Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Explainer-What is 'FDPR' and why is the U.S. using it to cripple China's tech sector?

Stock Markets Oct 08, 2022 03:11AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Semiconductor chips are seen on a circuit board of a computer in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration/File Photo

By Jane Lanhee Lee and Stephen Nellis

OAKLAND, Calif. (Reuters) - They did it to Huawei. They used it on Russia. Now, the United States is going after China's advanced computing and supercomputer industry.

The weapon? A little-known rule that enables U.S. regulators to extend their technology export control powers far beyond America's borders to transactions between foreign countries and China.

The provision called the foreign direct product rule, or FDPR, was first introduced in 1959 to control trading of U.S. technologies. It essentially says that if a product was made using American technology, the U.S. government has the power to stop it from being sold - including products made in a foreign country.

On Friday, U.S. officials applied the rule to China's advanced computing and supercomputer industry to stop it from obtaining advanced computing chips.

The rule took center stage in August 2020, when it was used against China telecom company Huawei Technologies Co Ltd. American officials had tried to cut off Huawei's supply of semiconductors but found that companies were still shipping to Huawei chips made in factories outside the United States.

Eventually, U.S. regulators found a choke point: Almost all chip factories contain critical tools from U.S. suppliers. So they expanded the FDPR to control trade of chips made using U.S. technology or tools. That move was a blow to Huawei's smart phone business, and U.S. regulators used it on Russia and Belarus after the invasion of Ukraine to cut off chips.

Dan Fisher-Owens, a specialist in export controls on chips at law firm Berliner Corcoran & Rowe, said the expansion in FDPR closed a gap in U.S. export control jurisdiction.

However, he said the United States has been cautious about using the rule as it can drag foreign companies into the process and "create friction" with allies who may disagree with the application of U.S. law.

Senior U.S. officials said on Friday the new application will stop advanced chip use in Chinese supercomputers, which can be used to develop nuclear weapons and other military applications.

The United States had already placed a number of Chinese supercomputing companies on a restricted entity list, cutting them off from buying U.S. chips. But those companies started to design their own chips and seek to have them manufactured - a strategy that the U.S. action on Friday were designed to thwart.

The latest move would ban any semiconductor manufacturing firm that uses American tools - which most do - from selling advanced chips to China, said Karl Freund, a chip consultant at Cambrian AI who watches the supercomputing space.

"They will have to develop their own manufacturing technologies, and they'll have to develop their own processor technologies to replace the missing U.S. or Western technologies that they're using today," said Freund, a chip consultant at Cambrian AI who watches the supercomputing space.

In that case, it could take China five to 10 years to catch up to today's technology, he added.

Explainer-What is 'FDPR' and why is the U.S. using it to cripple China's tech sector?
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email