Toby Sterling
AMSTERDAM (Reuters) – U.S. demands that chip giant ASML (AS:) stop servicing some equipment it sold to Chinese customers are a diplomatic and business headache for the Dutch government, but there are signs it will continue to work with Washington on regarding export restrictions.
While Prime Minister Mark Rutte’s government has been reluctant to make an overall decision, its public statements and national security interests suggest it will be slow to approve Chinese maintenance requests in the future and quickly reject them.
This would be a setback for China’s efforts to create its own chip industry, since ASML’s equipment is virtually impossible to replace and will eventually fail if not maintained.
But it could also complicate Rutte’s government’s efforts to stop ASML Holdings NV, the Netherlands’ largest company, from moving operations abroad.
One new factor is the Dutch security priorities, in particular support for Ukraine in its war against Russia.
Rutte, considered NATO’s next secretary general, discussed ASML with Chinese President Xi Jinping when they met in Beijing last week.
He later said that China’s support for Russia is a serious problem at a time when the Netherlands is arming Ukraine with F-16s.
“It is incredibly important that China understands that any Russian victory (in Ukraine) will pose an immediate threat” to both the Netherlands and Europe, Rutte said.
He declined to answer directly whether his government would deny licenses to ASML’s Chinese clients.
Xi Jinping told Chinese state media that he warned Rutte against “disengaging and severing ties” with China.
A STARTING POINT
Although Beijing says it is neutral on the Ukrainian conflict, Xi has a strategic alliance with Russian President Vladimir Putin.
The Netherlands holds Russia responsible for the 2014 downing of Malaysia Flight 17 (MH17) over eastern Ukraine, which killed 198 Dutch citizens. It is also home to and supported by the Hague-based International Criminal Court, which issued an arrest warrant for Putin on war crimes charges.
Rutte called on China to do more to deter Russia from acquiring “dual-use goods” for both civilian and military purposes, such as ASML cars and the chips they use for production.
While his comments do not result in a policy of purportedly refusing Chinese customers seeking ASML equipment subject to licensing rules, as the US policy does, they do indicate a likely starting point for the Dutch government.
ASML declined to comment. The company has previously said it complies with all export regulations.
European Parliament member Bart Groothuis said the Netherlands should set export policy together with larger allies.
“It’s a much better thing for us to do this, regulate ASML with the US, or in the future it could be Europe, and I would say that’s the best way forward,” he said.
US President Joe Biden’s export policy chief Alan Estevez is expected to raise the issue of service contracts at a meeting on Monday with Dutch government officials and ASML executives.
The Dutch government must weigh its response given concerns about weakening US support for its security priorities, including Ukraine, especially if Donald Trump wins the presidential election in November.
FROM TIME TO TIME
“If the US role in NATO is reduced, then the influence that the US has … in terms of technology transfer to China will probably also be reduced,” said Frans-Paul van der Putten of the Clingendael Institute, a Dutch think tank.
He said the Dutch view China as “the only country that potentially has any influence over Russia.”
The Dutch Foreign Ministry, which oversees exports, said on Thursday it would consider Chinese requests for licenses the same way as others: on a case-by-case basis, weighing the risks they could end up having unwanted military uses.
But it will be difficult for Dutch officials to determine this from afar, especially given Xi Jinping’s policy of civil-military fusion.
For ASML, the damage from an unspecified number of license denials would be gradual and limited: maintenance accounts for about 20% of its revenue, and China is its third-largest market after Taiwan and South Korea.
The company has sold 10 billion euros ($11 billion) worth of equipment to chipmakers in China over the past three years, much of it not subject to any export restrictions. Some of them also went to factories in China owned by Western owners, such as SK Hynix and TSMC.
Individual Chinese chipmakers or factories that are denied licenses could be hit hard because ASML’s machines are essential to chip production and are difficult to replace.
But experts say Chinese chipmakers have so far shown remarkable resilience to U.S.-led sanctions and will continue to find ways to circumvent them in the future.
“Stopping service will inexorably degrade the capabilities of this equipment. And so the manufacturer will have to wage a kind of rearguard action to keep these machines running as long as possible,” said Paul Triolo, an American expert on China. and semiconductors.
“The question in the long run is, what other workarounds are possible here?”
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