Japan's export control measures on semiconductor equipment violate WTO rules
Published: Apr 30, 2023 01:13 PM
Photo: CFP

Photo: CFP

On January 27, 2023, several Western media outlets reported an agreement among the US, the Netherlands and Japan on restricting the export of advanced chip manufacturing equipment to China and extending the export control measures adopted by the US in October 2022 to relevant companies in the other two countries. The governments of the three countries have neither confirmed this news nor publicized the agreement's contents, but it was indirectly confirmed by the draft opinion on trade control rules for semiconductor manufacturing equipment released by the Japanese government on March 31, including 23 types of advanced semiconductor manufacturing equipment. Though the Japanese government denied that this move is at the US' behest and did not mention whether the restrictions only target China, it is already obvious that Japan has stood on the US' side regarding the China-US game centered on chips, and it is no doubt a wrong side.

While often implemented in the name of safeguarding national security, export restriction is essentially a trade measure subject to the constraints and management by WTO rules. WTO's fundamental spirit is to promote free trade. Restrictions on imports or exports are not encouraged by the WTO. In general, exports are encouraged rather than restricted by governments, thus imports are more likely to be subject to trade restrictions in order to protect domestic industries. Therefore, compared with import tariffs, exports tariffs are quite rare, even explicitly prohibited in some countries. However, some fundamentals of the WTO, such as most-favored-nation treatment and the general elimination of quantitative restrictions, apply to control measures on both imports and exports. This implies that export control measures, particularly quantitative measures such as export quotas and bans, shall not be adopted, or adopted in a discriminatory manner.

In reality, there is one area where export controls are common, namely weapons or military products, whose export is under strict control and is only allowed for countries with friendly diplomatic or political ties. Such restrictions are widely understood and accepted. During the Cold War when there was confrontation between countries led by the US and Soviet Union, the US initiated the Coordinating Committee for Multilateral Export Controls (COCOM) to coordinate the export control policies of Western countries towards socialist countries. The Committee, however, was disbanded in 1994 after the end of the Cold War. Its participating countries established a system to coordinate export controls on military and dual-use items on a voluntary basis in the 1996 Wassenaar Arrangement, which was meant to restrict the export of military-related products and technologies to certain few countries. Both COCOM and Wassenaar Arrangement focused on military security or trade related with military products and had never been used as an instrument in industrial competition, which is why they have not been challenged by international law or by international organizations such as the WTO.

However, the US, facing a sense of crisis and anxiety regarding the decline of its hegemony in recent years, has prioritized maintaining and strengthening its leading position in science and technology in an attempt to maintain its hegemony by restraining China's development. The consistent elevation, reinforcement and expansion of export controls on high-tech products to China have become the most critical tool to this end. The US has not only intensified its own export controls on China, but also demanded and even coerced its allies to do the same. It is worth pointing out that these export controls dominated by the US have gone beyond the military or even the dual-use domain to include most of its leading technologies. 

The US is not just aiming at restricting China's development in military technologies or weapons. By utilizing its current technological advantages, the US is trying to maintain its hegemony and block China's access to advanced technology, hindering China's technological progress, thus confining China to the lower end of the value and industrial chains. Such an objective, far exceeding the requirement of Wassenaar Arrangement, is even more stringent than the Cold War-era COCOM. If the Wassenaar Arrangement and COCOM were still basically consistent with the WTO's national security exceptions as they focus on military matters, the current extreme export controls taken by the US against China are completely beyond the scope allowed by the WTO, seriously undermining the  of WTO members on the prudent use of national security exceptions, causing serious harm to the multilateral trading system. That is why China brought the case to the dispute settlement mechanism of the WTO regarding the export control measures imposed by the US on chips exported to China in December, 2022.

National security exceptions in WTO rules are relatively broad in scope, leaving its members greater discretion to invoke the provisions. It does not mean that there are no boundaries on this issue, leaving these exceptions open to utterly free interpretation. The boundaries are clearly defined in the WTO panel reports, especially in the two disputes over the US Section 232 tariffs on steel and aluminum and the labeling of products from the Hong Kong Special Administrative Region (HKSAR). Members can only invoke national security exceptions to deviate from the WTO principles and rules in trade involving weapons, military products, nuclear weapons, and related items, or when they are in a diplomatic emergency with another member. Members may not justify their trade protection measures based on their own interpretation of national security. Grounds such as industrial security, economic security, and human rights protection are untenable.

The chip manufacturing equipment Japan exports to China is not related to national security. As one of the largest producers of information technology products and automobiles, China needs to produce large quantities of chips to meet the demands of downstream industries and global market's demand for digital products and vehicles. This is a commercial activity as a part of global production and trade.  Trade cooperation between China and Japan have been close and mutually beneficial, including the chip sector. In 2022, Japan exported more than approximately 42.4 billion yuan of semiconductor manufacturing equipment to Chinese mainland, making it the top export destination for Japanese companies in this sector, accounting for approximately 30 percent of total export. Such close economic and trade ties indicate that there is no state of international relations emergency between China and Japan, and there is no reason for Japan to invoke national security exceptions to defend its export control measures.

It's fair to say that Japan, with a high level of trade liberalization and facilitation, has been a well-performing WTO member and is rarely the subject of complaint under the dispute settlement mechanism. Recently, it has also joined the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) initiated by China and the EU to resolve disputes members through arbitration. This is in stark contrast to the damage caused by the US to the WTO dispute settlement mechanism. Japan's long-term interests as a trading power lie in a fair and open multilateral trading regime. Therefore, we hope that Japan can see the glaring contradiction between proposed export control measures for semiconductor equipment and the WTO rules. Such behaviors run against its long tradition of upholding the multilateral trading system.  Japan should suspend these restrictions and engage in constructive dialogue and consultation to address common concerns with affected members, including China.

The author is a researcher with China Institute for WTO Studies, University of International Business and Economics. opinion@globaltimes.com.cn