Amid growing trade tensions between the two neighboring nations, South Korea’s trade deficit with Japan is expected to hit the lowest level in 16 years, according to government data.

In the January-October period this year, Korea’s trade deficit with Japan stood at $16.3 billion, down 20 percent on-year, the smallest deficit with the neighboring nation since 2003, according to the Industry Ministry.

Korea’s exports to Japan amounted to $23 billion, down 6.5 percent from a year ago while imports from Japan were $41 billion, down 12.8 percent.

The decline is attributed to the fall in imports of consumer goods due to a widespread boycott of Japanese products and the reduction of high-tech material shipments by chipmakers Samsung Electronics and SK hynix, due to the global market slowdown, according to the Industry Ministry.

Korea and Japan, meanwhile, are set to hold the second bilateral consultations in Geneva, Switzerland, on Tuesday, to resolve a trade dispute triggered by Japan’s export restrictions.

Chung Hae-kwan, the director general in charge of legal affairs at the Trade Ministry, left for Geneva on Monday to take part in consultations at the World Trade Organization. This is the second round of talks after the two nations could not reach common ground on Oct. 11.

Five days before the consultation, the Japanese government approved exports of liquid hydrogen fluoride to Korea, the first approval for the material since it tightened restrictions on exports to Korea of three high-tech materials -- alongside fluorinated polyimide and photoresists -- in July.

The Japanese government is reported to have authorized two Japanese firms, including Stella Chemifa, to import the materials to Korea. It had approved the shipments of photoresists and fluorinated polyimide in August and September, repectively. 

Japan’s approval last week is seen as its preparation ahead of the WTO consultations fearing that export restrictions would adversely affect international disputes.

However, the move “basically won’t have much impact (on the consultations),” Chung told reporters before leaving for Geneva.

“The main purpose of our complaint is to withdraw Japan’s export restrictions. That is the main issue. One or two permits are not relevant to our WTO dispute,” he added.

Japan’s approval of individual cases could send a positive signal to local companies. But the uncertainties will continue unless Japan withdraws its export restrictions entirely, according to the ministry spokesperson.

The WTO dispute dates back to Sept. 11 when Korea complained about the export restrictions to the WTO Dispute Settlement Body, accusing Japan of carrying out politically motivated retaliatory measures.

The bilateral consultations are the first step in the dispute resolution process. If the two countries do not reach an understanding, Korea can request for a WTO panel at least 60 days after it asks for bilateral consultation, which it had sought on Sept. 11.

It usually takes about 15 months from the time consultations for the WTO panel to make a ruling.

By Shin Ji-hye (shinjh@heraldcorp.com)