US To Exempt Allies From Expanded China Chip Equipment Export Rules

The United States will in August deliver its expanded rules governing the export of semiconductor manufacturing equipment from some countries to Chinese chipmakers.

But according to Reuters, which cited two sources familiar with the rule, the Biden Administration will exempt some allies (including Japan, the Netherlands and South Korea) that export key chip-making equipment – thereby limiting the impact of the tougher rule.

The US exemption, if correct, will be welcome news for the likes of ASML Holding and Tokyo Electron, and it comes after American officials had in June held meetings in the Netherlands and Japan, to urge its two allies to further restrict China’s ability to produce cutting-edge semiconductors.

Foreign direct product rule

Alan Estevez, the US export policy chief, had visited both the Netherlands and Japan as part of the the US effort to expand a 2023 agreement between the three countries to keep chip-making equipment from China.

The tougher new export rules to China have been widely expected after it was reported in June that the Biden administration was considering further restrictions for China on a cutting edge AI chip architecture known as gate-all-around (or GAA), as it sought to stop Beijing’s access to advanced semiconductor tech that could be used to modernise its military.

Then in July it was reported that Biden Administration had told allied semiconductor suppliers (ASML Holding and Tokyo Electron were named) that it was considering expanding its trade restriction rule.

The United States was said to considering expanding a measure called the foreign direct product rule, or FDPR.

The FDPR was first introduced in 1959 to control the trading of US technologies.

In essence, the rule states that if a product was made using even the tiniest amount of American technology, the US government has the power to stop it from being sold – including products made in a foreign country.

Allied exemption

Now according to the Reuters report, because the US is to exempt certain allies, it means that the likes of ASML and Tokyo Electron will not be affected.

Shares in both companies surged following the news.

The US expansion of the Foreign Direct Product rule, will reportedly ban about half a dozen Chinese fabs at the centre of China’s most sophisticated chipmaking efforts from receiving exports from many countries, one of the sources told Reuters.

Countries whose exports would be affected would reportedly include Israel, Taiwan, Singapore and Malaysia.

Chinese response

A spokesperson for the U.S. Commerce Department, which oversees export controls, declined to comment to Reuters.

Asked about the impending export control package, Chinese foreign ministry spokesperson Lin Jian told Reuters that efforts by the US 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 US 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 was quoted as saying.

According to Reuters, another part of this latest export control package will also lower the amount of US content that determines when foreign items are subject to US control. The source said this 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 American technology is incorporated into it, the sources told Reuters.

The US 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.