Korea and U.S. discuss chip restrictions

Economy

Published: 08 Nov. 2022, 15:34

Korea and U.S. discuss chip restrictions

SK hynix's booth at a semiconductor exhibition in Seoul in October. [YONHAP]

The first meeting between the Korean Trade Ministry and the U.S. Commerce Department to discuss American semiconductor export restrictions aimed at China was held in Seoul on Tuesday.

According to the Trade Ministry, participants exchanged information on the regulations of each country and the impact the U.S. restrictions will have on Koreas' semiconductor industry and its main players, Samsung Electronics and SK hynix.

Other issues that were discussed included export restrictions on Russia.

“Through the meeting, both Korea and the U.S. will review the close cooperation that has been maintained regarding export restrictions and through the working group raise mutual understanding of each country’s regulations,” said Moon Dong-min, Deputy Minister of International Trade and Investment. “And based on the working group, we plan to address ways of improving the collaboration on regulations.”

The head of the U.S. working group was Thea Kendler, Assistant Secretary of Commerce for Export Administration at the Bureau of Industry and Security.

Last month, the U.S. Commerce Department announced a series of measures designed to limit China’s access to technology that could be used in weapons or to develop them.

Using the foreign direct product rule, the U.S. Commerce Department released a list of products and technologies that can't be exported to China. It focused on graphical processing units, chips used in supercomputers, and equipment for making advanced memory chips and processors.

The rules apply globally.

The U.S. government gave a narrow window for Korean companies operating in China to expand their facilities or upgrade their equipment.

While all entities owned by Chinese interests will be denied the technologies, implementation will be on a case-by-case basis for multinational companies.

The Samsung Electronics plant in Xi'an, China, is the company's only memory chip production line overseas. It makes 40 percent of the company's NAND flash production and 10 percent of the world's total. An SK hynix plant in Wuxi, China, makes half its DRAMs.

The U.S. government’s evolving trade war with China -- including the Inflation Reduction Act -- has been affecting key Korean industries including EVs and batteries.

The semiconductor and technology export restriction come as Korean semiconductor companies struggle with falling demand and prices.

Semiconductors account for nearly 20 percent of Korea’s exports. Due to falling prices and slowing demand for smartphones and other consumer electronics such as TVs, semiconductor exports last month fell 17.4 percent to $9.2 billion, the third month of declines.

Last month, all Korean exports shrunk 5.7 percent year-on-year. As a result, Korea has seen trade deficits for seven straight months, the longest stretch since 1997.

Semiconductors account for roughly 40 percent of all Korean exports to China. Yet last month, semiconductor exports to China fell 23 percent on-year.

Korea’s exports to China have been shrinking for five straight months.

“The semiconductor industry is going through an unprecedented drop in demand,” said Choi Do-yeon, a Shinhan Investment analyst. “Companies will likely counter [falling demand] with a high-level of inventory cuts.”