New US rule on foreign chip equipment exports to China to exempt some allies, sources say
31/07/2024 07:34
(Adds share reaction for Japanese chip gear makers in paragraph
4)
By Karen Freifeld
NEW YORK, July 31 (Reuters) - The Biden administration
plans to unveil a new rule next month that will expand U.S.
powers to stop exports of semiconductor manufacturing equipment
from some foreign countries to Chinese chipmakers, two sources
familiar with the rule said.
But shipments from allies that export key chipmaking
equipment - including Japan, the Netherlands and South Korea -
will be excluded, limiting the impact of the rule, said the
sources who were not authorised to speak to media and declined
to be identified.
As such, major chip equipment manufacturers such as ASML
ASML.AS and Tokyo Electron 8035.T will not be affected.
Shares in Tokyo Electron ended the day 7% higher following
the news. Other Japanese makers of chip-related equipment also
made strong gains with Screen Holdings 7735.T surging 9% and
Advantest 6857.T up 4.5%.
The rule, an expansion of what is known as the Foreign
Direct Product rule, would bar about half a dozen Chinese fabs
at the center of China's most sophisticated chipmaking efforts
from receiving exports from many countries, according to one of
the sources.
Countries whose exports would be affected would include
Israel, Taiwan, Singapore and Malaysia.
Reuters could not determine which Chinese chip fabs would be
impacted.
A spokesperson for the U.S. Commerce Department, which
oversees export controls, declined to comment.
Aiming to impede supercomputing and AI breakthroughs that
could benefit the Chinese military, the U.S. imposed export
controls on chips and chipmaking equipment for China in 2022 and
2023.
The new rule, currently in draft form, shows how Washington
is seeking to keep up the pressure on China's burgeoning
semiconductor industry but without antagonizing allies.
The Foreign Direct Product rule stipulates that if a product
is made using American technology, the U.S. government has the
power to stop it from being sold - including products made in a
foreign country.
The rule has been used for several years to keep chips made
abroad from Chinese tech giant Huawei HWT.UL , which
re-invented itself after it struggled with the U.S.
restrictions, and is now at the center of China's advanced chip
production and development.
Another part of this latest export control package will
lower the amount of U.S. content that determines when foreign
items are subject to U.S. control, sources said, adding that it
closes a loophole in the Foreign Direct Product rule.
Equipment, for example, could be designated as falling under
export controls simply because a chip containing U.S. technology
is incorporated into it, they said.
The U.S. also plans to add about 120 Chinese entities to its
restricted trade list which will include a half dozen chipmaking
factories known as fabs, plus toolmakers, providers of EDA
(electronic design automation) software and related companies.
The planned new rule is only in draft form and could change,
but the aim is to publish it in some form next month, the
sources said.
Aside from Japan, the Netherlands and South Korea, the draft
rule exempts over 30 other countries which are part of the same
A:5 group.
The Commerce Department says on its website that it
categorises countries "based on factors like diplomatic
relationships and security concerns. These classifications help
determine licensing requirements and simplify export control
regulations, ensuring lawful and secure international trade."
The planned exemptions are a sign the U.S. needs to be
diplomatic when implementing restrictions.
"Effective export controls rely on multilateral buy-in,"
said a separate U.S. official who declined to be identified. "We
continually work with like-minded countries to achieve our
shared national security objectives."
(Reporting by Karen Freifeld; Additional reporting by Alexandra
Alper in Washington and Sam Nussey in Tokyo; Editing by Chris
Sanders and Edwina Gibbs)
((karen.freifeld@thomsonreuters.com; +1(646) 223-6921;))