US, Japan, Korea Aligned on Chip Controls for Now, Panelists Say

Although scholars from the U.S., Japan and South Korea said the three countries largely agree on China-related semiconductor export controls, they said those conversations could grow more difficult as the U.S. continues to restrict a broader set of advanced chips and chipmaking equipment.

Martin Chorzempa, a senior fellow with the Peterson Institute for International Economics, said “there's broadly convergence“ among the three countries on restricting technology to China. But Chorzempa, speaking during an event this week hosted by the Brooking Institution, said the topic becomes more challenging when it comes time to pinpoint a specific technology or equipment that should be controlled. That’s “where there's a lot more disagreement,” he said.

Myung-hee Yoo, a former South Korean government official and now a trade professor at Seoul National University, also said she thinks there’s “broad convergence on the policy goal of protecting critical technology.” But she also noted that China and Hong Kong account for 60% of Korean semiconductor exports, and Korean chip firms with investments in China produce about 40% of their memory chips in Chinese facilities.

South Korea wants to “widen the technology gap as much as possible with China,” Yoo said, but added that Korean firms -- outside of Chinese businesses -- have been the companies “most impacted” by the recent U.S. chip export controls. The U.S. earlier this year granted certain Korean chip companies the ability to continue supplying their Chinese factories with certain chipmaking tools (see 2310100051 and 2310110024).

Japan also has supported U.S. export controls against China, said Akira Igata, an economic security expert at the University of Tokyo’s Research Center for Advanced Science and Technology. He pointed to the fact that Japan, along with the Netherlands, adopted a portion of the Biden administration's Oct. 7 chip controls (see 2303310031 and 2302240008).

But he also noted that Japan didn’t announce those controls until several months after the U.S., partly because it wanted to first analyze how China would retaliate. “For many Japanese bureaucrats, my sense is that they're very scared about potential economic retaliation from China,” Igata said.

He also said the Japanese restrictions leave a lot of room for “interpretation,” and are less specific than the hundreds of pages of export control regulations released in the last year by the Bureau of Industry and Security, which lawyers have called the most complex export rules ever published (see 2302020034 and 2211010042).

Japan’s rules give it the ability to pick and choose how it wants to enforce its controls, but it also gives the government “leeway” to restrict chip exports “in a way that is almost equivalent to the U.S. rules,” Igata said. “Keeping it ambiguous, in a way, has the impact of being a deterrent in and of itself as well, because as long as the rules are ambiguous, then the private sector has to be careful about what it exports.”

The American chip industry has raised similar concerns about the U.S. controls, which they said are so complicated that they’re difficult for many companies to understand (see 2312130052). “If you're a Korean firm or a Japanese firm selling chips, it is really not trivial to comply with these things and to be confident, even if you have great lawyers,” that you’re complying, Chorzempa said. “I think that's a major, major concern.”

Chorzempa noted that U.S. chip companies have drawn government scrutiny for finding ways to comply with the rules while still selling into China, specifically pointing to American chip designer Nvidia. The company over the last year has rolled out new chips that fall just below the control threshold of U.S. export licensing requirements each time they have been updated (see 2211080005 and 2310240020), and Commerce Secretary Gina Raimondo said this month she wants to end that cycle, and will continue lowering the control threshold (see 2312040041).

Chorzempa compared the situation to the Biden administration setting a speed limit of 55 mph, and Nvidia “gets yelled at" for going 54 mph.

“There is this debate -- shouldn't firms take advantage of as many loopholes as they can?” Chorzempa said. “If you set the threshold, you should expect [companies] to be right below it.”

Chorzempa suggested the Biden administration may have to better communicate to businesses “what’s acceptable” to export to China, rather than constantly updating its control parameters. Raimondo has said the agency is trying to do that.

“I think you really have to tell them: where's the line of what's acceptable, and then expect that you're going to get something right below that,” Chorzempa said. “And whether you have to keep ratcheting up, I think, is an open question.”

Igata compared it to a game of “cat and mouse” that he thinks “will continue.” But he doesn’t think that strategy is a “waste of time, because as long as the cat keeps chasing the mouse, then it's imposing costs against the mouse. The private sector will have to constantly look at what the new regulations are.”

And if the semiconductor industry is constantly concerned about the government lowering the chip control threshold, they will be more incentivized to move their supply chains and “make sure that they are in compliance with the new regulation every year or so.”

Over time, “that slowly changes the incentive for the private sector,” Igata said. “Maybe it’ll be more stable for them to really follow the spirit of the sanctions and, if the government says it's 55 miles per hour, maybe" companies will choose to travel "45 or 50 miles per hour.”

The panelists were asked whether they believe the Biden administration is succeeding in its so-called small-yard, high-fence strategy, in which the government places tight export rules around only a limited set of advanced technologies. So far, Chorzempa said it’s “legitimate to call things small-yard, high-fence.” He said he believes people who are worried about a large-scale U.S.-China decoupling are expressing fear of how future administrations may implement export controls against China as opposed to the Biden administration’s approach.

Even so, he said, U.S. business prospects in China are still being damaged by the current controls. “The U.S.’s bet,” Chorzempa said, “is that the impact you're going to have on the [Chinese] military is worth the huge commercial cost involved.”