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Monday, May 20, 2024

US, Netherlands in last-stretch talks on chip export blocks to China

US, Netherlands in last-stretch talks on chip export blocks to China

Dutch officials to fall in line with US in stopping China’s rise on tech.
U.S. and Dutch officials are meeting in Washington D.C. on Friday to strike a deal that would impose new export restrictions on key Dutch microchip technology to China.

A deal is within reach, unnamed sources told media ahead of the talks. But "discussions are ongoing" and there's "not really an idea on when there will be a result," Sean Silbert, a senior adviser at the Dutch embassy in Washington DC, told POLITICO in an email.

The agreement to limit advanced technology sales to China would be a major win for Washington in its efforts to stop the rise of China as a tech superpower. It would notably stop some of the sales of advanced microchip printing equipment by Dutch giant ASML, one of the few companies in the world to produce the printers needed to manufacture high-end semiconductors.

But a deal is expected to shake up relations between The Hague and other EU capitals, as it would create a parallel export controls regime between the U.S., the Netherlands and others that challenges the EU's common posture toward China.

The talks are happening in a "technical meeting" and also involve Japan, which controls other critical parts of the chip equipment market. Discussions have been ongoing for many months and ramped up when the U.S. imposed its own export restrictions on advanced chip technology to China in October.

News of the meeting was first reported by Reuters on Thursday.

The Netherlands is a key player in the U.S. strategy to cut off microchip supplies to China. Japan has signaled before it's willing to play along with the U.S., but the Netherlands has taken a more cautious line, well aware that a block of sales to China will hurt ASML's order book and longer-term strategy.

The U.S. has spent months wooing the Netherlands over the need to take a strong political line against China, according to three officials directly involved in those discussions. Washington has enticed The Hague by inviting it to host this year’s “Summit for Democracy,” an annual event started by the White House to boost democratic values worldwide.

Dutch Prime Minister Mark Rutte last week met with U.S. President Joe Biden, where they discussed how to "quite frankly, meet the challenges of China," the U.S. leader told reporters ahead of the meeting.

The export restrictions that are being considered would target some of ASML's so-called deep ultraviolet (DUV) lithography machines. The restrictions would further tighten ASML's sales to China, after its exports of even more advanced extreme ultraviolet (EUV) machines failed to get the approval of Dutch authorities since 2019.

China represents 18 percent of ASML's order book, its Chief Financial Officer Roger Dassen said in an interview in the margins of the firm's financial results this week. But a ban wouldn't be felt immediately because the demand for its machines globally still outweighs what the company can manufacture.

Part of the discussions between the U.S. and Dutch delegations has been about the threshold to define when chip technology is advanced, and thus strategically important.

In the industry, chips with single-digit nanometers are deemed to be more advanced than those with double-digit nanometers. EUV machines are best placed to manufacture those single-digit chips, but in some cases DUV machines can be "boosted" when combined with other technology, which raises their strategic value in the tug-of-war over chip technology.

ASML's Chief Executive Officer Peter Wennink told reporters this week that he expected a deal "rather sooner than later," but that it would take "months" to clarify the details of a high-level agreement.
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