The US is preparing to exclude semiconductor-equipment makers in the Netherlands and Japan from its latest round of restrictions targeting China, people familiar with the situation said, while warning the plans are fluid and may change.
The Biden administration is preparing to implement a sweeping new trade restriction — known as the foreign direct product rule — to keep China from accessing advanced semiconductor technology. But Tokyo Electron Ltd., ASML Holding NV and other chip companies in the Netherlands and Japan are expected to be exempt from the new limits, said the people, asking not to be identified discussing private negotiations.
However, the Biden administration is under pressure to take additional steps to curb Beijing’s technological developments, and the semiconductor-production equipment companies may still face constraints on selling to China, the people said. They will have to tread carefully and keep the US policy goals in mind as they do business with China, they said.
“The only reason we can think of why the US would exclude SPEs made in the Netherlands, Japan and Korea is that those countries will likely conform to its demands for stricter export policies to China without the US needing to resort to invoking the Foreign Direct Product rule,” said Amir Anvarzadeh of Asymmetric Advisors. “The market may be mistaken to bid these stocks higher with the view that companies domiciled in these countries are free to export chip making tools that US wants restricted to China.”
The US has been trying for years to implement rules to restrict China’s rise, including repeated rounds of export controls that limited the sale of advanced artificial intelligence chips and chip-making equipment. The US had told Japan and the Netherlands it was considering invoking the foreign direct product rule, or FDPR, to limit their companies’ ability to service and repair restricted gear that’s already in China, Bloomberg News reported earlier this month.
Japan and the Netherlands, the two most important countries for chip-making equipment besides the US, have resisted additional controls out of concern they will hurt their own companies and damage relations with China. ASML, the most valuable technology company in Europe, is the world’s leader in the lithography technology used to make the industry most sophisticated chips.
Representatives for ASML and the Dutch foreign trade ministry declined to comment on the reports. The Netherlands is always in close and confidential contact with various partners on export controls, said one spokesperson for the Dutch ministry. The Netherlands ultimately bases its policy on its national security, the spokesperson said.
Tokyo Electron didn’t respond to a request for comment.
US policymakers have focused on exports of semiconductor production equipment as a means to rein in China’s technological capabilities in areas such as artificial intelligence and quantum computing. American companies such as Applied Materials Inc., Lam Research Corp. and KLA Corp., have been affected by years of tightening regulations, and have urged Washington to levy similar curbs on their rivals in Japan and beyond.
While the US government can impose restrictions on its own companies directly, the FDPR gives it influence over companies abroad. Essentially, the rule would give Washington the ability to impose its policies on companies that use a certain percentage of American inputs in their products.
That’s why Japanese and Dutch companies remain concerned about the US strategy, even if they win an exemption for now. Washington will still hold a powerful tool to punish companies in the future and that threat will affect their actions, said one person directly involved in the situation.
While Japan, the Netherlands and South Korea would be exempted from the latest export rules, countries such as Israel, Taiwan, Singapore and Malaysia would be affected, Reuters reported.
A spokesperson for the US Commerce Department, which is responsible for export controls, declined comment, according to Reuters.
