If bilateral approaches fail, blunt-force measures may follow.
Washington persists in diplomatic efforts to get the Dutch government to rally behind the recently implemented export control regulations. According to a Bloomberg report, two senior US officials are expected to visit the Netherlands soon and ramp up the pressure to expand the moratorium on the export of chip-making gear to China.
Previously, Bloomberg reported that, ahead of a Trade and Technology Council meeting in December, US officials have been suggesting that the US and Europe pull together on China in a similar way as they’ve been doing to boycott Russia. And according to international technology policy and China expert Paul Triolo, the Biden administration wants the unilaterally enacted restrictions to become part of the Wassenaar export control regime.
While the US successfully convinced the Netherlands to withhold an export license for EUV equipment, efforts to do the same for DUV tools have so far not borne fruit. ASML has made it clear that it will continue to do business in China as long as it legally can.
Dutch Prime minister Mark Rutte opposes isolating China and wants the European Union to develop its own policies toward the country. According to one of the Bloomberg reports, the Netherlands has “expressed concerns about the impact of the US export controls, especially in the field of semiconductors.” German chancellor Olaf Scholtz, too, favors a more constructive approach toward China. He recently resisted huge pressure to block a Chinese firm from buying a stake in the Hamburg port. Germany is China’s most important trading partner; the Netherlands ranks second.
Test less, verify Moore
At the Bits&Chips Event 2023 on 12 October 2023, Phillipa Hopcroft from Crocotec and Ivo ter Horst from ASML will kick off with a keynote speech on transforming how lithography machine software is built. Make sure to keep an eye on the website for program updates and save the date!
Backlog
The US announced sweeping export regulations a month ago, banning, among other things, the sale of equipment needed to manufacture trailing or leading-edge chips (16/14nm logic, 18nm-node DRAM and 128-layer NAND and beyond) to Chinese companies. The new rules also prohibit any US person to undertake actions that would support these activities at Chinese companies.
ASML has for the time being ordered US employees to stop working with all Chinese customers, but, unlike US peers such as Applied Materials, it doesn’t expect much impact from the updated regulations. As a European company, CFO Roger Dassen said, ASML can continue to ship non-EUV tools to China, though demand from Chinese customers may cool if their access to other chip-making equipment is cut off. On the Q3 earnings call, CEO Peter Wennink said about 5 percent of ASML’s current backlog could be affected.
Powers of persuasion
The export of (immersion) DUV equipment is currently not controlled by the Wassenaar Arrangement, to which the US appealed to halt the export of EUV tools to China. Only lithography systems featuring a sub-193-nanometer light source and equipment capable of producing patterns with a minimum resolvable feature size (MRF) of 45 nanometers or less are included in the Wassenaar List of Dual-Use Goods and Technologies. According to ASML, the MRF limit of ArF immersion scanners is 50 nanometers.
For the arrangement to cover sub-16nm and equivalent advanced memories, as the US desires, it would have to be amended, either by raising the MRF or by taking multi-patterning into account. Multi-patterning enables chipmakers to image chip patterns for roughly the 20nm node and below, though it gets increasingly challenging and costly going down the nodes.
Amendments require consensus among the 42 participating states, including the Netherlands. Furthermore, the implementation of the controls is at the discretion of the members. Those who do not want to harmonize their export control lists with the Wassenaar Arrangement aren’t in violation. Nor is there an enforcement mechanism to make a government comply.
In other words, given its non-binding and voluntary nature, the Wassenaar Arrangement doesn’t seem like an effective instrument for the US to bend the Dutch government to its will. It will need to rely on powers of persuasion instead. Or coercion, if it ever comes to that.
Bow
There may be a way for Washington to bypass the Dutch government altogether. Through the so-called Foreign-Direct Product Rule (FDPR), the US has already forced non-US companies to stop supplying Chinese companies with semiconductor equipment that’s developed or manufactured using US IP or technology. ASML’s DUV offerings have so far dodged this rule because the scanners don’t contain ‘enough’ American technology for them to be subject to it. Previously, the bar for US content had been set at 25 percent or more.
According to another Bloomberg report, however, “senior US officials now say products that contain any US components or intellectual property could be subjected to Washington’s export approval process.” If the FDPR percentage is lowered enough, ASML won’t be able to escape the full force of the American geopolitical agenda anymore.