April 18, 2024

As Japan aligns with US chipping away at China, some in Tokyo feel uneasy

TOKYO/NEW YORK, July 24 (Reuters) – Some officials in Tokyo worry that a combative U.S. approach could hinder coordination and provoke Beijing to impose Japanese export controls on chip-making tools to align with U.S. policy that restricts China’s ability to produce advanced semiconductors.

As of this week, Japan is restricting 23 types of equipment, from machines that deposit films on silicon wafers to devices that emit microscopic chip circuits that could have military uses.

But, while the US referenced China 20 times in its October announcement targeting Chinese companies, Japan has opted for broad equipment controls that are no longer specifically aimed at its larger neighbor.

“We feel odd discomfort with how the United States is doing this. There is no need to recognize the country, but you need to do only control the item,” said a Japanese industry ministry official Reuters. Japan cannot impose sanctions on countries if they are not involved in a conflict, the source added.

Japan’s trade and industry minister told reporters when he announced Japan’s move in March that China was just one of 160 countries and regions that would be subject to controls and that Japan did not intend to follow US rules.

However, China warned Japan to back off.

Tokyo and Washington share concerns about China’s push for advanced technologies and in May agreed with other Group of Seven industrial democracies to “de-risk” China’s potential economic coercion.

However, differences in chip-making equipment controls could test that unity, and it should have a competitive advantage over the other by allowing exports to block the other.

“Each country is responsible for its own licensing policies, and on top of that it’s up to each country to enforce the licensing decisions it makes,” said Emily Benson, director of the trade and technology project at the bipartisan nonprofit Center for Strategic and International Studies in Washington.

Japan is not applying the US standard of presumption of denial and will allow exports where possible, a second Japanese government official said. Japanese government sources asked to remain anonymous due to the sensitivity of the issue.

There could also be underlying tensions because unlike Japan and the Netherlands, which will implement controls from September, the United States is not placing restrictions on specific tools.

“US rules restrict some items and services that others don’t,” said Washington trade lawyer Kevin Wolf.

Reuters contacted six chip tool makers in Japan. Two of them, deposit machinery maker Kokusai Electric and leading Japanese chip tool maker Tokyo Electron ( 8035.T ), said they expect the Japanese rulings to have limited business impact.

Chip tester company Advantest Corp ( 6857.T ) said none of its products are affected.

Lithography machine makers Nikon Corp (7731.T) and Canon Inc (7751.T), and wafer cleaning manufacturer Screen Holdings (7735.T) did not respond.

COORDINATION

Linking Japanese controls with US and Dutch controls will require close coordination.

“The issue with all of these things is, what can you safely allow and what do you need to block. Everyone draws the line a little differently,” said Jim Lewis, a former US Department of State and Commerce official and researcher at the Center for Strategic and International Studies (CSIS). He met with Japanese trade officials and believes that Tokyo is committed to restricting certain exports.

Tokyo, Amsterdam and Washington have all indicated they would like to add chip tools to the list of weapons, dual-use items and technologies controlled by the 42 nations involved in the Wassenaar Arrangement established after the Cold War.

However, they are unlikely to get the unanimous support they need from their members.

“The Wassenaar arrangement is next to hopeless because Russia is a member,” said Lewis. “You’re never going to start getting universal agreement. So, pick the guys who care and ask them to work together.”

The other option is to form a closer group with the United States and the Netherlands to oversee chip manufacturing tools that could eventually include other countries, Japan’s first industry ministry official said.

The US Department of Commerce and the Dutch government declined to comment. The White House did not respond to a request for comment.

WIDER RESTRICTIONS

Meanwhile, US President Joe Biden’s administration is expected to update its rules in October, in part to align with Japan’s broader list of tools.

It could also go beyond the Netherlands to limit what Dutch lithography manufacturer ASML ( ASML.AS ) can supply to certain Chinese plants, Reuters exclusively reported last month. The United States can directly regulate ASML because its equipment includes US parts. At the time, sources were expecting the updates in July, but it seems unlikely now.

“Part of the reason it’s taking so long is that the United States is still talking to Japan. They need to make sure that if they block anything, they block in the same way in Japan,” said a source familiar with the discussions.

Tokyo remains concerned that targeting China will trigger damaging retaliation, such as a ban on Japanese electric cars, a third Japanese industry official said.

“What advantage is there in losing a person, if that is not your purpose.”

Reporting by Tim Kelly Karen Freifeld, Kentaro Sugiyama; additional reporting by Toby Sterling and Yoshifumi Takemoto; Edited by Lincoln Feast

Our Standards: Thomson Reuters Trust Principles.

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