Key Differences Remain between U.S. and Japanese Advanced Semiconductor Export Controls on China
Amid an evolving global environment, both the United States and Japan have formulated new national security strategies that acknowledge the need for closer coordination between the two countries. This includes accelerated discussions on export control cooperation, which is quickly becoming a major policy tool for relieving the chokepoints in the supply of critical technologies.
Taking this cooperation forward, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and Japan’s Ministry of Economy, Trade, and Industry (METI) are cooperating under the Japan-U.S. Commerce and Industry Partnership (JUCIP). This follows the U.S. announcement in January that it would work with both the Netherlands and Japan on export controls aimed at limiting China's ability to manufacture advanced semiconductors using technology of American, Dutch, or Japanese origin. Subsequently, on March 31, the Japanese government revealed its own regulatory framework to strengthen export controls on semiconductor manufacturing equipment, which is scheduled to take effect in July 2023. The Japanese government stated that it is not aligning itself with the U.S. measures taken in October 2022, and emphasized that the content of its package is different. There has also been discussion in the policy community regarding new multilateral export control arrangements in the wake of Russia’s invasion of Ukraine.
These developments have semiconductor industry and policy experts scrambling to identify the precise technical requirements that countries like the U.S., Netherlands, and Japan have put in place to limit China's ability to manufacture advanced semiconductors domestically. In addition, they are working to understand the risks associated with non-compliance of the clarified regulations and the risk of enforcement in the event of regulatory noncompliance. If these governments are to adopt the U.S. objective of limiting China’s ability to manufacture advanced semiconductors, they will also need to adjust their domestic laws governing export controls and work together to establish a coordinated system under which export controls will be enforced.
Current Coordination by Japanese and U.S. Export Controls for Advanced Semiconductors
In October 2022, BIS imposed new export regulations on advanced semiconductors in order to achieve the goal of limiting China’s ability to manufacture advanced semiconductors. These regulations made certain technologies ineligible for export using a combination of:
- List restrictions on exports to China of advanced semiconductors and items necessary for semiconductor manufacturing, as well as restrictions on semiconductor manufacturing facilities in China and end-use restrictions on semiconductor manufacturing equipment and technology for development and manufacturing applications;
- Regulations governing the re-export to China and transfer within China of semiconductors manufactured outside the U.S. using technology originating in the United States;
- Certain restrictions on U.S. persons involved in the development and manufacture of semiconductors in China;
- Export restrictions preventing the supply of semiconductors to certain companies that the U.S. government has determined present national security concerns;
Additionally, the Department of Commerce on March 31, 2023, announced national security guardrails to prevent recipients of CHIPS Acts funds from building or expanding advanced semiconductor facilities in China for 10 years. Congress and the Biden-Harris administration are considering reviewing out-bound investment in foreign technology companies from U.S. entities.
As the U.S. controls were announced, the Japanese government said that it would strengthen export controls related to semiconductor manufacturing equipment based on a new list of 23 types of equipment used to manufacture high-performance semiconductors. For example, argon fluoride (ArF) 193 nm wavelength immersion lithography equipment, which had not been previously regulated, was now added. The Netherlands’ ASML and Japan's Nikon hold an overwhelming share of this particular type of equipment.
Exports from Japan are subject to individual export screening, with the regulations providing for different forms of screening, depending on the specific country. For exports to a list of countries, including the Netherlands, the United States, Taiwan, India, and Lithuania, a general blanket permit called the “General Comprehensive License”(一般包括許可) is required, which gives companies permission to export goods and services for certain destination/item combinations.
On the other hand, for exports to another list of countries, including China, require the “Special Comprehensive License” (特定包括許可), which only allows exports of specific goods to a specified trade partner with whom there is a continuous business relationship. It remains to be seen to what extent the Special Comprehensive License will be applied to exports to China, or whether export licenses will need to be granted on an individual basis to allow only specific items to be exported to China.
Differences between Japanese and U.S. Export Controls for Advanced Semiconductors
When comparing U.S. and Japanese regulations related to advanced semiconductors, there are some important differences to understand.
Difference #1: Unlike the U.S., Japan does not restrict re-exports of controlled items:
As described earlier, BIS’s October 2022 export regulations on advanced semiconductors include regulations to control exports to China of semiconductors manufactured outside of the U.S. using U.S.-origin technology. For example, under U.S. export controls, U.S.-origin technology cannot be used by a country such as Japan to manufacture advanced semiconductors and then export those semiconductors from Japan to China.
The BIS regulations stipulate that U.S.-made items exported from the U.S. and then re-exported to a third country are still subject to U.S. export restrictions. These re-export regulations do not exist in Japanese law. Article 48 of Japan’s Foreign Exchange and Foreign Trade Act stipulates that exports of certain types of goods bound for specific regions are subject to export controls. For example, Japanese law does not require regulations in cases where Japanese advanced semiconductor manufacturing equipment is exported to a second country under METI's export license and then re-exported from that second country to a third country subject to Japanese regulations. Legally, METI can make a goodwill agreement with an exporter in which the exporter agrees to inform METI when it re-exports items. However, it is unclear whether re-export controls will be applied to semiconductor equipment items because METI pursues these contract-based re-export control agreements on a case-by-case basis. In addition, because the agreements are based on goodwill compliance, METI has no enforcement or sanctions authority to ensure that the exporter follows the agreement.
Difference #2: Japanese non-residents working on advanced semiconductors in other countries do not face restrictions:
Under the BIS's October 2022 regulations, there are certain restrictions on U.S. persons involved in the development and manufacturing of semiconductors in China. For example, U.S. engineers and scientists are prohibited from assisting advanced semiconductor manufacturing facilities in China. Japan's Foreign Exchange and Foreign Trade Act does not include similar regulations on Japanese citizens who are non-residents of Japan working on semiconductor projects in other countries, and adding such restrictions would require a legal amendment to Article 25 of the Act. Japan distinguishes between resident and non-resident exporting entities and applies the law. Article 25 of the Foreign Exchange and Foreign Trade Law stipulates that 1) resident and non-resident exporters in Japan need permission from METI to export items from Japan to other countries, and 2) exports from a resident in Japan to temporary residents of Japan (e.g. individuals who have been in Japan for less than six months for work), must also receive permission from METI. For example, Japanese law does not apply to the export of advanced semiconductor technology by a Japanese national who is a non-resident of Japan and working as an engineer on semiconductor projects in another country.
Difference #3: Japanese investment in advanced semiconductor manufacturing equipment is not regulated in export license-required countries:
Japanese law allows outward investment in most industries on an after-the-fact reporting basis. In principle, one of several reports must be submitted to the Minister of Finance via the Bank of Japan within 20 days from the date of the outward direct investment or the date of payment, whichever is later. Although some industries require prior notification, there is no mechanism in place to screen outward investment in semiconductors from a security perspective. If this is to be achieved, Japan's Diet would need to consider new legislative measures to establish a framework for outward investment screening.
The U.S., Japan, and the Netherlands are accelerating discussions on export control cooperation. However, operational coupling across each country's domestic laws is key to achieving specific security objectives using export controls. Even Japan, one of the most technologically advanced countries in the world, has not implemented export controls as strict and extensive as those in the United States. While it is debatable whether Japan's national interest would be served by adopting export controls similar to those in the U.S., there are key differences in how both countries regulate their semiconductor industries, including with respect to re-exports of items to third countries. The involvement of non-resident Japanese citizens in semiconductor projects overseas and investment in Japan's technology sector is open to debate. U.S. efforts to coordinate with other countries on export controls related to advanced semiconductors have only just begun, and it is expected that the countries concerned, including the U.S., will need to adjust their policies based on their understanding of other countries' domestic laws.
Hideki Tomoshige is a research associate with the Renewing American Innovation project at the Center for Strategic and International Studies in Washington, D.C.
The author would like to thank Atsushi Oshima, associate with the Akin Gump Strauss Hauer & Feld LLP, for his contribution to this article.