• Anuma van der Veer

  Japanese reporter

Japan wants to share with America and the Netherlands export controls on the critical technology with which chips are produced. The country is the market leader in the industry along with the Netherlands. Export controls were therefore high on the agenda during Minister Schrenmacher’s (VVD, Foreign Trade) trade mission to Japan.

Despite the promise, the Japanese government has not yet announced concrete measures, fearing that drastic measures could lead to a trade war with China, Japan’s largest trading partner.

Recently, US President Biden introduced a series of measures aimed at attracting chip production to the United States and trying to deny China access to the latest technology. To do this, market leaders Japan and the Netherlands must be involved.

“The US is classifying it as a national security issue and protecting sensitive technology, putting pressure on Japan and the Netherlands. But there is also a trade reason behind it,” says John Park, a political economist who specializes in trade relations.

According to research from the Peterson Institute, Japan leads the chip industry in machine parts production, with a market share of more than 28 percent. “ASML is ahead of the rest of the world when it comes to lithography, but Japan leads the market in other parts of the manufacturing process, such as cameosand testing and packing chips. The United States has nothing to say there now, but they want to have something to say there.”

Until the end of the last century, the global chip industry was dominated by Japanese companies, with a peak market share of more than 50 percent. In photolithography, a necessary technology in the production process, Canon and Nikon have been by far the market leaders, with more than three-quarters of the global market.

This changed when the Dutch ASML overtook it through technological innovation. Over the past 30 years, the domestic chip industry has increasingly moved to other Asian countries, such as Taiwan and South Korea. However, Japan is still one of the major players when it comes to chip engraving, testing, and packaging.

The Japanese government introduced a national strategy in 2021 to revive the industry. Large grants have been made available to companies to review production chains and restart domestic production. With this step, the country hopes to reduce its dependence on foreign countries.

Thus, introducing export controls would be painful now, just as the industry is trying to recover. The Japanese chip industry is currently led by a number of large players, whose sales market is largely concentrated in China, such as Tokyo Electron (25 percent) and Renesas (29 percent). In addition, Japan obtains more than 60 percent of the scarce raw materials required in the chip industry from China.

“China can still have access to the latest generation of chips, but if that access is denied completely, it could create problems,” says Park. “For Japan, sanctions are likely to come from China, not just within the chip sector but throughout the entire market.” China is Japan’s largest trading partner: “Going forward with US export controls would be a step towards a full-scale trade war.”

Although Japan has indicated that it will cooperate with export controls, it is not really clear which technologies and products will be subject to this. The companies do not want to say anything about the possible consequences.

It is necessary for the Netherlands that Japan cooperate. If countries do not cooperate, there is a good chance that sensitive production technology could end up in unwanted hands. Partly for this reason, Schreinemacher has now visited Tokyo.

“Last week we announced that we were taking action, and the Japanese Minister of Commerce said openly in our conversation that economic security is important to him and that we should continue to discuss this,” she says.

However, no concrete commitments were made. Schreinemacher: “It is possible that Japanese companies can circumvent the new export controls, but that is why we must continue to talk to our Japanese partners.”

“The current controls on US exports are just the first step. More are likely to come,” Park warns. This is why Japan seems more cautious. “I expect the government to gradually introduce export controls, hoping not to anger China and at the same time keeping the United States and the Netherlands happy.”