Tokyo has cut Seoul from its “white list” of countries that enjoy preferential trade treatment such as milder export controls, as the deepening rift between the two US allies threatens to affect regional security.

The Japanese government voted to remove South Korea from the most-trusted export partners list on Friday morning, prompting South Korea’s president Moon Jae-in to call an emergency cabinet meeting.

“The government will deal with these unjustifiable measures by Japan with a firm stance,” the Japanese presidential office spokesman said.

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The drastic move comes as the two countries are embroiled in a bitter row over the historic issue of Japan’s forced labor practices during World War II. The standoff was inflamed by the rulings of the South Korean Supreme Court last year, demanding Japanese companies fork out hefty compensation to the victims.

Car-maker Mitsubishi was ordered to pay between $68,000 – $127,000 to each of the 10 plaintiffs who were employed by the company in 1940-1945, while Nippon Steel & Sumitomo Metal Corp’s was ordered to pay 100 million won ($84,000) for each case of forced labor.

Tokyo has been incensed over the rulings, insisting that all such issues were settled under the 1965 treaty on basic relations between the countries and has been pushing back against Seoul with trade sanctions.

Last month, Japan unveiled tough restrictions on the export of three chemicals that are essential to South Korea’s world-renowned smartphone and chip industry.

In a futile attempt to discourage its neighbor from axing its trade privileges, Seoul warned Japan on Thursday that an intelligence-sharing agreement between the two nations might be at stake.

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“We cannot help but see this as affecting the framework of security cooperation between South Korea and Japan,” Seoul’s Foreign Minister Kang Kyung-wha said.

Washington, alarmed by the unraveling dispute, attempted to mediate, suggesting its allies sign a “standstill agreement,” the Japan Times reported. However, so far the US has failed to diffuse the tensions, which have escalated in recent weeks.

US Secretary of State Mike Pompeo is set to give reconciliation another go later on Friday, when he meets with the Japanese and South Korean foreign ministers.

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