S. Korea drops Japan from favoured trade partner's list

South Korea summoned Japan's ambassador to protest a decision to remove Seoul's fast-track export status, which took effect on Wednesday amid a deepening political and economic feud.

Japan dropped South Korea from a so-called "white list" of favoured trade partners this month, which could mean more paperwork and on-site inspections for some Japanese exporters and potentially slow supplies of a range of goods.

The move, which came into force on Wednesday, prompted South Korea to drop Japan from its favoured trading list and scrap an intelligence-sharing agreement.

Relations between the two countries worsened late last year after South Korea's Supreme Court ordered compensation for some Koreans forced to work at Japanese firms during Japan's 1910-45 occupation.

South Korea's vice foreign minister Cho Se-young called in Japan's ambassador Yasumasa Nagamine to lodge a formal complaint and demand that the "white list" decision be reversed, Seoul's foreign ministry said.

"Cho pointed out that the measure was clear retaliation for the court ruling and posed a grave challenge that shook the foundation of the two countries' cooperative relations," the ministry said in a statement.

Nagamine declined to comment on the formal complaint lodged by Seoul. But Japanese Chief Cabinet Secretary Yoshihide Suga on Wednesday repeated that Tokyo's stance was appropriate, and blamed South Korea for its actions on the issue of forced labourers for the strained ties.

"Relations between Japan and South Korea are in an extremely difficult state due to the repeated negative and irrational actions from the South Korean side," Suga told a regular news conference, without elaborating.

At a separate meeting, the South Korean government also pledged to invest 5 trillion Won ($4.12 billion) from 2020-22 to stabilise supply chains in affected sectors of the economy.

"We once again urge Japan to refrain from further worsening the situation and sincerely respond to our offer of dialogue to restore relations," Prime Minister Lee Nak-yon told the meeting.

The escalating row has raised U.S. concerns about three-way security cooperation with its top two regional allies in the face of North Korea's growing nuclear and missile programmes.

A senior State Department official said on Tuesday that Washington hopes the dispute has hit "rock bottom" and the neighbours will start to rebuild their relationship.