By Toby Sterling
AMSTERDAM (Reuters) – U.S. demands that chipmaker giant ASML (AS:) stop servicing some equipment sold to Chinese customers pose a diplomatic and commercial headache for the Dutch government, but signs indicate it will continue to comply with Washington on export restrictions.
While Prime Minister Mark Rutte’s government is reluctant to make a final decision, its public statements and national security interests suggest it will be slow to approve Chinese maintenance requests in the future and quick to reject them.
This would represent a setback for China’s attempts to develop its own domestic chip industry, because ASML devices are nearly impossible to replace and will break over time if not maintained.
But that could also complicate the Rutte government’s efforts to prevent ASML Holdings NV, the Netherlands’ largest company, from moving its operations abroad.
One emerging factor is Dutch security priorities, particularly support for Ukraine in its war against Russia.
Rutte, who is favored to become NATO’s next secretary general, discussed the 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) would pose an immediate threat” to both the Netherlands and Europe, Rutte said.
He declined to answer directly whether his government will deny licenses to ASML’s Chinese customers.
Xi told Chinese state media that he had warned Rutte against “decoupling and severing ties” with China.
START POINT
While Beijing claims to be 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 also hosts and supports 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 prevent Russia from obtaining “dual-use goods” with both civilian and military applications, such as ASML machines and the chips for which they are used.
While his comments do not translate into a policy of alleged rejection of Chinese customers seeking ASML equipment that falls under the licensing rules, as US policy does, they nevertheless indicate the Dutch government’s likely starting point.
ASML declined to comment. It has previously said it complies with all export regulations.
European Parliament member Bart Groothuis said the Netherlands should determine export policy in consultation with major allies.
“It is much better for us to do this, to regulate ASML, together with the United States, or in the future it could be Europe, and I would say that is the best way forward,” he said.
Alan Estevez, U.S. President Joe Biden’s head of export policy, is expected to increase service contracts in a meeting Monday with Dutch government officials and ASML executives.
The Dutch government must evaluate its response given fears of weakening US support for its security priorities, including Ukraine, especially if Donald Trump wins November’s presidential election.
CASE BY CASE
“If the role of the United States in NATO diminishes, then the influence that the United States has… regarding technology transfers to China will probably also diminish,” said Frans-Paul van der Putten of the Clingendael Institute, a Dutch think tank.
He said the Dutch see China as “the only country that has at least some kind of potential influence on Russia.”
The Dutch Foreign Ministry, which oversees exports, said Thursday that it will judge Chinese license applications the same way it judges others: “on a case-by-case basis,” assessing risks that they could end up having unwanted military uses.
But it will be difficult for Dutch officials to determine this from afar, especially given Xi’s civil-military fusion policies.
For ASML, the damage from an uncertain number of rejected licenses will be gradual and limited: maintenance accounts for about 20% of its revenue, and China is its third largest market after Taiwan and South Korea.
Over the past three years it has sold 10 billion euros ($11 billion) worth of equipment to chipmakers in China, much of which is not subject to any export restrictions. Some also went to factories in China of Western allied owners, such as SK Hynix and TSMC.
Individual Chinese chip makers or factories that are denied a license could be severely harmed, as ASML machines are essential to making chips and difficult to replace.
Experts say, however, that Chinese chipmakers have so far shown surprising resilience to sanctions imposed by the United States and will continue to find ways around them in the future.
“The maintenance interruption will inexorably degrade the capabilities of that equipment. And then the manufacturer will fight a kind of rearguard action to keep those machines running as long as possible,” said Paul Triolo, an American China expert. and semiconductors.
“The question is: in the long term, what other alternative solutions are possible?”
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