(Reuters) – According to two people familiar with the rule, President Joe Biden’s administration intends to release a new regulation next month that will increase American authority to halt the transfer of semiconductor manufacturing equipment from specific foreign nations to Chinese chipmakers.
However, shipments from allies that export vital chipmaking equipment—such as South Korea, Japan, and the Netherlands—will be excluded, reducing the effect of the ban, according to the unnamed sources who were not allowed to speak to the media.
Therefore, there will be no impact on significant semiconductor equipment manufacturers like Tokyo Electron (8035.T) and ASML (ASML.AS), who both open new tabs. The news caused both firms’ shares to soar.
One of the individuals claimed that the restriction, which is an extension of the Foreign Direct Product law, would prevent exports from numerous nations from reaching the roughly six Chinese semiconductor fabrication factories, or fabs, which are at the core of China’s most advanced chipmaking endeavors.
Exports from Taiwan, Malaysia, Singapore, and Israel would all be impacted.
It was unclear to Reuters which Chinese semiconductor factories will be affected.
“The U.S. Department of Commerce is continually assessing the evolving threat environment and updating our export controls, as necessary, to protect U.S. national security and safeguard our technological ecosystem,” a representative for the department said in a statement. “We remain committed to working closely with our allies who share our values.”
When questioned about the upcoming export control package, Lin Jian, a spokesman for the Chinese foreign ministry, stated that attempts by the United States to “coerce other countries into suppressing China’s semiconductor industry” harm everyone and damage international trade.
Lin went on to say that China expects relevant nations would thwart US initiatives and protect their own interests in the long run.
“Containment and suppression cannot stop China’s development, but will only enhance China’s determination and ability to develop its scientific and technological self-reliance,” he stated.
According to insiders, the United States has been attempting to strengthen the agreement’s constraints and persuade Germany and South Korea to join the coalition.
The proposed regulation, which is presently in draft form, demonstrates how Washington is attempting to maintain pressure on China’s rapidly growing semiconductor market without upsetting friends.
James Lewis, a scholar at the Center for Strategic and International Studies in Washington, said, “They’re being cautious in using the rule because it makes our allies very uneasy.” “There’s only so far you can push this without people jumping off the ship.”
According to the Foreign Direct Product Rule, the United States government has the authority to prohibit the sale of any product—including those made abroad—if it was created using software or technology developed in the United States.
The Chinese tech giant Huawei (HWT.UL), which reinvented itself after struggling with U.S. constraints and is now a major participant in advanced chip manufacture and development, has been keeping chips made outside out of the country for a number of years. In 2022, the regulation was also applied to deny China access to specific semiconductor chips manufactured globally.
The proposed new rule is still in draft form and may alter, but the goal is to publish it next month in some capacity, according to the sources.
In addition to South Korea, Japan, and the Netherlands, the proposed regulation exempts more than thirty other nations that are in the same A:5 category.
According to the Commerce Department’s website, its classifications of nations are “based on factors like diplomatic relationships and security concerns. These classifications help determine licensing requirements and simplify export control regulations, ensuring lawful and secure international trade.”