The South Korean government has intensified export controls by designating advanced semiconductor equipment as strategic goods, but confusion among equipment companies appears to be increasing. The likelihood that direct exports to overseas semiconductor factories will fall under these controls has risen, leading to concerns about the burden of dual approvals and potential impacts on sales to China.
According to industry sources on the 14th, multiple equipment suppliers serving clients like Samsung Electronics and SK Hynix are expressing difficulties due to vague criteria for strategic goods classification and more stringent export procedures. An official from a semiconductor equipment company stated, "The determination of whether specifications like etching speed or film thickness fall under control can take at least two weeks due to differences in standards between South Korea and the U.S.," adding, "What used to take a few days for export approval is now delayed for over two months due to overlapping reviews by relevant agencies, making it challenging to meet deadlines for overseas subsidiaries."
Another company representative noted, "Even after obtaining approval from the U.S. Department of Commerce's Bureau of Industry and Security (BIS), we have to rewrite documentation to meet domestic standards from scratch, doubling our administrative burden," and added, "To avoid regulations, we are making design changes by replacing components, which is expected to increase development costs by 10 to 20 percent compared to before."
On September 1, the Ministry of Trade, Industry and Energy implemented a revised notice designating advanced semiconductor manufacturing equipment, including photolithography, etching, and deposition equipment, as strategic goods. This measure reflects agreements from four major international export control regimes, including the Wassenaar Arrangement, aimed at preventing the militarization and leakage of advanced technologies and strengthening global control cooperation with allies such as the U.S. and the European Union.
Initially, there was a prevailing view that the impact of the strategic goods designation would be limited, given the high proportion of domestic sales for local equipment manufacturers. However, since the designation is based on the absolute criteria of a product's 'usage and performance' rather than overall transaction volume, even a single piece of equipment that meets regulatory specifications must receive government approval without exception.
As Samsung Electronics and SK Hynix expand their investments in overseas production facilities, the export volume of domestic equipment manufacturers is also on the rise. This is because equipment supplied to factories in the U.S. or China is classified as 'overseas exports' for accounting and customs purposes, rather than domestic sales.
The scope of impact has also widened in terms of technical categories, as the Ministry of Trade, Industry and Energy has included all photolithography, etching, and deposition equipment under regulatory items. An industry insider remarked, "Domestic equipment manufacturers may believe they only excel in back-end processes like packaging, but the deposition sector in front-end processes has a significantly high domestic production rate," adding, "This designation has made it inevitable for domestic front-end equipment manufacturers to face business disruptions."
Companies are expressing concerns about the administrative burden of overlapping regulations from the U.S. Foreign Direct Product Rule (FDPR) and domestic notices. As South Korea is classified as a non-exempt country under the U.S. FDPR, equipment containing U.S. technology or software requires BIS approval for export, adding another layer of government approval procedures.
Concerns about a decline in exports to China are also being raised. According to the Korea Institute for International Economic Policy, as of 2023, about 30% of South Korea's semiconductor equipment exports are to China, indicating a high dependency. If exports to China are restricted, the overall sales of major equipment manufacturers could be shaken by as much as one-third.
Experts emphasize the urgent need for tailored government support to ensure the smooth implementation of these regulations. Kim Yang-pyung, a researcher at the Korea Institute for Industrial Economics and Trade, stated, "Since advanced semiconductor equipment is directly linked to national economic security, participation in export controls at the international cooperation level is inevitable. However, clear detailed guidelines and support systems from the government must be provided to prevent companies from experiencing excessive administrative disruptions during the regulatory process."
* This article has been translated by AI.
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