In a January 27th meeting with the United States, Japan and the Netherlands agreed to restrict exports of advanced chip-manufacturing equipment to China, thus joining the United States’ efforts to cut China’s access to advanced technologies. This agreement follows the announcement by the United States in October 2022 of new US export restrictions on semiconductor chips that go beyond the reach of internationally agreed-upon restrictions.1 These new restrictions expanded the long-standing foreign direct product rules under US export control laws with respect to China and certain Chinese Entity List entities with respect to various categories of foreign-produced items derived from US technology. Notably, this further expanded the jurisdictional reach of US export controls to cover key third-country suppliers of China’s semiconductor industry.
The announcements by Japan and the Netherlands, following discussions with the United States, reflect Washington’s strategic focus on the critical role both countries play in semiconductor supply chains, including key semiconductor-manufacturing equipment makers such as ASML Holding N.V. (“ASML”), Nikon Corp., and Tokyo Electron Ltd., among others. The announcement is part of a broader strategy to limit China’s access to advanced chips, chip-making equipment, and materials.
This is not the first time the Netherlands has restricted exports to China. Indeed, since 2018, the Dutch government has prevented its largest company, ASML, a Dutch maker of photolithography machines, from shipping advanced semiconductor equipment to China that are considered “dual use” with possible military applications. Under the latest agreement, the Netherlands will prevent ASML from selling to China “at least some immersion lithography machines, the most advanced kind of gear in the company’s deep ultraviolet lithography line” and equipment that is needed to manufacture cutting-edge chips.2
The decision of the Dutch government to align with the US and Japan on a “unilateral” basis, outside of the framework of the European Union (“EU”), has raised eyebrows. In this regard, it is worth noting that, whereas the EU is competent to impose EU-wide export controls, e.g., by adopting legislation including lists of dual use items, ultimately, export authorizations and licenses are granted by each of the 27 EU Member States. In particular, based on a specific provision of the EU’s Dual Use Regulation,3 Member States may prohibit or impose authorization requirements on the export of dual-use items that are not in the EU’s list based on grounds of “public security.” In practice this means that EU Member States retain significant power over those items that are subject to export control.
Meanwhile, Japan will introduce export controls “designed to impede the use of cutting-edge semiconductor technology for military applications this spring[.]”4 Japan plans to amend an existing ministerial ordinance under the Foreign Exchange and Foreign Trade Act to prevent manufacturing equipment from being used for the creation of semiconductors. Following release of the revised draft ordinance, the “government will solicit opinions from companies and other related parties to introduce the regulatory measures in the spring.”5 According to reports, the new regulations will not explicitly name China. According to another person familiar with the discussions, Japan will set limits on Nikon Corp. that are similar to the ones that the Netherlands plan to impose on ASML.6
Details of the agreement between the United States, Japan, and the Netherlands have yet to be formally publicized, which a “person familiar with the situation said reflects concerns by Japan and Netherlands about potential retaliation by China,” as both countries have domestic companies that operate in the Chinese market.7 For similar reasons, both countries will draft their own measures rather than simply adopting the regulations of the United States. The Dutch government has so far declined to provide any details as to the details of the agreement, which has sparked significant concern among ASML’s investors. ASML itself has indicated that at present “it is not possible to make any statement about the process going forward and on the medium and long-term financial, organizational and global industry-wide impact of new export control regulations.”8 It further notes that it “will continue to engage with the authorities to discuss the potential impact of any proposed regulation in order to ensure the impact on the global semiconductor supply chain is properly assessed.” The Japanese Ministry of Economy, Trade and Industry has not made any official announcement about possible measures to be adopted for additional export control for semiconductor manufacturing equipment and other related items.