South Korea said it would withdraw from an intelligence sharing agreement with Japan late Thursday, escalating the ongoing trade dispute between the two countries. 

It is the latest tit-for-tat in the trade dispute that started when Japan announced in July that it had imposed trade restrictions against South Korea regarding the export of key materials that go into semiconductors and display screens, citing national security concerns.

Making the announcement at the Blue House, South Korea’s presidential residence, Deputy National Security Director Kim You-geun directly cited Japan’s recent decision to remove South Korea from its list of trusted trading partners as the reason for pulling out of the intelligence sharing agreement.

He said the agreement no longer aligned with South Korea’s “national interests”, saying Japan’s latest move “brought about a significant change to the environment of defense cooperation”. 

The intelligence sharing agreement, called the General Security of Military Information Agreement (GSOMIA), was signed in November 2016 and allowed South Korea and Japan to share classified military information together. The GSOMIA is about to reach its expiry and was expected to be extended for another three years, but South Korea has pulled away from the agreement in light of the trade dispute.

The agreement has traditionally acted as an important symbol of security cooperation for the US, South Korea, and Japan in the region.

The US had strongly urged South Korea to not withdraw from the agreement before the announcement.

The latest move by South Korea further increases uncertainty for the global electronics supply chain as the country is a leader in making consumer electronics and the components that go into their production.

The trade dispute has also put a cloud over other local electronics maker such as LG Display, the world’s largest Liquid Crystal Display maker, and SK Hynix, the world’s second largest memory chip maker.

Earlier this week, Japan reportedly approved the export of a second batch of photoresist to Samsung — a key material for making semiconductors — that will allow the company to maintain logic chip production for the next nine months.

The trade dispute started last year when South Korea’s highest court ordered Japanese company Mitsubishi to compensate Koreans who were used as forced labourers during World War Two. The company refused to provide compensation and Japan  claimed that all grievances were settled during a treaty in 1965.

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