US to Announce Final Semiconductor Export Controls on China Next Month... Key Issue for Korean Companies: 'Equipment Import'

Advanced Equipment, Key Issue Is Whether Entry to Chinese Factories Is Allowed

The U.S. government is set to announce the final version of its semiconductor export controls targeting China, initially introduced last October, as early as next month. Attention is focused on the potential impact on South Korean semiconductor companies such as Samsung Electronics and SK Hynix.

[Image source=Yonhap News]

According to major foreign media on the 28th (local time), the U.S. Department of Commerce will announce strengthened export controls on semiconductors used for artificial intelligence (AI) exports to China as early as next month.

Previously, the Department of Commerce's provisional export control regulations announced last October included restrictions on the export of advanced semiconductors used in AI and supercomputers. The upcoming announcement is considered the final version that supplements the previously announced measures through public consultation. This measure applies the "Foreign Direct Product Rule (FDPR)." This rule requires obtaining permission when exporting semiconductors made outside the U.S. if they use U.S.-origin software, equipment, or technology. Domestic companies are not expected to be significantly affected by the strengthened export controls as they do not manufacture semiconductors for AI or supercomputers.

The greatest concern for our companies is the final semiconductor equipment export control announced together last October. At that time, the U.S. Department of Commerce effectively imposed a near-total ban on the export of semiconductor manufacturing equipment to China, and foreign companies with semiconductor production facilities in China were to be subject to individual reviews. Samsung Electronics and SK Hynix received a grace period allowing them to send U.S.-made semiconductor equipment to their Chinese factories for one year without separate review. Since then, the South Korean and U.S. governments have been discussing separate equipment import standards that would allow Korean companies to operate stably in China for an extended period. The core of this is specifying particular equipment items that Korean companies can import without time restrictions, likely introduced by adding equipment lists to the Department of Commerce’s Verified End User (VEU) list.

The key issue is which equipment will be included. The U.S. is reportedly reluctant to allow the import of advanced semiconductor equipment to prevent China from acquiring technology. On the other hand, Korean companies are known to want to import equipment necessary for advanced semiconductor manufacturing. However, even if no agreement is reached, it is highly likely that the grace period allowing the shipment of U.S.-made semiconductor equipment to China without separate review will be extended.

Some expect that the Department of Commerce’s final semiconductor export control announcement targeting China next month will expand the scope of controlled equipment. The U.S. has so far persuaded semiconductor equipment companies in the Netherlands and Japan to participate in export controls, and it is anticipated that equipment controlled by these two countries will also be added to the regulatory scope in the final version.