Japan and the Netherlands Announce Plans for New Export Controls on Semiconductor Equipment

This commentary serves as an update to a CSIS report, “Clues to the U.S.-Dutch-Japanese Semiconductor Export Controls Deal Are Hiding in Plain Sight,” which outlines details of the U.S.-Japan-Netherlands arrangement following the United States’ October 7 export controls. The Netherlands and Japan have both shared critical new details since publication of that report.

On October 7, 2022, the United States’ Bureau of Industry and Security (BIS) issued sweeping new controls on exports of advanced semiconductor manufacturing equipment technology to China. At the time of the announcement, the controls were unilateral. However, U.S. allies, particularly Japan and the Netherlands, are also key producers of the equipment used to fabricate advanced node semiconductors. Therefore, the long-term success of the policy depended on the United States securing Dutch and Japanese cooperation to control the types of semiconductor equipment that U.S. companies do not produce and to prevent Dutch and Japanese companies from backfilling the technologies that the United States is no longer willing to sell to China. In January 2023, the United States, the Netherlands, and Japan reportedly reached a deal establishing advanced semiconductor equipment export controls. Two months later, Dutch and Japanese governments announced their intention to proceed with new export controls on a diverse suite of semiconductor technology that will cover China. In a decision likely intended to reduce the likelihood of Chinese retaliation, neither country explicitly named China as the target of the export controls, nor did they indicate that their actions were related to an agreement with the United States. This commentary summarizes and analyzes the recent Dutch and Japanese moves and China’s reaction so far.

The Dutch System

The legal contours of export control regimes in the Netherlands and Japan differ significantly from the U.S. export control system, which has complicated the implementation of the deal. In the European Union, export controls are tied to the Wassenaar Arrangement, a 42-member multilateral export control regime that governs international transfers of weapons and dual-use items. The United States Commerce Control List (CCL) broadly aligns with the Wassenaar list. However, the United States maintains broad unilateral authorities under the 2018 Export Control Reform Act (ECRA), which, among other broad executive authorities, allows the U.S. Department of Commerce to impose controls on items not covered under the Wassenaar list and using a broader set of legal justifications.

By contrast, the EU system makes it more difficult, though not impossible, for EU member countries to pursue controls on items not included on those lists. Under the European Union’s dual-use export control regulations, EU member states maintain the authority to execute national security policies, which include investment screening and export controls. Thus, member states can adopt export control restrictions beyond the Wassenaar controlled items list.

Article 4 of the EU Dual-Use Regulation includes a catchall provision that permits member states to implement controls they deem critical to preventing the proliferation of weapons of mass destruction. Another catch all is Article 9, which permits member states to impose controls not otherwise listed “for reasons of public security, including the prevention of acts of terrorism, or for human rights considerations.” Article 9 further stipulates that the member state shall notify the European Commission upon reaching a decision to implement non-Wassenaar controls based upon Article 9 authorities. No such EU notification requirement exists when a member country invokes Article 4.

On March 8, 2023, Dutch trade minister Liesje Schreinemacher announced new export controls on semiconductor technology in a letter to parliament. This announcement, which notifies the parliament of additional controls on Deep Ultraviolet (DUV) lithography systems, did not refer to the United States, Japan, or China. The policy identified three strategic goals as part of the new Dutch framework of export controls of semiconductor technology:

1. preventing Dutch goods from contributing to undesirable end use, such as military deployment or in weapons of mass destruction;
2. preventing unwanted long-term strategic dependencies; and
3. maintaining Dutch technological leadership.

The new framework is a noteworthy expansion of dual-use export controls justifications beyond those specifically in allowed under the Wassenaar Arrangement, which tends to focus on technologies that contravene non-proliferation objectives. The first justification used by the Dutch government is consistent with both the Wassenaar Arrangement and with EU Article 4 authorities. However, the letter also explicitly references Articles 9 and 10 of the EU rules, using “human rights” and “public security” justifications. The second and third justifications provided in the Dutch letter appear to be based upon this public security related authority from Article 9. The Netherlands has since notified the European Commission’s Directorate General for Trade of the additional controls, signaling a desire to incorporate the new controls into EU-wide export control regulations, despite their origin at the member state level.

The Japanese System

In March 2023, Japan announced that starting July 2023, it will implement controls on 23 types of advanced semiconductor manufacturing equipment, including advanced crystal epitaxial growth equipment, photomask coating equipment, deposition equipment, etching equipment, heat treatment equipment, cleaning equipment, photomask inspection equipment, and lithography stepper and scanner equipment consistent with the Argon Flouride (ArF) DUV performance level or better. Though these controls directly relate to the products of major Japanese companies such as Nikon, Tokyo Electron, Screen Holdings and Advantest, Trade Minister Yasutoshi Nishimura has argued that they will have limited impact on domestic earnings.

These restrictions align with the U.S. controls, but Japan, similar to the Netherlands, did not explicitly reference China in its announcement about the controls. At a press conference, Nishimura stated that Japan does “not have one particular country in mind with these measures.” To avoid singling China out, the controls apply regardless of destination. This appears to institute a broader regime—at least in terms of geographic export license requirements—than that of the United States.

Under the Japanese system, the national promulgation of controls is largely tied to the Wassenaar Arrangement, although their system provides the government with the authority to implement controls that are not purely multilateral. Japan has generally justified these export controls by invoking Article 1 of its Foreign Exchange and Foreign Trade Law, which aims “to enable proper expansion of foreign transactions and the maintenance of peace and security in Japan and in the international community.” The broad nature of this justification has allowed Japan to avoid declaring a geographic target of its controls.

Days after this announcement, Japanese foreign minister Yoshimasa Hayashi visited Beijing to meet with his Chinese counterpart, Qin Gang. In an official summary of the meeting that that was published on the Chinese foreign ministry website, Qin outlined China’s position to Hayashi:

Chinese Responses

In response to the allied controls, China has thus far followed an approach it has pursued previously—not replicating foreign controls, but instead opting for policies that are relatively low cost and high-yield. These include, for example, refusing to approve mergers of U.S. semiconductor companies on antitrust grounds and initiating a cybersecurity review of U.S. memory chip producer Micron.

China has also requested World Trade Organization (WTO) dispute consultations with the United States over the export controls, arguing that they are inconsistent with multilateral trade rules. China states in its request that “the measures at issue are motivated by political considerations for preserving the United States’ edge in technology sectors, and constitute discriminatory and disguised trade restrictions.” In an April 2023 meeting of the WTO’s Council for Trade in Goods, Chinese government officials encouraged closer monitoring of the trilateral arrangement and encouraged the three countries to formally notify the WTO of their plans.

In addition to pursuing a WTO dispute, Chinese officials have used strong rhetoric and even explicit threats to express their opposition to the export controls. Following the January controls, China’s government accused the United States of pursuing “technology hegemony.” In response to the Dutch announcement, China issued a formal complaint asking that they do “not follow the abuse of export control measures by certain countries.” Additionally, Chinese foreign ministry spokesperson Mao Ning has threatened to retaliate against the both Japan and the Netherlands. Regarding the latter, in 20 March interview with a Dutch newspaper, Tan Jian, China’s ambassador to the Netherlands said, “This will not be without consequences. I'm not going to speculate on countermeasures, but China won't just swallow this.”

Reportedly, China is also considering new export restrictions on the technology used to process rare-earth elements. China currently dominates the global market for both mining and refining rare earths, responsible for 52 percent and 85 percent of global production in 2021, respectively. Due to their unique magnetic and conductive properties, rare earths are irreplaceable inputs for a broad range of electronic technologies, and China has a history of restricting exports of rare earth elements as a tool of foreign policy.

Promotion Mechanisms

The Japanese approach to economic security views protection and promotion as equally important in ensuring technology leadership. In tandem with the controls, Japan’s trade minister pledged that the government with increase its financial support for the quasi-public Rapidus Corporation’s development of advanced semiconductor production.

A major outstanding question is to what degree the allied governments will need to cooperatively increase their support for their deeply interlinked chip industries. U.S. firm IBM is a major partner of Rapidus, the U.S. CHIPS and Science Act, includes mechanism for foreign-owned companies to be awarded U.S. subsidies.

The European Union is also pursuing its own incentives package via the European Chips Act, which aims to “reinforce the semiconductor ecosystem in the EU, ensure the resilience of supply chains and reduce external dependencies.” It is possible that this $47 billion plan could be passed as soon as this month. This would effectively provide the European bloc with an opportunity to deepen international collaboration on securing semiconductor supply chains. After reaching an agreement on advanced semiconductor export controls, a logical next step for like-minded, technologically advanced democracies is to cooperate closely on plans for next-generation technology investment.

Conclusion

The decisions by Japan and the Netherlands to join the United States in adopting new semiconductor export controls make clear that the global semiconductor market has entered a new era in which geopolitical and national security concerns will begin to weigh as much as market forces. China, for its part, has long put national security goals above those of market efficiency. The United States and its allies need to be prepared for expanded Chinese retaliation, which at this point is already underway.

Gregory C. Allen is director of the Wadhwani Center for AI and Advanced Technologies and senior fellow with the Strategic Technologies Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Emily Benson is director of the Project on Trade and Technology and senior fellow with the Scholl Chair in International Business at CSIS. Margot Putnam is an intern with the Scholl Chair in International Business at CSIS.

The authors would like to thank Hideki Tomoshige, research associate with the CSIS Renewing American Innovation project, for his contribution to this commentary.