New US rule on foreign chip equipment exports to China to exempt some allies, sources say
31/07/2024 18:01
(Adds comment from Commerce Department, background on
trilateral agreement, paragraphs 4, 7, 11-18)
By Karen Freifeld
NEW YORK, July 31 (Reuters) -
President Joe Biden's 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 authorized 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 both companies surged following the news.
The rule, an expansion of what is known as the Foreign
Direct Product rule, would bar about half a dozen Chinese
semiconductor fabrication factories, or fabs, at the center of
China's most sophisticated chipmaking efforts from receiving
exports from many countries, according to one of the sources.
Places whose exports would be affected would include Israel,
Taiwan, Singapore and Malaysia.
Reuters could not determine which Chinese chip fabs would be
impacted.
"The U.S. Department of Commerce is continually assessing
the evolving threat environment and updating our export
controls, as necessary, to protect U.S. national security and
safeguard our technological ecosystem," a department
spokesperson said in a statement. "We remain committed to
working closely with our allies who share our values."
Asked about the impending export control package, Chinese
foreign ministry spokesperson Lin Jian said efforts by the U.S.
to "coerce other countries into suppressing China's
semiconductor industry" undermines global trade and hurts all
parties.
Lin added that China hopes relevant countries would
resist U.S. efforts and safeguard their long-term interests.
"Containment and suppression cannot stop China's
development, but will only enhance China's determination and
ability to develop its scientific and technological
self-reliance," he said.
Aiming to impede supercomputing and AI breakthroughs that
could benefit the Chinese military, the U.S. imposed export
controls on advanced chips and chipmaking equipment for China in
2022 and 2023, restricting shipments from California-based
companies like Nvidia NVDA.O and Lam Research LRCX.O .
But Washington recognized that export controls agreed
upon by several key countries were necessary and, last year,
reached a deal for Japan and the Netherlands to also restrict
semiconductor manufacturing tools to China. The three countries
dominate the production of advanced chipmaking equipment.
The U.S. has been trying to add more restrictions to
that agreement and also to get South Korea and Germany to join
the coalition, sources said.
The new rule, currently in draft form, shows how Washington
is seeking to keep up pressure on China's burgeoning
semiconductor industry without antagonizing allies.
"They're being cautious in using the rule because it makes
our allies very uneasy," said James Lewis, a researcher at the
Center for Strategic and International Studies in Washington.
"There's only so far you can push this without people jumping
off the ship."
"The U.S. isn't going to give up on restricting
technology to China," Lewis added. "The Europeans got a
temporary pass. (Other) countries got a temporary pass.
But the rule is "like a promise that we'll keep coming
back at this," he said.
The Foreign Direct Product rule stipulates that if a product
is made using American software or 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 a central player in advanced chip
production and development.
The rule also was used in 2022 to cut China off from certain
semiconductor chips made anywhere in the world.
As part of the latest export control package, the U.S. plans
to 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, including the fabs that would be hit by
the rule, plus toolmakers, providers of EDA (electronic design
automation) software and related companies. Suppliers for
entities on the list need to obtain licenses to ship to them,
which are likely to be denied.
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
categorizes 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."
ASML shares jumped 6.5% in morning Amsterdam trade, while
Tokyo Electron shares closed 7.4% higher. Other Japanese makers
of chip-related equipment also made strong gains with Screen
Holdings 7735.T climbing 9% and Advantest 6857.T up 4.5%.
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."
($1 = 0.9245 euros)
(Reporting by Karen Freifeld; Additional reporting by Alexandra
Alper in Washington, Sam Nussey in Tokyo, Toby Sterling in
Amsterdam and Liz Lee in Beijing; editing by Chris Sanders,
Edwina Gibbs and David Gregorio)
((karen.freifeld@thomsonreuters.com; +1(646) 223-6921;))