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—Part of this EE Times series: A Vulnerable U.S. Electronics Supply Chain
Other articles in the series: Reshoring Chip Industry Risks Failure With Just More Fabs; Experts: U.S. Military Chip Supply Is Dangerously Low; U.S. Crawls Toward Rebuilding Frail PCB Industry; USA Rare Earth Aims to Break China’s Grip; GF, Lockheed Martin Pair Up to Improve National Security; 3 Governments Investing in New Fabs Pledge Cooperation; PCB Association Presses Washington for Lifeline, and Chip Experts See Talent Shortage as Main Growth Hurdle
Former U.S. officials surveyed by EE Times urge that more nations will need to establish a new alliance to control exports of semiconductor technology to China because current restrictions are losing their effectiveness.
After the U.S. implemented strong restrictions on exports of semiconductor technology to China in October last year, the Netherlands and Japan this year responded with their own rules.
In March, Japan restricted exports of 23 types of semiconductor manufacturing tools. In June, the Netherlands announced limits on exports of deep-ultraviolet (DUV) lithography equipment. The June measure adds to an existing 2019 limit on ASML’s sales of more advanced extreme-ultraviolet (EUV) equipment to China. ASML counts on China for about 15% of its annual revenue.
The effort by the U.S., Japan and the Netherlands still falls short, and over the long term, more nations will need to ally under a new multilateral regime similar to the Cold War–era alliance of the Western Bloc known as the Coordinating Committee for Multilateral Export Controls (CoCom), Kevin Wolf, a partner at global law firm Akin Gump, told EE Times. Wolf was previously a U.S. Department of Commerce assistant secretary at the Bureau of Industry and Security (BIS), which is in charge of export controls.
“With any unilateral controls, they will lose their effectiveness over time as foreign competitors come online and are not subject to the same controls,” he said. “Although the Japanese and Dutch controls will significantly enhance the effectiveness of the goal of cutting off advanced-node production in China, there are other parts of the industry involving lots of other electronics that are currently becoming ineffective and counterproductive because there are [alternative] foreign sources.”
He noted reports that the U.S. may soon adopt restrictions on China’s use of cloud services that have helped to circumvent the semiconductor controls.
That’s one gap in the current restrictions, according to Liza Tobin, a senior director at the Special Competitive Studies Project, a think tank based in Washington, D.C. Tobin was previously a China specialist in the National Security Council at the White House.
“PRC firms are actively seeking to circumvent the controls by accessing controlled GPUs via cloud providers,” Tobin told EE Times. “This is allowed under the current controls.”
Further controls expected
The possibility of stronger controls faces opposition.
America’s top chipmakers are trying to prevent new limits with a high-level visit to Washington. According to a July 22 Bloomberg report, the CEOs of Qualcomm, Nvidia and Intel recently spoke with White House officials, including U.S. National Security Advisor Jake Sullivan.
This comes as China’s chip imports plunged 22%, to $162.6 billion, in the first half of 2023 from the same period last year, according to the Hong Kong–based South China Morning Post. China has the world’s largest market for semiconductors.
The U.S. is still prepared to implement new restrictions, U.S. Treasury Secretary Janet Yellen said in a July 9 interview on the CBS News program “Face the Nation,” following her recent visit to China.
“An objective of my trip was to explain that national security is something that we can’t compromise about,” Yellen said. “We will do so even if it harms our own narrow economic interests.”
China has recently announced its own controls on the semiconductor industry by requiring export licenses for gallium and germanium, key materials for semiconductors, fiber optics and solar cells. China is the world’s largest supplier of the materials.
China is warning that it could implement more export control measures. In the state-run China Daily, Wei Jianguo, a former vice minister of commerce, said China’s latest export controls are just the beginning, warning Washington not to impose further technology limits.
The controls by the U.S., Japan and the Netherlands will eventually lose effectiveness, according to Wolf.
“Competitors will start making comparable tools to substitute from countries outside of the Netherlands, the U.S. and Japan,” he said. “There’s a constant need for evolution of controls. In the inspection and the metrology space, there are lots of really good companies in [South] Korea and Israel, for example, that could make substitutes.”
There are still more workarounds. Japanese and Dutch exporters were able to keep shipping their tools to China following the U.S. controls announced in October, Wolf added.
“That’s a significant cap on effectiveness,” he said. “Another significant cap is that the U.S. controls prohibit services by U.S. persons to keep tools running. There’s no prohibition on Japanese or Dutch or any other countries’ engineers providing services to keep tools running in Chinese fabs. In that sense, the controls are completely ineffective.”
New alliance years away
While Wolf and Tobin advocate the creation of a new alliance similar to CoCom, they said forming such a partnership is still years away.
“Many countries are concerned about retaliation from China,” said Wolf, who recently visited South Korea to promote the idea. “Most of the allies are not yet convinced and where the U.S. is on national security issues pertaining to China.”
Tobin advocates a new, plurilateral partnership that consists of smaller, more nimble frameworks oriented around specific technology sectors, like quantum computing or AI.
“The U.S.-Japan-Netherlands agreement to control certain high-end semiconductor technology is the first step toward a new regime,” she said.
CoCom was established by the Western Bloc during the Cold War to limit trade in military goods with countries that were part of the Soviet Union.
Today, the complexity of the tech industry requires more and better-qualified regulatory officials than the U.S. government currently has, Wolf said.
The various export control agencies of the government “do not have the leading experts in AI or quantum computer or semiconductor production,” he said. In testimony before Congress in May this year, he called for a “doubling of budgets for all the export control agencies to hire subject matter experts in all of these areas far beyond what we have now.”