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South Korean protesters hold cards during a rally against Japan in front of a building which houses Japanese embassy in Seoul, South Korea. Japan's Cabinet on Friday approved the removal of South Korea from a 'whitelist' of countries with preferential trade status.

KIM HONG-JI/Reuters

South Korea fired back at Japan over a deepening trade dispute on Friday, pledging it would not be “defeated again” by its neighbour, laying bare decades-old animosity at the root of a row over fast-track export status.

During a rare live television broadcast of his cabinet meeting, President Moon Jae-in threatened countermeasures after Japan’s cabinet approved the removal of South Korea’s fast-track export status from Aug. 28.

Dropping South Korea from a so-called “white list” of favoured export destinations means some Japanese exporters face more paperwork and on-site inspections before they can secure permits, potentially slowing exports of a wide range of goods.

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Relations between the two U.S. allies began to deteriorate late last year following a row over compensation for wartime forced labourers during Japan’s occupation, but President Moon’s comments were the starkest yet.

“We won’t be defeated by Japan again,” Moon told his cabinet, pointedly invoking South Korea’s difficult history with Japan, which colonized the Korean Peninsula before World War Two.

He described Japan as a “selfish nuisance” for a decision that threatens to disrupt global supply chains, and aired suspicions over its motive for hobbling a rival economy.

Top officials followed Moon in blaming Japan, South Korea’s security partner in a region where both are the biggest allies of the United States.

Kim Hyun-chong, Moon’s deputy national security adviser, criticized Tokyo as an obstacle to the South’s effort to build peace with North Korea, calling Japan’s step a “public affront”.

South Korea will review whether to maintain a military information sharing pact with its neighbour, Kim added.

South Korea’s countermeasures will see it drop Japan from its own list of favoured trading partners and hasten filing of a complaint to the World Trade Organisation over Japan’s export controls, Finance Minister Hong Nam-ki said.

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Its foreign ministry summoned the Japanese ambassador to be told by a vice foreign minister that Japan was no longer considered a friendly nation.

NATIONAL SECURITY REASONS

Earlier in Tokyo, Japanese Industry Minister Hiroshige Seko said the cabinet had taken the decision for national security reasons, and it was not intended to harm ties.

Japan also cited security concerns when it tightened curbs last month on exports to South Korea of three high-tech materials needed to make memory chips and display panels, threatening the global supply of chips.

U.S. Secretary of State Mike Pompeo expressed “great concern” that Tokyo pursued the move despite efforts to encourage a diplomatic solution, South Korean Foreign Minister Kang Kyung-wha said after a three-way meeting with him and her Japanese counterpart, Taro Kono.

The United States had urged the two countries to consider reaching a “standstill agreement” to buy more time for talks, a senior U.S. administration official said on Tuesday.

Any impact on intelligence sharing could worry the United States, which wants three-way security co-operation crucial to rein in North Korea’s nuclear and missile threats.

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The 30-minute talks among Pompeo, Kang and Kono ended in a brief, chilly photo opportunity, at which none of them said a word or shook hands.

Pompeo said on Twitter after the meeting that the three nations’ relationship was “strong and will be critical” to the denuclearization of North Korea, ASEAN partnership, and a free and open Indo-Pacific region.

Foreign ministers attending the ASEAN grouping’s East Asia summit of 18 nations in Bangkok expressed concern about the recent developments on trade between Japan and South Korea, a Thai foreign ministry official told a briefing.

EROSION OF TRUST

Japan has also pointed to an erosion of trust since South Korean court rulings ordered its firms to compensate wartime forced labourers. Tokyo says that issue was settled by a 1965 treaty that normalized ties between the two countries.

“We want South Korea to first create an environment in which we can have dialogue with trust. It’s South Korea’s responsibility to do that,” Seko said.

The rift is the latest example of how a decades-old disagreement has undermined relations between the two U.S. allies at a time when Washington wants them working closely together on North Korea. It is also awkward economically, as both export driven economies face sliding demand from China.

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South Korea would be the first country removed from Japan’s white list, which now has 27 countries including Britain, Germany and the United States.

The fresh restrictions could deal an additional blow to South Korean chip makers already scrambling to secure key material after last month’s export curbs.

The South’s top imports from Japan by value last year were semiconductor components and equipment ranging from silicon wafers to chip etching machines, totalling about $11 billion, or nearly a fifth of Japanese imports, data from the Korea International Trade Association shows.

Moody’s Investors Service said Japan’s removal of the export status was a credit negative for many South Korean companies.

South Korea’s central bank chief also flagged concerns the move could hit its economy.

On Thursday, South Korea said exports had tumbled for an eighth straight month in July, with the worsening trade dispute darkening an increasingly gloomy picture.

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