On 9 March 2023, the Dutch government published details of how it will implement the new restrictions. In this article, we consider the background to the new Dutch export controls, how the Netherlands is expected to implement the restrictions, and the broader impact on EU policy-making going forward.
The Biden Administration’s diplomatic efforts pay off
On 7 October 2022, the Biden Administration introduced new measures to restrict exports and re-exports of certain advanced computer semiconductor chips and other semiconductor manufacturing items to China (the 2022 US Controls), which are used in the manufacture of a wide variety of products. U.S. and non-U.S. companies exporting covered chips to China must now obtain an export license which the U.S. Department of Commerce will review with a “presumption of denial”. While exports to non-Chinese companies operating in China will be reviewed on a “case-by-case basis”, these measures restrict substantially the export and re-export of certain equipment. Items covered by the 2022 US Controls include:
- high-performance integrated circuits (ICs);
- computers, electronic assemblies, and components that contain such ICs; and
- software associated with computers, electronic assemblies, and components that contain such ICs.
The 2022 US Controls also create new controlled product categories for certain advanced semiconductor manufacturing equipment (e.g. various types of semiconductor manufacturing deposition equipment), and imposes a new licensing requirement for any U.S.-origin item or item subject to U.S. jurisdiction where the exporter, re-exporter, or transferor knows or has reason to know the item is for “development” or “production” of ICs at semiconductor fabrication facilities in China.
The success of the U.S.’s measures depended, however, on the co-operation of the other major global chip manufacturing countries, particularly Japan and the Netherlands. Taiwan has already pledged to support the U.S.’s regulations. This is because the Netherlands and Japan dominate the production of advanced lithography equipment, which is necessary for the mass production of advanced chips, and their companies could have invested to fill the gap created by the 2022 US Controls. Consequently, while the U.S.'s measures could have had a decade-long impact on the Chinese semiconductor industry, assistance from the Netherlands and Japan may have helped China recover within a couple of years.
The Netherlands’ trade minister, Liesje Schreinemacher, outlined the new measures in a letter to the Dutch Parliament on 8 March 2023. Dutch companies will now have to apply for licenses to export certain technologies and products outside of the EU. The proposed restrictions target advanced systems which make some of the most powerful chips, including lithography tools made by Dutch company ASML.
Reportedly, the UK government is also supportive of the Biden Administration’s efforts with UK company Arm having pre-emptively stopped exports of certain advanced chips to China in anticipation of the UK government not approving any license applications to do so.
How will the measures be implemented?
The Wassenaar Arrangement is a main source for goods targeted by multilateral export controls, and is reflected in Regulation (EU) 2021/821 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items (the Dual-Use Regulation). However, amendments to the goods restricted by the Wassenaar Arrangement are made by consensus among the participating States. Russia, who is a member, will likely veto any changes to the list that will affect China. Consequently, Schreinemacher has announced that the measures will take the form of a new Dutch “national control list”.
The new Dutch list is expected to contain a “surgically precise” list of goods subject to additional export controls in order to target very specific products. Indeed, it is not expected that all semiconductor products will be subject to these additional requirements: only “the most advanced” technologies will be targeted, including some deep ultraviolet machines. The list of the targeted goods will be made public in June when it is expected that these export controls will enter into force and, under the terms of the Dual-Use Regulation, the Dutch control list paves the way for the restrictions to be imposed across the EU Member States.
In approaching the new restrictions, the Dutch government has set out three strategic goals with (inter-)national security as its starting point, namely:
- preventing Dutch goods from contributing to unwanted end-uses, such as military uses;
- preventing unwanted long-term strategic dependencies; and
- maintaining Dutch technological leadership.
The Dutch government will assess any license application on a case-by-case basis against these three strategic goals. The government’s risk analysis will take into account, among other things, the characteristics of the product to be exported, the potential application of the product, the end-user and the country of destination. Although the Dutch government has not indicated publicly that it will review any license applications with a “presumption of denial”, it is expected that the Dutch government will not issue licenses for export of the targeted products to China.
The broader context
Currently, the European Union lacks a common approach to export controls and, as such, a push for alignment across the EU Member States is now expected. Indeed, the European Commission’s chief trade official, Valdis Dombrovskis, has announced in parallel with the delivery of Schreinemacher’s letter, that the Commission is “ready to work with member states to develop an EU approach on export controls”. This would help reduce the threat of any retaliation from China, especially as China has already launched a diplomatic protest against the Netherlands. Any pan-European alignment would also strengthen the impact of the measures on China’s economy, especially as Germany produces a number of key inputs into the semiconductor supply chain.
The U.S.-, Japanese- and Dutch-enhanced export controls are set against the backdrop of many Western countries utilising their national security-related investment controls to prevent Chinese acquirers purchasing companies operating in the semiconductor industry (see our article here), as countries seek to deploy multiple policy levers in response to what they perceive as Chinese assertiveness.
We can now expect that American diplomatic efforts will focus on other countries active in the semiconductor industry such as South Korea, as it is a major producer of chips and related manufacturing equipment.
Should you have any questions on the matters discussed in this article, please contact Matthew Townsend, Kuang Chiang, Jasper Strijder, Patrick Ploeger or your usual contact at Allen & Overy LLP.
