The geopolitical impact of the Fukushima nuclear incident II: Competition between Japan and South Korea

Inclusive Economy30 Mar 2011Alex Calvo

In a sequel of three blog post Alex Calvo examines the wider geopolitical issues that are likely to be affected by the nuclear incident in Fukushima Daiichi, Japan.

In a previous posting, Mr Calvo discussed the Nuclear Renaissance. In this post he examines the competition between Japanese and South Korean nuclear corporations.

Another aspect of the Nuclear Renaissance where the impact of the Fukushima Daiichi incident could be felt is the strong rivalry between Japanese and South-Korean nuclear enterprises. In cooperation with their government, the latter have embarked on a major effort to get to the top of the industry. South Korea’s ambitions are to become a leading nuclear power, on par with the United States, France, Japan and Russia.

This takes South Korea’s successful transition from ‘import substitution’ to ‘export-led growth’, familiar from industries such as car-making and ship-building, to a technologically more demanding sector. It is also part of a wider geopolitical rivalry between Japan and South Korea. Once a Japanese colony, Korea has struggled hard since the 60s to step out of Japan’s shadow, and become the main industrial and logistical hub in North-East Asia.

The recent success of Korean nuclear corporations in the Middle East, where they secured a multibillion dollar contract in the United Arab Emirates and a smaller one in Jordan – both at the cost of Japanese competitors – have whetted their appetite for more. This is a golden chance for the Koreans, who are working hard to negotiate more contracts with countries such as Turkey and South Africa, where Japanese interests are also noticeable.

Nuclear competition in the wake of the Fukushima incident

As discussed earlier in this blog, the Fukushima incident could cool down the Nuclear Renaissance – that is, the worldwide trend towards the construction of new nuclear facilities – thus reducing the number and scope of business opportunities for South-Korean and Japanese firms alike. Yet as the incident is particularly damaging for the reputation of Japan’s nuclear industry, the incident could work in favor of its South Korean competitor. To date, Korea has not suffered any major incident in its large number of nuclear reactors.

However, it is no foregone conclusion that Fukushima will come to be seen as evidence of the unreliability of Japanese companies’ unreliability. The final outcome of the incident may well be the reverse, with potential customers admiring the resilience of the facilities withstanding a 9.0 earthquake and succumbing only in the face of a 10-meter high tsunami. Since not many locations are liable to such a combination of events, the Fukushima incident may even boost the standing of Japan’s nuclear industry, should other countries conclude that Japanese designs withstood a test worse than anything likely to happen at other locations.

In addition, the jury is also out on a reversal of the Nuclear Renaissance. Although it seems plausible to expect more political difficulties in approving the construction of new reactors, the main reasons behind the atomic comeback remain, as is tragically highlighted by recent developments in countries such as Libya, whose oil and natural gas production is bound to be out of international markets for at least a few weeks. Such developments add to existing pressure on energy prices, and remind governments and their constituencies hat no energy source is without risks.