JANEUS treaty- China chip making under attack

[Josquius]

https://www.reuters.com/technology/us-official-acknowledges-japan-netherlands-deal-curb-chipmaking-exports-china-2023-02-01/

U.S. official acknowledges Japan, Netherlands deal to curb chipmaking exports to China
WASHINGTON, Jan 31 (Reuters) - An American official on Tuesday made the most direct comments by a U.S. authority to date acknowledging the existence of a deal with Japan and the Netherlands for those countries to impose new restrictions on exports of chipmaking tools to China.

"We can't talk about the deal right now," Deputy Commerce Department Secretary Don Graves said on the sidelines of an event in Washington. "But you can certainly talk to our friends in Japan and the Netherlands."

Bloomberg reported on Friday an agreement had been finalized and two people familiar with the matter later confirmed the news to Reuters.

The United States in October imposed sweeping export restrictions on shipments of chipmaking tools to China, seeking to hobble Beijing's ability to supercharge its chip industry and enhance its military capabilities.

For the restrictions to be effective, though, Washington needed to bring on board the Netherlands and Japan, home to chipmaking powerhouses ASML (ASML.AS) and Tokyo Electron (8035.T), among others.

The Commerce Department said in an email it will continue to coordinate on export controls with allies.

"We recognize that multilateral controls are more effective than unilateral controls, and foreign engagement on these controls is a ... priority," the agency said.

Officials from the Netherlands and Japan were in Washington discussing a wide range of issues in talks led by White House national security adviser Jake Sullivan on Friday.

When asked on Friday if an agreement on semiconductors had been discussed, U.S. President Joe Biden said: "Yes, we talked about a lot of things, but a lot of it is private."

https://www.politico.eu/article/netherlands-impose-restrictions-chips-export-to-china-asml/

The Dutch government confirmed for the first time Wednesday it will impose new export controls on microchips manufacturing equipment, bowing to U.S. pressure to block the sale of some of its prized chips printing machines to China.

The U.S. and the Netherlands reached an agreement to introduce new export restrictions on advanced chip technology to China at the end of January, but until now, the Dutch government hadn't commented publicly on it. The deal, which also included Japan, involves the only three countries that are home to manufacturers of advanced machines to print microchips. It is a U.S.-led initiative to choke off the supply of cutting-edge chips to China.

"Given the technological developments and geopolitical context, the government has concluded that it is necessary for the (inter)national security to expand the existing export controls on specific manufacturing equipment for semiconductors," Foreign Trade Minister Liesje Schreinemacher wrote in a letter to Dutch lawmakers published Wednesday evening.

The Dutch government wants to prevent Dutch technology from being used in military systems or weapons of mass destruction, Schreinemacher wrote — echoing the U.S. reasoning when it imposed its own export controls in October. The Netherlands also wants to avoid losing its pole position in producing cutting-edge chip manufacturing tools: Schreinemacher said the government wants to uphold "Dutch technological leadership."

While China is not explicitly named in Schreinemacher's letter, the new policy is targeted at Chinese efforts to overtake the U.S. and others like Taiwan, South Korea, Japan and leading European countries in the global microchips supply chain.

The new export restrictions deal a blow to ASML, the global leader in producing advanced microchips printing machines based in Veldhoven, in southern Netherlands.

In the letter, Schreinemacher said the new export control measures include the most advanced deep ultraviolet (DUV) machines, which are part of ASML's advanced chips printers portfolio. The Dutch firm, which is the highest-valued tech company in Europe, already did not receive export licenses for selling its most advanced machines using extreme ultraviolet light (EUV) technology to China since 2019.

ASML in a statement confirmed it will now "need to apply for export licenses for shipment of the most advanced immersion DUV systems," but it noted it has not yet received more details about what "most advanced" means.

The company's financial outlook for 2023 has not changed. China accounts for 18 percent of the company's order book, its Chief Financial Officer Roger Dassen told POLITICO at the end of January.

The Dutch government said they will push to have new export controls included in the context of the so-called Wassenaar Arrangement next, a multilateral body where 42 participating countries agree on export controls for conventional arms and dual-use goods, which can have both civil and military applications.

Russia, however, is still a member of Wassenaar and The Netherlands acknowledged Moscow can block the proposal. For that reason, the Dutch government said it will also establish its own national export control list, which can be copied by other EU members. That list should be ready before the summer.

There's not much reporting about this, but its quite a big deal.
I've even heard some mutterings that ASMLs breakthroughts in chip making put them a decade ahead of their competitors and by denying China access to this stuff they're being trapped a generation behind. Which has interesting ramifications.

I get why AUKUS is the one getting all the attention. Big flashy military build ups are more 'obvious' examples of powers vying for dominance. But this really does seem to have far more of a potential to change the world. Quite the success for Biden.

[Sheilbh]

There's not much reporting about this, but its quite a big deal.
I've even heard some mutterings that ASMLs breakthroughts in chip making put them a decade ahead of their competitors and by denying China access to this stuff they're being trapped a generation behind. Which has interesting ramifications.

I've also read there's an internal Chinese angle on this where there's been a big clamp down on the chips companies because a lot of them appear to have pretty wildly overegged how developed/far ahead they are. That means China was blowing its trumpet about this in a way that means it sounds like this competition is coming a little bit sooner than China would like given the stage of development those companies are actually in.

Which is possibly the perennial risk of (particularly Communist) dictatorships.

I get why AUKUS is the one getting all the attention. Big flashy military build ups are more 'obvious' examples of powers vying for dominance. But this really does seem to have far more of a potential to change the world. Quite the success for Biden.

Yes - although basically very linked and similar in that continental v oceanic way. The US is able to use its trade power which is closely tied to naval power to try to cut China out of the next generation of technology - the next step will be to actively help build up alternatives (though on that America's going it alone a bit).

[Josquius]

There's not much reporting about this, but its quite a big deal.
I've even heard some mutterings that ASMLs breakthroughts in chip making put them a decade ahead of their competitors and by denying China access to this stuff they're being trapped a generation behind. Which has interesting ramifications.

I've also read there's an internal Chinese angle on this where there's been a big clamp down on the chips companies because a lot of them appear to have pretty wildly overegged how developed/far ahead they are. That means China was blowing its trumpet about this in a way that means it sounds like this competition is coming a little bit sooner than China would like given the stage of development those companies are actually in.

Which is possibly the perennial risk of (particularly Communist) dictatorships.

For sure.
When I say ASML are a decade ahead of their competitors I largely don't mean Chinese companies here, I'm thinking of companies in friendly nations. I even saw one guy on YouTube suggesting, with a small degree of seriousness, this could propel the Netherlands up to being a new "superpower" of sorts. Which I quite like the alternate worldy vibes of even if it doesn't seem likely.
Chinese companies will be far further behind, with much of what they do have being purely down to copying foreign imports.

[Sheilbh]

Yeah although - I can't remember where I saw it and it was by a British journalist so about the Newport chips company - there was a really good piece that broke down the different types of chips and actually we use "chips" as a cover all but there's loads of different types.

So the Netherlands is already a superpower in the types of chips it produces which, from what I remember, are absolutely the cutting edge, most innovative ones. China and I think Taiwan had an advantage in the workhorse chips that you need everywhere. I seem to remember the Newport company specialises in actually very big, not particularly sophisticated chips that are key in some big industrial/power (I have no idea!) contexts.

So it is interesting that this will also just potentially block China out from reverse engineering the other types of chips they need etc. But I agree it seems very positive.

[The Minsky Moment]

ASML builds the machines that are used to fabricate the chips, not the chips themselves.  They are the leader in the super duper ultra violet lithography machines (that is not the technical name . . .) 

Taiwan's TMSC is the world's leading chip manufacturer, and they are at the cutting edge, technological frontier.   But they do rely on the lithography machines and the high precision lasers for their process, and those are principally manufactured in Europe.

[Jacob]

That's non-trivial

[Sheilbh]

Interesting reporting on the Dutch angle:

How the Dutch turned on Chinese tech
As China shoots for tech supremacy, the Netherlands sides with U.S. to push back.
By Pieter Haeck
March 9, 2023 4:17 pm CET

"I can't see how this will be the century of China."

In a recent op-ed, Dutch Prime Minister Mark Rutte made no secret that, in the new global order of dueling blocs, he had chosen Washington's side — not that of Beijing. The Netherlands, the rich European country he's led for over a decade, has closely mirrored the U.S. and turned increasingly hawkish against China, especially in the race for tech supremacy.

In the past months, the Dutch have overhauled their ties with China in a number of areas involving sensitive technology. The biggest shift came Wednesday, when, in a bombshell announcement, the government said it would impose new export controls on China on advanced microchips technology sold by Dutch tech champion ASML. The Dutch decision implements a political deal struck in January with the U.S. and Japan to choke off the supply of cutting-edge chips to China.

The move prompted the European Union's trade chief Valdis Dombrovskis to try and close ranks on Thursday, pitching a more unified EU approach on export controls, urging "a stronger EU role to ensure coherence in our policies on security, trade and technology."

In November the Dutch government recommended staff not to use the Chinese-owned video-sharing application TikTok for government work, an early sign of trouble for the social media firm that came months before European Union officials imposed bans on TikTok on work phones in February.

And in December, the government signaled it could go after a takeover of a Dutch chips firm called Nowi by Nexperia, owned by Chinese tech firm Wingtech, as a test case for a new Dutch law seeking to block unwanted foreign or domestic ownership of strategic assets.

The changed stance toward China is no less than a paradigm shift for the country once known as one of the — if not the — most ardent European defender of global free trade.

It also puts The Hague in good favor with Washington, where President Joe Biden received Rutte in January. The Netherlands is also one of five co-host countries of a U.S.-led Summit for Democracy later this month, a platform launched by the Biden administration to defend democratic values at the international level.

Dutch officials are keen to stress they're calling their own shots on how to handle China. "This decision was really a unilateral decision. It was not a tit-for-tat-deal," Dutch Foreign Trade Minister Liesje Schreinemacher told reporters Thursday. But, she added, "our prime minister was in Washington not too long ago. There they [Biden and Rutte] have also emphasized the strong connections as trading partners."

Behind The Netherlands' pivot on Chinese tech is a fear that it risks losing its technological edge if it doesn't protect intellectual property and innovation leadership better.

"It is of importance that this leadership, technologically, remains in the West," PM Rutte told Dutch television of restricting exports to China after he met with Biden.

IP protectionism

Wednesday's announcement to stop exports of advanced chips technology so far marks the sharpest turn against Beijing by The Hague.

ASML, based in Veldhoven in the south of The Netherlands, manufactures lithography machines to print patterns on silicon, a procedure that is key for the mass manufacturing of chips that fuel booming tech industries like smartphones and consumer goods but also 5G, automotive technology and other critical products.

It is Europe's highest-valued tech company, and the only company in the world to produce machines that use extreme ultraviolet lithography technology (EUV). For these machines, it has already failed to receive export licenses since 2019 to sell these printers to China.

The new restrictions now target an advanced class of printers by ASML that use the (slightly lower-grade) deep ultraviolet lithography technology (DUV), tech used by the Dutch firm and just a few competitors in the U.S. and Japan.

The tech mastered by the Dutch is crucial in the U.S.'s strategy to choke off Chinese capacity to build advanced chips. Washington imposed export restrictions on chips-printing equipment to China for its own companies in October but had to make sure that other sources of supply were cut off as well.

"We have the industry that China also expresses interest in," said Maaike Okano-Heijmans, a senior research fellow at the Clingendael Institute. "We bump into China fairly quick, much sooner than other EU states."

Some of that collision has turned ugly. Data on ASML's proprietary technology leaked via "a (now) former employee in China," the company said in February, adding the leak "may have violated" export control rules. It echoed a similar incident ASML reported in 2019 that it had been the victim of intellectual property theft by employees in countries including China.

These incidents match warnings by Dutch intelligence services in the past years. "China in particular is trying to acquire technological and other scientific knowledge. Mostly through digital attacks but also through students and scientists studying or doing research at Dutch knowledge institutes," the General Intelligence and Security Service (AIVD) said in its most recent annual report.

"The Netherlands was always a free-trade country par excellence, and still attaches a lot of value to that, but not at any cost, and not at the cost of national security," said Roos Elemans, senior associate at law firm Stibbe's Amsterdam office.

Foreign investment screening

Its critical role in some of the world's most advanced technologies, coupled with its fears and traumas of challenged leadership, means The Netherlands has bought into the U.S. strategy to stop the rise of Chinese tech.

"One and a half year ago, someone from the economy ministry said: we are in the midst of a paradigm shift," Okano-Heijmans says about the government's thinking about China.

The country is now also rolling out plans to enhance the screening of investments, mergers and acquisitions. A new law poised to enter into force by the summer would give Dutch officials new powers to scrutinize when there's a change of ownership at companies involved in "sensitive technology" like semiconductors, quantum computing or photonics.

Already the government has a takeover linked to China in its crosshairs. In November, microchips maker Nexperia, which is owned by Chinese tech firm Wingtech, announced it would acquire the small Delft-based startup Nowi. But at the end of December, Economy Minister Micky Adriaansens warned that she could still call in the acquisition for a national security check.

While its microchips technology is in the spotlight today, The Netherlands can expect future rounds of geopolitical tussling over technology to affect it as well, experts flagged.

"On the U.S. list of export controls, there's also photonics, quantum and supercomputing," Okano-Heijmans said. "The Netherlands is a big player in these areas too, with only a limited amount of countries globally."

Stuart Lau contributed reporting.

This article was updated to include new developments.