The US has almost convinced Japan to further limit the export of semiconductor technology to China

The United States is close to persuading Japan to reach an agreement to limit exports of semiconductor technology to China, despite concerns in Tokyo that Beijing could retaliate against Japanese companies. The new sanctions are designed to close existing loopholes that Chinese chipmakers are exploiting.

Image source: Roméo A. / unsplash.com

The White House is seeking to introduce new export controls before the presidential election in November, including a rule requiring non-U.S. companies to obtain licenses to sell products to China that could help its technology sector. U.S. presidential administration officials have been negotiating for months with their counterparts in Japan and the Netherlands to impose additional sanctions at the two-country level, which would remove Japanese and Dutch companies from the US Foreign Direct Procurement Rule (FDPR). The US and Japan are now close to a breakthrough in negotiations, although the situation, according to the Japanese side, remains “rather fragile” due to fears of retaliatory actions from China, sources told the Financial Times.

The Japanese government is concerned that China may block the export of critical materials, in particular gallium and graphite, if Tokyo accepts this document in the version proposed by the United States – Beijing has already warned the Japanese side about the possibility of such a scenario. Japan and the US discussed how to reduce the impact of China’s retaliatory measures. Washington’s new sanctions are intended to close loopholes in existing restrictions that have allowed Huawei and other Chinese companies to make strides in semiconductor manufacturing over the past two years. The US is seeking to make it more difficult for China to obtain critical tools for chip production – a move that will have the biggest impact on the Netherlands’ ASML and Japan’s Tokyo Electron. Washington wants these companies to limit after-sales support for their equipment in China, including software updates and machine maintenance, which could cause significant damage to China.

The central point of the negotiations was the agreement on the export control rules of the three countries – they will help Japanese and Dutch companies not be subject to FDPR regulations, which in the Netherlands were called a “diplomatic bomb”. Tokyo and Japanese companies are concerned that if concessions to the US prove too strong, China will retaliate by limiting exports of critical minerals. Their prices are already high, and their further increase may reduce the competitiveness of finished Japanese products. The Chinese side said it “firmly opposes the abuse of export controls” and called on “relevant countries” to comply with international economic and trade norms. “We will closely monitor developments on this front and resolutely protect the legitimate rights and interests of Chinese companies,” said Liu Pengyu, a spokesman for the Chinese Embassy in Washington.