Netherlands Soon to Announce Controls on IT Exports to China

The Dutch government is soon to join the United States and Japan in rolling out new semiconductor export control measures aimed at keeping sensitive technology away from China due to concern for potential misuse, the country’s economic affairs minister told reporters on a visit to Washington.

The measures are likely to further restrict sales to China by Netherlands-based ASML, maker of the world’s most advanced chip-printing machines, which last year disclosed the “unauthorized misappropriation of data” by a now former employee in China.

The United States in October 2022 announced its own export control measures affecting advanced computing integrated circuits and certain semiconductor manufacturing items.

The U.S. said the measures were aimed at items that “could provide direct contributions to advancing military decision making” such as “designing and testing weapons of mass destruction (WMD), producing semiconductors for use in advanced military systems, and developing advanced surveillance systems that can be used for military applications and human rights abuses.”

The U.S. subsequently asked allies including Japan and the Netherlands, which play key roles in the semiconductor supply chain, to introduce similar measures.

“The main concern is [the chip-making technology] will be used in military products,” Micky Adriaansens, Netherlands’ minister of economic affairs and climate, told a group of journalists on June 8 at the Dutch Embassy in Washington.

Adriaansens acknowledged that the negotiations with Washington have not been easy.

“To be honest, the conversation has been intense, and is still intense,” she said. “But we agreed already upon the main issues, with a good [mutual] understanding of what is the right thing to do.”

Adriaansens said those understandings still have to be translated into regulations but that her country understands the importance of the measures.

“We realize that we, the U.S., the Netherlands, Japan and Korea, are very strong in the semicon[ductor] value chain, supply chain, and we have a responsibility there,” the minister said, echoing a statement made by Japan’s trade minister in March.

Japan also takes steps

Tokyo announced its own measures on March 31, saying that beginning in July, Japan will restrict 23 types of semiconductor manufacturing equipment from being exported to China. “We are fulfilling our responsibility as a technological nation to contribute to international peace and stability,” Minister of Economy, Trade and Industry Yasutoshi Nishimura told reporters.

At the center of the Netherlands’ semiconductor export control deliberations is ASML, a Dutch company with its headquarters in Veldhoven, about an hour and a half’s drive southeast of Amsterdam. The company was known as Advanced Semiconductor Materials Lithography in its early years but is now known as ASML.

Europe’s biggest high-tech firm by market capitalization, ASML is the world’s largest supplier of photolithography machines, which are used to produce computer chips.

Its flagship products are the EUV, or extreme ultraviolet, and DUV, or deep ultraviolet, lithography machines that use advanced light technology to shrink and then print tiny patterns down to the nanometer level on silicon wafers, a critical and essential component of the semiconductor manufacturing process.

Since 2019, ASML’s world-exclusive EUV machines have been on the Netherlands’ export control list, meaning they cannot be sold to China without government approval. In a statement issued in March, the company said it understood that the new export controls could be applied to its less-advanced DUV machines and other products as well.

While Taiwan is its top customer, ASML has more than 1,000 employees working in 12 office buildings in major Chinese cities including Beijing, Shanghai and Shenzhen. Last year, sales to China made up 14% of the company’s total net systems sales.

In its 2022 annual report, released on February 15 this year, the company disclosed that it had experienced “unauthorized misappropriation of data relating to proprietary technology by a (now) former employee in China.” The incident may have led to the violation of certain export control regulations, the report said.

The company said a comprehensive internal review has since been launched, but the nature and extent of the data that was misappropriated has not been publicly disclosed.

Report mentions possible leak

Another possible leak of the company’s proprietary information that happened in China was disclosed in the previous year’s annual report.

“Early in 2021, we became aware of reports that a company associated with XTAL, Inc., against which ASML had obtained a damage award for trade secret misappropriation in 2019 in the USA, was actively marketing products in China that could potentially infringe on ASML’s IP rights,” said the 2021 report.

The second company was identified as Beijing-based DongFang JingYuan Electron, which was established in 2014 at about the same time as XTAL and controlled by the same people.

ASML’s annual report said the company had shared its concerns with the Chinese authorities and was monitoring the situation closely.

In its case against XTAL, ASML told the court that a former Chinese employee working at an ASML subsidiary in the United States had stolen 2 million lines of source code for critical software. It said the theft was conducted on behalf of both XTAL and DongFang.

ASML’s representatives told the court that it took XTAL only two years to replicate a technology that ASML had spent $100 million and a decade developing, as first reported by Bloomberg. XTAL, which ASML’s attorneys described in court proceedings as essentially the same as DongFang JingYuan, then tried to sell the technology to South Korea-based Samsung, a longtime client of ASML.

In late March, ASML CEO Peter Wennink met with China’s newly installed minister of commerce in Beijing. China is “firmly committed to high-level openness, willing to create favorable conditions for multinationals such as ASML to do business in China,” Wang Wentao, the newly minted commerce minister, told the visiting CEO.

“We hope ASML will affirm and strengthen its confidence in trading and investing in China and make proactive contributions to Sino-Dutch collaboration in trade and economics,” Wang continued.

It isn’t clear whether the two sides discussed the intellectual property infringement issues described in ASML’s 2021 and 2022 annual reports or if they did, what remedies Beijing may have proposed.

‘Relentless pursuit’

Asked how the company plans to fend off future attempts to steal its trade secrets, a company spokesperson told VOA that ASML is committed to “relentless pursuit of individuals or entities that violate or threaten to violate our [intellectual property] in any way.”

While less well known for semiconductor manufacturing than Taiwan Semiconductor Manufacturing Corp. or U.S.-based Intel, ASML is often viewed as Europe’s most valuable high-tech company, likely key to the Netherlands’ winning the bid to be the seat of NATO’s newly established Innovation Fund.
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