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By Tom Miles
GENEVA, July 9 (Reuters) - Japan denied imposing a trade embargo on South Korea on Tuesday, after a complicated diplomatic dispute that could disrupt global supplies of chips and smartphones erupted over forced labour in World War Two and banned trade with North Korea.
South Korean Ambassador Paik Ji-ah raised the issue in Geneva, where she and her Japanese counterpart Junichi Ihara set out competing arguments at a meeting of the World Trade Organization.
Paik said that starting on July 4, Tokyo had told exporters to apply for licences before shipping to South Korea, according to a Geneva-based trade official who attended the meeting.
Paik said Japan had not justified its actions beyond citing a "damage of trust", the official said.
She warned that Japan's action would disrupt the global supply chain of electronic products, affecting companies worldwide including in Japan.
The dispute stems from Japan's frustration over what it sees as South Korea's failure to act in response to a ruling by one of its courts last October ordering Japan's Nippon Steel to compensate former forced labourers.
The row worsened when last week when Japanese media quoted an unidentified senior member of the ruling Liberal Democratic Party as saying some hydrogen fluoride exported to South Korea had ultimately been shipped to North Korea.
Japan threatened last week to drop South Korea from a "white list" of countries with minimum trade restrictions. Paik said there were no WTO rules allowing countries to impose export controls due to damaged trust.
Japan's envoy Ihara told the meeting that it was not a trade embargo but an operational review needed to implement export controls based on Japan's security concerns.
After the WTO meeting, Ihara told reporters that he had explained that Japan had merely changed its procedures, having previously applied simplified rules to South Korea.
"Now we changed and normal measures are applied to Korea," he said. "This is perfectly in conformity with our obligations at the WTO." (Reporting by Tom Miles Editing by Mark Heinrich)