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Japan did not retract export restrictions on three critical industrial materials imposed on South Korea in a row over wartime forced labor as the end of the latter's May deadline lapsed.
Consequently, South Korea may resume its complaint at the World Trade Organization (WTO) that it suspended in November.
The WTO can open up a panel to look further into the case when the two sides fail to reach an agreement.
Japan imposed the export curbs as well as removed South Korea from its list of trusted partners after the latter's Supreme Court ordered Japanese firms to compensate Koreans forced into hard labor during the latter's colonization from 1910-45.
However, experts say it's unlikely that South Korea would withdraw from the military information-sharing pact with Japan dubbed GSOMIA (General Security of Military Information Agreement), as it caused criticism and a strong objection from the United States.
A South Korean trade ministry official said they have been opening dialogue channels and will first analyze Japan's response before making further decisions.
