US and Japan near deal to restrict tech exports to China
- In Reports
- 09:19 PM, Sep 17, 2024
- Myind Staff
On Tuesday, the United States and Japan closed in on an agreement to restrict technology exports to China’s semiconductor industry. This development comes amid concerns in Tokyo about potential retaliation from Beijing against Japanese companies.
Japan is set to implement more stringent restrictions on the export of chipmaking technologies to China, following increasing pressure from the United States. The US has been urging its allies, including the Netherlands and Japan, to mandate licenses for their companies selling chip technology to China. Additionally, the US is pushing for limitations on the servicing and maintenance of existing equipment, which could ultimately render billions of dollars’ worth of chipmaking machines obsolete.
Earlier this month, the Dutch government imposed similar restrictions on ASML, its leading chip tools manufacturer, resulting in “significant production challenges” for Chinese semiconductor companies. Japan finds itself in a difficult position regarding chip technology exports, caught between the potential for retaliation from both China and the United States.
Beijing has previously cautioned Japan about potential retaliation if Tokyo expands its restrictions on chip technology. Japanese companies are concerned that China might respond by blocking essential minerals such as gallium and graphite, which are crucial for Japan’s semiconductor and electric vehicle industries.
A decline in the Chinese market could significantly impact Tokyo Electron, Japan’s largest semiconductor company, which derived nearly half of its revenue from China in the second quarter. Conversely, if Japan refrains from imposing export restrictions on chip technology, it risks facing the consequences of Washington’s “foreign direct product rule,” which the Financial Times has termed a “diplomatic bomb.”
First introduced in 1959, the Foreign Direct Product Rule (FDPR) stipulates that if a product incorporates American technology, the US government can prevent its sale. This rule applies not only to products manufactured domestically but also to those produced abroad, as nearly all chip factories use essential tools from US suppliers.
Negotiators involved in the US-Japan talks informed the Financial Times that the Biden Administration is urgently working to finalise an agreement with Tokyo before the upcoming presidential election in November. With only six weeks remaining, the Biden administration is under significant time pressure and is prepared to compromise on dialogue for a potential “eleventh-hour win,” according to one source familiar with the negotiations.
The source described Washington’s strategy as “straight strong-arming.” Another insider revealed that Commerce Secretary Gina Raimondo and US Ambassador to Japan Rahm Emanuel have been leading the negotiations with Tokyo. The approach, according to the source, involves a “bad cop, very bad cop” tactic.
Meanwhile, a Japanese official informed that Tokyo is finding it increasingly difficult to discern the Biden administration’s “intentions” as the election approaches.
Tokyo is “irritated” by the increasing US pressure, especially given that the Biden administration is working to block Nippon Steel’s acquisition of US Steel. Washington has cited “national security concerns” over the takeover, despite warnings that blocking the deal could jeopardise thousands of jobs and strain relations with its “staunch ally,” Japan.
Frustrations over rising US pressure to restrict the flow of chips and chipmaking technologies to China are not confined to Japan. Earlier this month, ASML Chief Christophe Fouquet criticised Washington’s chip war against China as “economically motivated,” arguing that it is increasingly difficult to justify the measures as a matter of national security.
ASML, Europe’s most valuable tech company, has previously stated that it faces significant business risks due to the expanding chip curbs, with nearly half of its revenue this year coming from China. Additionally, US officials are urging South Korea to impose restrictions on its chipmakers regarding the sale of advanced memory chips to China.
Image source: Reuters
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