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US Is Late to Export Controls for Legacy Chips, Former BIS Official Says

The U.S. should have placed export controls on a broader range of semiconductors, including legacy chips, as part of its efforts over the last year to restrict sales of advanced semiconductors to China, said Nazak Nikakhtar, a former acting Bureau of Industry and Security undersecretary. She said a lack of legacy chip controls is allowing China to dominate that sector of the industry and grab market share away from companies in the U.S. and its allies, including South Korea and Taiwan.

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Although the Biden administration deserves “credit” for its work to control advanced chips, "I also want to stress that we are so late in the export control game on [mature] semiconductors,” she said.

Speaking during a virtual event last week hosted by the Wilson Center, Nikakhtar said the U.S. should add export license requirements for mature chips, typically understood as semiconductors with a technology node of 28 nanometers and above. Although it’s also important to place guardrails around more advanced chips, she said, the 28 nanometer nodes “are the ones that matter. We're really just getting very little gains as these nodes get smaller.”

Others have made similar arguments, including the Silverado Policy Accelerator think tank, which said in a report last month that current restrictions on advanced chip equipment risks pushing China to instead dominate the global legacy chip sector (see 2310270044).

Nikakhtar said China has been focused on “indigenizing” mature semiconductor technology for “at least a couple of decades,” including through significant subsidies and technology theft. “Frankly, we just haven't really gotten our act together as a nation and collectively as an international community,” said Nikakhtar, now a trade lawyer with Wiley Rein. “Shame on us for not understanding and underestimating China's innovation capacity.”

BIS, which released updated chip controls last month, has stressed that the curbs are meant to be narrow and stop only the most advanced, sensitive semiconductors and chip equipment from being exported to China (see 2310170055). As BIS worked on the requirements, the semiconductor industry urged the agency to only impose targeted, multilateral restrictions, warning that foreign companies may choose to abandon U.S.-origin items rather than spend the time and money trying to comply with the restrictions (see 2302020034, 2211010042 and 2211040051).

But Nikakhtar, who also served as the Commerce Department’s assistant secretary for industry and analysis, said the controls need to go further. “We're still taking small bites of the apple,” she said. “When you are late to the game, you cannot go in really leanly -- really in a small, strategic, nuanced manner -- because you have a whole ecosystem that you've just ceded that you're trying to figure out how to gain back.”

She said China is running “overcapacity” with legacy chips in the hopes of putting “everybody out of the market. “Our companies’ revenue, [Taiwan Semiconductor Manufacturing Company’s] revenue, all of that to fund the three nanometer, five nanometer chips -- it comes from the sales” of mature node chips, Nikakhtar said. “And if China's running overcapacity, to be sure, every foundry in the world is losing market share to China for this very reason.”

She also stressed the importance of blocking advanced chips and chip equipment to China, including the deep ultraviolet lithography technology produced by Dutch toolmaker ASML. The Netherlands earlier this year introduced export licensing requirements for ASML’s most advanced DUV immersion lithography technologies (see 2306300028 and 2303090032), but Nikakhtar noted that China had been easily importing that equipment beforehand.

“China gets that freely, really without restrictions, hires engineers from the Netherlands, hires engineers from Taiwan, and is able to build out this technology to now make seven nanometer” chips, she said, referencing China’s Semiconductor Manufacturing International Corp. and Huawei’s 7 nanometer chip smartphone breakthrough earlier this year (see 2310060065 and 2310060062).

“The only way to ensure leadership, or reclaim leadership, is innovation and very serious guardrails on transactions with China,” Nikakhtar said. “Because the more we transfer technology and capital, we are assuring our own destruction, and we have 15, 20 years of data, empirical data, to prove that that's been happening.”