US, Netherlands, and Japan: Working Together To Limit Exportation of Chip To China

Putri Alivia Rifaih . January 30, 2023


Techspace - In negotiations that ended on Friday, the United States reached an agreement with the Netherlands and Japan to limit exports of some sophisticated chip-making equipment to China, according to Bloomberg, which cited people familiar with the situation.

According to the report, the deal would extend some export restrictions that the United States implemented in October to businesses with headquarters in the two allies, including ASML Holding, Nikon Corp., and Tokyo Electron.

In meetings facilitated by Jake Sullivan, the White House's national security advisor, officials from Japan and the Netherlands discussed a variety of topics while in Washington.

Restricting the export of machinery for the manufacture of semiconductors to China, according to a source with knowledge of the discussions.

The pact would extend some export limits the U.S. implemented in October to companies based in the two ally nations, including ASML Holding NV, Nikon Corp., and Tokyo Electron Ltd. Its goal is to undermine Beijing's desire to develop its own domestic semiconductor capabilities.

According to those with knowledge of the situation, there are no plans for a public announcement of the limits, and their implementation might take months as the two countries work out the legal details.

Similar limitations will be placed on the Japanese Nikon Corp. and the Dutch ASML Holding HV with regard to the transfer of deep ultraviolet lithography equipment used in the manufacture of chips.

The collaborative initiative is a development of US President Joe Biden's strategy to restrict China's capacity to produce and develop its own semiconductors, which are needed for AI and machine learning in the military but will also have an impact on the mobile technology sector.

Due to complaints from US equipment manufacturers that only American businesses were allowed to trade with China, the Dutch and Japanese governments decided to reevaluate how ASML and Tokyo Electron were exporting such hardware.

When questioned about the agreement, Dutch Prime Minister Mark Rutte responded, "This is such a delicate matter that the Dutch government chooses to communicate diligently, and that implies that we only discuss in a very limited fashion."

The Restriction and How China Gonna React

Picture: Reuters

The most important company impacted by the restrictions in the Netherlands is ASML. It is the only business in the world that makes "ultraviolet lithography" equipment, which is essential for making cutting-edge semiconductors. 

According to an earlier CNBC story, the company was still able to export older deep ultraviolet lithography (DUV) machines to China but was already unable to send its more sophisticated extreme ultraviolet lithography (EUV) gear.

According to Bloomberg, the new limits are anticipated to prohibit the sale of "at least some" of these DUV machines, which will further constrain the capacity of Chinese businesses to develop cutting-edge chips and set up production lines. 

Around 15% of ASML's revenues in 2022 will come from China, according to ASML CEO Peter Wennink's prior comments to CNBC.

Peter Wennink, the CEO of ASML, has cautioned that the US campaign may have unexpected repercussions and forecasts that China will develop the technology domestically rather than import it.

On January 25, he added, "That will take time, but they will get there.

Wennink has stated that it is doubtful that any limitations will prevent China from eventually producing its own versions of the devices. Wennink told Bloomberg that if they were unable to obtain those devices, they would create them independently. They will eventually arrive, but it will take time.

The restrictions are anticipated to have an effect on Japanese businesses including Tokyo Electron and Nikon.

In addition to stopping exports to China, the White House has exercised its clout to increase domestic chip manufacture. The $280 billion CHIPS and Science Act, which contains $52 billion in subsidies for the semiconductor industry, was signed by President Joe Biden last August. New semiconductor manufacturing facilities are being actively built in the US by Intel, TSMC, and Samsung.

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