Seoul is to downgrade Japan’s trading status amid an escalating trade war between the Asian nations. Tokyo earlier announced that it was dropping South Korea from its trade ‘white list’ and curbing the export of certain materials.

The Korean government will create a new category of trade partners with ‘worse than best but better than worst’ conditions, with Japan becoming the sole country belonging to the bracket. Once applied, Japanese firms will require more paperwork to obtain trade permits and will experience longer waiting times for applications to be processed.

“We need to put an export control system into operation considering the fact that it is hard to work closely with a country that frequently violates basic rules of export controls or that operates an unlawful system,” Trade Minister Sung Yun-mo said.

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The retaliatory measures are expected to come into effect in September, around the same time as Japan’s downgrade of South Korea’s trade status is scheduled. Tokyo announced earlier this month that it was removing South Korea from its own “white list” of countries that have enjoyed minimum trade restrictions.

Tokyo also curbed exports to South Korea of three materials crucial for manufacturing microelectronics and display screens. Japan said its decisions were necessary because South Korea’s re-export rules for sensitive materials were too lax. Seoul believes Japan is punishing South Korea for a court ruling, which allowed Korean nationals to sue Japanese firms for compensation for forced labor during colonial occupation. Seoul also plans to challenge Japan’s export rules through the World Trade Organization.

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