Explainer- What is “FDPR” and what is it that makes it that the U.S. using it to impoverish China’s tech industry?
OAKLAND, Calif. (Reuters) – They did it to Huawei. They did it to Russia. The United States is going after China’s high-tech supercomputer and computing industry.
The weapon? A rule that is not widely known, allowing U.S. regulators to extend their export control capabilities for technology over the American borders to transactions between other nations and China.
The law, known as”the rule of foreign direct production or FDPR was implemented in 1959 to regulate the trading of U.S. technology. It basically states that if an item was created by using American technology and is deemed to be American-made, it is the U.S. government has the right to block the sale of that product – even products manufactured in a foreign nation.
The day before, U.S. officials applied the rule to China’s high-tech supercomputer and computing industry to prevent it from getting sophisticated computing technology.
The rule came into play in August 2020 as it was applied to China telecom giant Huawei Technologies Co Ltd. American officials had attempted to stop Huawei’s supply of semiconductors , but discovered that firms were sending Huawei chips produced by factories located outside of in the United States.
At some point, U.S. regulators found an area of contention: Nearly all chip factories use tools that are made by U.S. suppliers. They therefore extended the FDPR to monitor trade in chips manufactured using U.S. technology or tools. The move was a hit to Huawei’s smartphone business as well as U.S. regulators used it against Russia as well as Belarus following their invasion into Ukraine to remove chips.
Dan Fisher-Owens, who is a specialist in export control on chips at the law company Berliner Corcoran & Rowe, said that the expansion in FDPR filled a void within U.S. export control jurisdiction.
But, he added that it is the United States has been cautious in applying the rule since it could draw foreign companies in the middle and “create tension” among allies that might not agree with the use to U.S. law.
Officials from senior U.S. officials said on Friday that the latest application will end the use of advanced chips in Chinese supercomputers that could be used for the development of nuclear weapons, as well as other applications.
The United States had already placed several Chinese supercomputing firms on a list of restricted entities and barred them from purchasing U.S. chips. But these companies have begun to create their own chips and then try to manufacture them which the U.S. actions on Friday was meant to deter.
The latest policy would bar any semiconductor manufacturer which uses American tools – as the majority use – from selling high-end chips to China according to Karl Freund, a chip consultant at Cambrian AI who watches the supercomputing market.
“They will need to create their own manufacturing techniques and develop their own processors to replace the outdated U.S. or Western technologies which they’re currently using,” said Freund, the chip consultant for Cambrian AI who watches the supercomputing industry.
In that scenario the scenario, you could need to give China 5 to 10 years before it is able to adapt with current technology, he explained.
