The government announced Monday it is tightening regulations on the export of several chemicals used in chip and smartphone production to South Korea amid the row with Seoul over wartime labor.

The new rules, which take effect July 4, come after South Korean courts ordered Japanese firms to compensate people forced into wartime labor, an issue Japan says was resolved when the countries resumed diplomatic relations decades ago.

“The export control system is built based on international relations of trust,” the Ministry of Economy, Trade and Industry said in announcing the move.

“After reviews by relevant ministries, it must be said that the relations of trust between Japan and South Korea have been significantly harmed,” METI added.

The South Korean government reacted promptly, saying Seoul will take firm action against the decision. An official of the South Korean Trade, Industry and Energy Ministry said the restrictions announced by Japan violate international law.

The new restrictions affect fluorinated polyimide, resist and hydrogen fluoride, as well as the transfer of manufacturing technologies, removing them from a list that effectively allowed expedited exports.

This means exporters will now have to apply for permission for each batch they want to export to South Korea, a process that takes around 90 days each time, local media reported.

METI said it will also begin soliciting public comments on the removal of South Korea from a list of “white” countries that face minimal restrictions on technology transfers with national security implications.

“With South Korea, the trust which is the very foundation of the export control has been undermined,” said Jun Iwamatsu, the official in charge of export control at the trade ministry.

Japan’s move will deal a critical blow to its neighbor’s manufacturing sector, according to South Korean media.

Yonhap News Agency, citing an industry source, reported the materials are essential for making semiconductors and display screens.

Japan and South Korea are both democracies, market economies and U.S. allies, but their relationship has been strained for decades as a result of Tokyo’s 1910-1945 colonial rule over the Korean Peninsula.

Tensions have grown after a series of rulings by South Korean courts ordering Japanese firms that used wartime forced labor to compensate victims.

Last month, Tokyo proposed the issue be put to arbitration under the terms of an agreement signed by the two countries in 1965, when ties were normalized.

South Korea countered with a proposal for local and Japanese firms to set up a voluntary compensation fund, which Tokyo flatly rejected as “unacceptable.”

When relations were normalized, Tokyo agreed to a reparations package that included grants and cheap loans intended to cover victims of various wartime policies.

Japan argues that package should have permanently resolved the issue.

Deputy Chief Cabinet Secretary Yasutoshi Nishimura told a regular news briefing the move is “in accordance with international export regulations and World Trade Organization rules.”

“In addition to the fact that it has become difficult to work on export control with South Korea under a relation of trust, we have also seen inappropriate cases in connection with export control as it relates to South Korea,” he told reporters.

Analysts said the measure could harm Japanese producers, and shares in Japanese resist makers nose-dived in some cases more than 3 percent after the announcement, despite a rally on the market overall.

The news also sent Samsung down 0.74 percent by mid-morning, with LG Electronics plunging 2.52 percent.

“It could have a short-term negative impact on Japanese manufacturers … whose sales to major South Korean producers constitute 10 to 20 percent of their overall sales,” said Kazuyoshi Saito, a chip analyst at IwaiCosmo Securities.

He pointed out that the measures do not amount to an export ban, but they will make shipments more complicated.

“At this point, the expected impact is a slowing of export procedures, which may temporarily affect both South Korean makers and Japanese suppliers,” he said.