek international cooperation as the measures will naturally have an adverse impact on the global economy,” Moon said.

‘GROUNDLESS’

The dispute stems from Tokyo's frustration at what it calls a lack of action by Seoul over a South Korean court ruling last October that ordered Nippon Steel 5401.T to compensate former forced laborers.

Japan says the issue of forced labor was fully settled in 1965 when the neighbors restored diplomatic ties.

At the meeting, Moon dismissed reported remarks by a politician in Japan that South Korea illegally shipped hydrogen fluoride imported from Japan to North Korea in violation of international sanctions, calling them “groundless”.

Hydrogen fluoride, a chemical covered by the Japanese export curbs, can be used in chemical weapons.

“It is not desirable at all ... that Japan takes measures that deal a blow to our economy because of political purpose and makes remarks that link the measures to sanctions on North Korea,” Moon said.

Business leaders at the meeting discussed the possibility of acquisitions to secure core technologies in parts, materials and equipment, a presidential spokesman said.