Japan’s tightened export control on three key semiconductor materials is not likely to disrupt Korea’s chip production as chipmakers and the Korean government have been securing substitutes.

“I understand that Korean chipmakers have found some solutions at home and abroad,” one industry source told Asia Times.

Another source added: “We cannot completely relax yet, but at the moment it is not likely that semiconductor production will be suspended or cut.”

SK Hynix announced its plan to cut DRAM production last month not because of the expected shortage of key materials but because of oversupply of DRAM.

Japan’s Ministry of Economy, Trade, and Industry tightened export regulations, requiring the Japanese chip and display material manufacturers to obtain individual approval from the Japanese government when they export to Korea fluoride polyimide, which is used in displays; etching gas, for chip cleaning and processes that cut away unnecessary parts to leave patterns of semiconductor circuits only; and photoresist used for the EUV (extreme ultraviolet) process to fabricate semiconductor substrates.

According to industry sources, fluorine polyimide is likely to be produced by local suppliers soon. Besides, Korean chipmakers already started to test locally made etching gas from last month, and expansion of a local vendor’s facility will be completed soon.

Park Young-sun, the minister for small and medium enterprises and startups, said in an interview with local radio, “Polyimide and etching gas are in a situation where you can rest now.”

Experts, however, pointed out that even if a replacement product is secured, using new materials can lead to low yields or poor quality in the early stage of production.

The photoresist on which Japan strengthened export regulations is the one for the EUV process, not for the production of DRAM. The EUV process is a technology to refine circuit width. Only Samsung Electronics and Taiwan Semiconductor Manufacturing Company are using this process to produce semiconductors that are lower than the 7-nano level. Samsung is using EUV process for foundry business that consigns logic chips.

The Japanese government has allowed the export of photoresist for EUV twice since it tightened the export control. According to industry insiders, however, Samsung Electronics has also secured the photoresist for EUV through a joint venture established in Belgium by JSR of Japan.

Amid this situation, a Korean government organization that was recently established to counter Japan’s tighter export regulations said in a press release that Korea Trade-Investment Promotion Agency found the substitutes for one of the more tightly controlled semiconductor materials in five countries. It said in-depth investigations including tests were underway.

The Japanese government dropped Korea from a “white list” of countries favored in trade following strengthened regulations on exports of semiconductor materials. About 1100 items that Korea imports from Japan appear to be subject to the tighter export control.

The Japanese measure isn’t expected to lead to a total export ban, It raises uncertainty as the range of regulation is extensive and unpredictable. It can damage South Korean industry as imports of critical parts from Japan may be delayed due to the complicated and more time-consuming import process.

A Korean government official said to Asia Times that “As far as we’ve examined 11 industries including the semiconductor sector that could be affected by the Japanese export control, there has been no damage yet. ”

Lobbying groups such as The Korea Chamber of Commerce and Industry and the Federation of Middle Market Enterprises of Korea are also investigating the cases, but no damage has been reported yet.

However, another industry source said, “Because of concerns that it may be difficult to import from now on, Korean companies try to secure inventories of parts and materials as much as possible. They are closely communicating with Japanese suppliers.”

“Naturally, they also push for multiple sourcing at home and abroad,” he added.

The Korean government announced its plan to support the securing of alternative import lines for key parts, materials, and equipment as well as the localization of them.

In an attempt to assist in securing alternative import sources, the government will operate a 24-hour customs clearance support system when importing items related to Japan’s export regulations ,with a benefit of up to 40% of tariffs cut.

The government also plans to support the expansion of production facilities by Korean companies that produce goods subject to Japan’s tighter export regulations. A budget of 270 billion won(US$224 million) will be urgently injected from the supplementary budget to support immediately needed development and test of technologies in materials, parts and equipment as well as funding facility investment.

According to the government, more than 1 trillion won will be provided to localize production of 100 key strategic items that are crucial to the supply chains of major industries, and the budget for enhancing the competitiveness of the material, parts and equipment industries will be greatly increased in next year’s budget.