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EU sidelined in US-Dutch deal to block chips exports to China

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The U.S. scored a major win in getting the Dutch government to block China’s access to critical chips technology — and to get there, it drove a wedge between The Hague and the rest of Europe.

The Netherlands late on Friday struck a deal in Washington to restrict its sales of advanced microchips manufacturing equipment to China. The country is home to ASML, a world-leading manufacturer of microchips printers. Pressured by the U.S. government, the Dutch hashed out a political deal that also included Japan and is aimed at putting the squeeze on China’s ability to catch up on critical chips technologies.

The deal put the Western European country of 17.5 million at the heart of the tech war between the U.S. and China. But it also left its European counterparts reduced to a role of bystander, powerless to intervene.

The lack of an EU response leaves the bloc vulnerable to retaliation from China, critics argued. “It would not be crazy to think China might retaliate toward other EU countries as well if the Netherlands takes a decision directed against Beijing,” one EU diplomat said.

Others lamented it made the bloc look weak in its relationship with the U.S. “It’s in the [U.S.] interest to only have to deal with the Dutch rather than with the whole European Union,” Julian Ringhof, (tech) policy fellow at the Berlin-based think tank European Council on Foreign Relations (ECFR), said. 

It leaves EU countries vulnerable to “bullying” by the U.S., Belgian Prime Minister Alexander De Croo had warned in mid-January, in a seminar.

Key European partners on Monday were left scrambling to respond to news of the Dutch deal.

The German government on Monday said it is “a matter of the Dutch.”

The European Commission, which had only loosely been kept in the loop on the U.S.-Dutch negotiations, said it didn’t want to comment on reports about the deal, but that it remained in “close contact” with EU countries and allies on export controls.

EU outgunned in a trade war

The Dutch decision exposes an EU weakness in the global trade war over sensitive technology.

Export controls have become the U.S.’s go-to instrument to attack China. It did so with 5G equipment by Chinese giant Huawei and has expanded that strategy to a wide range of technologies, with chips being the target of its most impactful, far-reaching set of controls yet.

“We are coordinating with everybody, but at the end, of course, it’s a national competence,” said Dutch Prime Minister Mark Rutte | Bart Maat/ANP/AFP via Getty Images

It has done so largely unilaterally, circumventing a process under the international Wassenaar Arrangement that coordinates export controls of dual-use items, products that can be used for both military and civilian applications — but that has been crippled since the war in Ukraine, since the arrangement counts Russia as a member.

In Europe, however, slapping export controls on technologies happens through a drawn-out process and risks being blocked at any stage because EU countries have vastly different economic interests and approaches to China.

The Dutch never completely ruled out EU cooperation or coordination on the issue but made clear export controls are a national competence. Dutch Foreign Trade Minister Liesje Schreinemacher said so in November. Prime Minister Mark Rutte then reiterated the line when talks were about to conclude last week: “We are coordinating with everybody, but at the end, of course, it’s a national competence,” he told reporters in Brussels.

The approach drew criticism. A cascade of chips restrictions imposed by one single country could spell trouble for the whole EU, experts warned.

“Supply chain ramifications can be massive. If there are more restrictions coming, this is an issue that affects the single market,” Tobias Gehrke, senior fellow on geoeconomics at the Berlin-based think tank European Council for Foreign Relations (ECFR), said.

ASML’s own suppliers are concentrated in just a couple of countries, notably Germany, where companies like Zeiss (optoelectronics) and Trumpf (laser technology) are key partners for the Dutch giant. Other countries involved are those with semiconductor research institutes, like Belgium (Imec) and France (CEA).

It’s those countries that Schreinemacher in mid-January said she appealed to. On Dutch TV, she said there were talks ongoing with Germany and France to make sure if the Netherlands imposed export controls, others “that have a big interest” would follow.

Europe learns the ropes

It’s not that EU countries don’t want to talk about export controls. They had export controls on their plate for the bigger part of last year, as they shut down the export of cutting-edge technology like semiconductors to Russia.

But an EU in crisis mode “is very different when it comes to foreign policy, security policy” than when out of crisis mode, Ringhof, who covers tech autonomy at ECFR, added.

The EU has an export controls coordination mechanism when it comes to dual-use items, products that can be used for both military and civilian applications. But that regulation took years to negotiate, was heavily watered down and revealed the difficulties EU capitals have seeing eye-to-eye on throwing up trade blocks with major economic powers.

Center-right European Parliament member Eva Maydell (Bulgaria), when asked about the Dutch dilemma, said there’s a clear need to “protect ourselves.” “The issue of unwanted technology and knowledge transfer needs to be dealt with, with the involvement of industry and governments. We need to have some clear framework it needs to operate under,” she said. The European Parliament in its final position on the European Chips Act law also pushed for more chips diplomacy, also on topics like export restrictions.

If anything, the Dutch deal with Washington is pushing the EU to play catch-up on how to handle export controls. And increasingly, European countries are open to wielding the tool more actively, several officials said.

“If you look at the debate some time ago [of whether] we had to let Huawei invest in critical infrastructure, that was a very difficult debate,” another EU diplomat said. “Now this decision would have been taken fairly quickly, to not do it.”

Barbara Moens, Jacopo Barigazzi and Gabriel Rinaldi contributed reporting.

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