Japan made good on its threat to curb technology exports to South Korea on Thursday, a move expected to deal a major blow to South Korean manufacturers amid a diplomatic row over wartime labor.
The new restrictions apply to three materials -- fluorinated polyimide, resist and hydrogen fluoride -- used in the manufacturing of semiconductors and display screens for smartphones and TVs.
Companies will now have to apply for individual licenses to export the materials, a process that can take around 90 days. South Korea had previously been exempt from the process, a status it shared with the United States and many European countries.
Stricter export controls are necessary because the "relationship of trust" between the neighboring countries has been "significantly undermined," the Ministry of Economy, Trade and Industry said in announcing the move on Monday.
According to government sources, Japan may expand the list of restricted items to include electronic components and other materials that can be used for military purposes if ties with South Korea do not improve.
But the restrictions risk tarnishing Japan's reputation as a proponent of free trade, an image it cultivated as host of last week's Group of 20 summit.
Seoul condemned the move and said it may take the matter to the World Trade Organization. In a column published online on Tuesday, The Wall Street Journal said Japan was taking a page out of U.S. President Donald Trump's playbook, a reference to Washington's use of trade restrictions as a negotiation tool.
Manufacturers in South Korea including Samsung Electronics Co. and SK Hynix Inc. are heavily dependent on Japanese exports of the three materials and a supply bottleneck could cause production to grind to a halt. Their stockpiles of DRAM memory chips will run out in three months, the Chosun Ilbo newspaper has reported.
While Tokyo has denied that the tightening of export controls is retaliation for South Korea's handling of court decisions ordering Japanese companies to compensate workers for forced labor during Japan's 1910-1945 colonial rule of the Korean Peninsula, it has said the issue contributed to the breakdown in trust.
Tokyo had called on Seoul to establish an arbitration panel involving a third country, rebuffing a counteroffer to gather funds from both Japanese and South Korean companies to compensate the workers.
Japan maintains that the issue was settled "finally and completely" by a 1965 bilateral accord under which it provided South Korea with $500 million in financial aid.
Bilateral ties were also frayed by an incident in December last year where a South Korean warship allegedly locked its fire-control radar on a Japanese patrol plane.