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Tokyo — The Japanese cabinet decided Friday to delist South Korea from its "White Countries" list, with effect from August 28, meaning Tokyo would impose additional procedures on exports to its East Asian neighbor for many items, including oil products.

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"The Ministry of Economy, Trade and Industry (METI) hereby re-emphasizes both its willingness to take strict measures against circumventions and other illicit exports, and the importance for exporters to exercise self-discipline in undertaking internal export control measures, regardless of export destinations or items to be exported," METI said in a statement.

Under this decision, all exports including oil products, except for food and timber to South Korea will also be subject tothe "catch-all control," METI sources said.

Under the catch-all control, "an individual export license is required for exports of non-listed items, both goods and technologies, in cases where there are concerns that the items inquestion could have military end-uses or be applicable to WMD-related activities," METI said.

But METI sources said it is up to companies to decide whether they need to request individual export licenses.

METI's examination of export requests would take up to around 90 days in normal cases, with some possibly shorter or longer, the sources added.

Japan's Cosmo Oil said it is already prepared to go throughMETI's catch-all control to keep its oil products exports to South Korea as it has established its system to trade with countries without "White Countries" status.

POTENTIAL IMPACT ON TRADE, STORAGE FLOWS

"Japanese oil products exports might take more time, and itmight lead exporters to rethink whether to keep their exports toSouth Korea by spending extra time and efforts," a Japanese industry analyst said.

The decision could affect Japanese refiners' exports of oilproducts to South Korea, which accounted for roughly 10% of Japan's oil-product exports in fiscal 2018-19 (April-March).

Japan exported 3.22 million kiloliters (55,444 b/d) of oil products to South Korea in 2018-19, according to METI data.

Japan's oil products exports to South Korea in 2018-19 included 793,288 kl of gasoline, 200,150 kl of jet fuel, 476,919 kl of gasoil, 598,731 kl of kerosene, METI data showed. These four products accounted for 64% of oil-product exports to South Korea.

Japanese refiners' exports to South Korea include the transport of oil products to their leased storage facilities there.

Japan's decision has cast a shadow on the small volume of kerosene which makes its way to South Korea, shipbrokers in Tokyoand Seoul said.

"Every year in mid-summer, trading companies move kerosene into tank storage in South Korea and these volumes can now take ahit," said a broker in Tokyo, adding that kerosene is then shipped back to Japan during winter months.

The overall tanker market is unlikely to be affected because the lion's share of the trade takes place from South Korea to Japan, rather than the other way round.

Shipping industry executives said the overall situation is normal at present, but if Seoul were to take retaliatory measures, the oil-product trade would definitely take a hit.

Another oil trading executive said Japan's decision would affect the petrochemical industry much more than the oil productsbecause of the minuscule volumes involved in the latter.

MIXED MARKET VIEWS

Views were mixed as to the impact these government measureswould have on middle distillates spot market, with some market sources saying the impact would be limited.

"For gasoil and jet? Not so much...but the impact will likely be worse in other industries," said a Singapore-based trader, commenting on the de-listing. "Impact will not be great, Japan-South Korea movements aren't as frequent as South Korea-Japan," said a ship-broking source.

Other quarters of the market were more cautious, and believed that the repercussions of these trade tensions were likely to be felt only later on.

"This will only affect both countries' GDP negatively. Gasoil and jet demand are closely tied to GDP growth, this could impact the spot market in the long term," a Northeast Asian refiner said.

Industry sources noted that while there would be an disruption in supply from Japan to Korea, the impact on gasoil market will be limited.

"Sure I think there would be some substitution in [product]trade flows, and probably some disruption in supplies between the two nations on a net basis, but overall ... I don't think there will be a huge impact, not in the short term at least," a Singapore-based trader said.

Japanese refiner Idemitsu Kosan declined to comment on the government decision, adding that it would be monitoring the situation and responding as required. Japan's largest refiner JXTG Nippon Oil & Energy said it was still assessing the impact of the government decision.

The Japanese cabinet decision followed METI's decision about a month ago to impose tighter controls on July 4 on the export of fluorinated polyimide, resist, and hydrogen fluoride, and their relevant technologies, which may include technology transferred in exports of manufacturing equipment to South Korea,with relevant bulk licenses for those three items no longer applicable.

-- Takeo Kumagai, with Zameer Yusof, Ng Jing Zhi and Sameer C. Mohindru in Singapore, takeo.kumagai@spglobal.com

-- Edited by Jonathan Dart, jonathan.dart@spglobal.com