ASML: U.S. moves. Dutch company must not fall into Chinese hands

To block China's technological development, the U.S. will put pressure on the Netherlands. It is appropriate for the US and EU to cooperate defensively and offensively toward China. There is an battle going on in the global economic and trade system, and it should be an imperative that like-minded nations work together to emerge victorious

(Observer) On April 5, Reuters, citing two people familiar with the matter, exclusively reported that the Biden administration intends to put pressure on the Netherlands next week, with the intention of preventing the leading Dutch chip equipment manufacturer (ASML) from providing some instrument repair services to China.

Alan Estevez, the Biden administration's export policy chief, is scheduled to meet with the Dutch government and ASML staff in the Netherlands next Monday to discuss maintenance service contracts, people familiar with the matter said. At that time, Washington may also seek to add a new name to the list of Chinese chipmakers who cannot receive Dutch equipment.

Microchips are made by building up complex patterns of transistors, layer by layer, on a silicon wafer. ASML’s lithography systems are central to that process. A lithography (more formally known as ‘photolithography’) system is essentially a projection system. Light is projected through a blueprint of the pattern that will be printed (known as a ‘mask’ or ‘reticle’). With the pattern encoded in the light, the system’s optics shrink and focus the pattern onto a photosensitive silicon wafer. After the pattern is printed, the system moves the wafer slightly and makes another copy on the wafer. (ASML.com)

The Dutch Foreign Ministry confirmed the upcoming meeting, but did not specify what topics would be discussed. It responded to Reuters by saying, "The Netherlands always has good discussions with our partners. Monday's meeting between officials is an example of this."

Next week's meeting is the latest move in Washington's efforts to engage allies who intend to encircle mainland China's state-of-the-art chip production capacity. The large, expensive equipment requires frequent maintenance, and mainland China is ASML's second-largest market (29 percent) based on last year's sales.ASML shares fell briefly after the news broke, and the company and the U.S. Department of Commerce declined to comment.

Photolithography is a key equipment for chip production, and Dutch ASML is the world's largest photolithography manufacturer and the only supplier of extreme ultraviolet (EUV) lithography.U.S. pressures on ASML will begin in 2019.

Last year, Japan and the Netherlands followed the U.S. example, using "national security" as an excuse to ban China from acquiring certain chip-making technologies. But the Dutch restrictions have not reached the level of the United States, which has banned U.S. companies from repairing equipment for advanced Chinese factories. Estevez has said publicly that the United States is asking its allies to prevent local companies from servicing certain chip-making equipment for Chinese customers. At an export control conference last week, he said, "We are working with our allies to determine which repairs are important and which are not."

In response to the U.S. forcing the Netherlands into science and technology embargoes against China, Foreign Ministry spokesman Wang Wenbin responded that China has always opposed the U.S. generalization of the concept of national security and the coercion of other countries into science and technology embargoes against China under various pretexts. China urges the Dutch side to uphold an objective and fair position and market principles, abide by the spirit of the contract and take concrete actions to safeguard the common interests of China and the Netherlands and the enterprises of both sides. China will pay close attention to developments in the matter and will vigorously safeguard its legitimate rights and interests, Beijing said.

From March 26-27, Dutch Prime Minister Rutte traveled to China for a working visit, his first visit to China in five years. In an interview with the media, Rutte declined to answer whether the Dutch government would follow the U.S. government's request to prevent ASML from continuing to provide services to Chinese customers. He said, "When it comes to our semiconductor industry and companies like ASML, when we have to take (export control) measures, the Netherlands will make sure that these measures are not specifically aimed at one country."

According to Rutte, the Netherlands will always try to minimize the impact and avoid a ripple effect on the supply chain, and thus on overall economic relations.

Upon his return to the Netherlands, Rutte was faced with another thorny issue: the fact that ASML "wants to leave."

On March 28, the Dutch government reportedly announced that it would spend 2.5 billion euros (about 19.487.6 billion yuan) to improve transportation and other infrastructure in the Eindhoven area, where ASML is headquartered, to ensure that ASML remains in the Netherlands and does not move its operations abroad. Meanwhile, to alleviate the concerns of some domestic blue-chip companies, the Dutch cabinet is preparing to take measures to reduce the tax burden on businesses, the report says, citing an official statement.

ASML welcomed the news, but did not explicitly state whether it will remain in the Netherlands. In a statement, the company stressed that "the decision we have to make is not whether we will stay, but where we will grow."

Why does ASML have strategic importance?

ASM is a Dutch photolithography company that has developed the unique advanced extreme ultraviolet (EUV) lithography instrument.

The machine consists of several modules incorporating hundreds of thousands of components from multiple levels of nearly 800 global suppliers. The modules are built at 60 ASML locations around the world and shipped to the Netherlands for assembly

This technology was also developed with U.S. technological collaboration. Today ASML, which took 20 years to produce the machine with billion-dollar investments, is the only company in the world that can employ this tool.

If Chinese industry were to acquire such machinery, it would be able to reproduce it in three years, warned Nazak Nikakhtar, adviser to the U.S. Department of Commerce.

It is appropriate for the US and EU to cooperate defensively and offensively toward China. There is an battle going on in the global economic and trade system, and it should be an imperative that like-minded nations work together to emerge victorious.