Following negotiations with the United States, the Netherlands in January 2023 agreed to impose controls on the export of certain semiconductors and related products to China (see our previous article here).

The long-awaited Dutch restrictions were officially published on 30 June 2023, and will enter into force on 1 September 2023. They come in the context of a series of developments by the EU and China in relation to access to semiconductors and the materials necessary to their manufacture. In this article, we focus on the export control measures introduced by the Dutch regulations; the enhanced export control restrictions proposed in the EU’s recently published economic security strategy; and China’s recent actions in relation to two rare earths important to the semi-conductor supply chain.

New Dutch restrictions on semiconductor exports to China

The Dutch government has identified the export of advanced semiconductor-manufacturing equipment, which are not listed in Annex I to EU Regulation 2021/821 (the Dual-Use Regulation), to destinations outside the EU, as a public security risk. Consequently, it has determined that from 1 September 2023, licences will be required to export certain goods and technology used in the development and production of advanced semiconductors, including EUV pellicles and production equipment for EUV pellicles.

As predicted, the list is “surgically precise”, and only contains a limited number of specific goods and technologies. The Dutch government anticipates that 24 licences will need to be applied for this year, but that this figure will decrease to approximately 20 licences annually moving forwards, perhaps as only ‘new’ obligations will need to be addressed by licences from 2024 onwards.

The new restrictions apply to all exports to non-EU countries and, as such, do not expressly target a specific country. However, the Dutch regulation comes in the context of increasing geopolitical tension with China and the country of destination and the details of the end-user are important pieces of information that will be taken into account when the Dutch government considers an application for a licence. Additionally, the Dutch government will be able to revoke licences for non-compliance with any conditions attached to the licence and for national security and foreign policy reasons, so it will retain considerable discretion over exports within the scope of the regulations.

The European Union reviews its export control framework

In a related development, on 20 June 2023, the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy announced a European Economic Security Strategy (the Strategy), which aims to help the EU manage:

• risks to the resilience of supply chains, including energy security;
• risks to physical and cyber security of critical infrastructure;
• risks related to technology security and technology leakage; and
• risks of the weaponisation of economic dependencies or economic coercion.

One strand of the Strategy is that it seeks to develop a framework to assess risks affecting the EU’s economic security, and maintain control over certain technologies deemed critical. Full implementation of the EU's Dual-Use Regulation is emphasised and a proposal to ensure its effectiveness and efficiency is mooted. Additionally, the Strategy proposes to extend the EU’s control of both inbound and outbound investments. Taken together, the aim is to ensure that the EU is able to control in a more comprehensive way the promulgation of advanced technologies, including advanced semiconductors.

However, the Strategy is far from finalised. The European Commission aims to foster a strategic discussion with EU Member States on economic security, but the final shape of the measures proposed in the Strategy may look quite different to their proposed terms.

China's recent actions

China recently announced that rare earths important to the manufacture of certain types of semi-conductors, gallium and germanium, will be subject to export controls beginning from 1 August 2023. These controls came days after China’s Premier Li Qiang expressed concerns over the EU announcements around “de-risking” supply chains. Gallium and germanium are viewed as strategically relevant by Western countries as they are used in the production of semiconductors for the defence industry and in electric vehicles. Specifically, gallium is used in radar and radio communication devices, satellites and LEDs. Germanium is used in high-speed computer chips, plastics, and for military applications. How the PRC will implement export licensing for these materials remains to be seen and these restrictions may not be the last.

Certain governments and companies have expressed the need to revaluate their dependency on critical minerals from China. Countries such as Australia, South Africa and Sweden are promoting projects to transform mine waste and by-products into rare earths for use as part of the energy transition. These measures will increase the concern amongst certain governments and companies at a time when many have already been focused on consolidating their supply chains and value chains of minerals, components and technology (see our previous bulletin on this topic here).