ANALYSIS: South Korea, Netherlands to Establish ‘Semiconductor Alliance’ and Reduce Reliance on China

South Korean President Yoon Suk-yeol and Dutch Prime Minister Mark Rutte at a press conference at Binnenhof in The Hague, Netherlands, on Dec. 13, 2023. Patrick van Katwijk/Getty Images

News Analysis

In a landmark move to mitigate dependency on China’s supply chain, South Korean President Yoon Suk-yeol and Dutch Prime Minister Mark Rutte announced the formation of a “semiconductor alliance” on Dec. 13.

This historic alliance, aimed at bolstering semiconductor competitiveness and addressing supply chain challenges, marks South Korea’s latest strategic partnership in the sector, following collaborations with the United States and Japan. The Netherlands—recognized for its robust semiconductor equipment capabilities—emerges as a key ally in this initiative.

Mr. Yoon embarked on a four-day state visit to the Netherlands on Dec. 11, marking the first visit by a South Korean president since the countries established diplomatic ties in 1961.

During a summit in The Hague, Mr. Yoon and Mr. Rutte issued a joint statement to intensify their strategic partnership, with the establishment of a “semiconductor alliance” as its cornerstone. This alliance, a novel concept in their bilateral relations, aims to foster economic cooperation, address security challenges, and uphold a rules-based international order.

The “semiconductor alliance” signifies a joint effort by South Korea and the Netherlands to address key scientific and technological challenges, share critical information, and gain a competitive edge in the semiconductor industry.

South Korea’s Presidential Office highlighted the visit’s objective to collaborate with the Netherlands to enhance the semiconductor production cycle and establish a global cooperation framework. This initiative also seeks to reduce South Korea’s reliance on China for essential minerals and stabilize a supply chain anchored by nations valuing freedom and democracy.

Netherlands: Pivotal Player in Global Chip Industry

The Netherlands hosts ASML, a leading global semiconductor equipment company and the sole producer of extreme ultraviolet (EUV) lithography machines. ASML’s technology is crucial to giants like Samsung Electronics, SK Hynix, TSMC, and Intel, underlining the strategic importance of the Dutch partnership in South Korea’s broader semiconductor strategy.

South Korea, a leader in memory chip production, acknowledges its limitations in the non-memory semiconductor sector, particularly in materials and equipment. This recognition underscores the value of the Netherlands as a critical ally in these areas.

The Yoon administration is optimistic about the potential of the semiconductor alliance with the Netherlands to open new opportunities in equipment supply and procurement. Mr. Rutte echoed this sentiment, celebrating the partnership as a promising and mutually beneficial venture.

Mr. Rutte acknowledged South Korea as a key partner and a trusted ally, noting the thriving cooperation in semiconductor technology. The Netherlands is South Korea’s second-largest trading partner within the European Union and is a leading source of investment. The historical bond is further highlighted by the Netherlands’ support during the Korean War.

ASML

Mr. Yoon visited ASML’s headquarters on Dec. 12, accompanied by leaders from Samsung Electronics and SK Group. This was the first instance of ASML opening its core facilities, including the cleanroom showcasing 2-nanometer technology, to a foreign head of state. This technology is poised to revolutionize the semiconductor market.

The visit also saw the signing of pivotal agreements. Samsung Electronics and ASML agreed on a 1 trillion won (about $760 million) investment to establish a new research center in South Korea in order to advance ultra-fine semiconductor technology. Similarly, SK Hynix and ASML will collaborate on developing EUV hydrogen recycling technology.

A significant development was the establishment of the Korea-Netherlands Advanced Semiconductor Academy. This initiative, signed at ASML, plans to train around 500 professionals, including masters and doctoral candidates from both countries, over the next five years. This institute is a testament to the deepening educational and technological cooperation between South Korea and the Netherlands in the semiconductor domain.

Supply Chain Vulnerabilities

In light of the newly formed “semiconductor alliance,” South Korean national security official Kim Tae-hyo highlighted the alliance’s goal of establishing robust cooperation in the semiconductor sector. This alliance is geared toward creating an effective response mechanism to supply chain disruptions and reflects a commitment to foster a specialized partnership capable of swiftly addressing supply chain crises.

To expedite the formation of the semiconductor alliance, South Korea and the Netherlands have implemented various bilateral consultation frameworks focusing on economic security and industrial policy. A significant step in this direction is the signing of a memorandum of understanding aimed at enhancing cooperation in the semiconductor supply chain. This memorandum is set to strengthen the interconnectedness of the chip supply chains of both countries, leveraging their respective advantages.

The memorandum emphasizes exploring alternatives to critical imports, sharing experiences in operating supply chain early-warning systems, and facilitating the exchange of reserve items during emergencies. This approach is seen as South Korea’s strategy to reduce its overreliance on China for essential semiconductor components.

Heavy Dependence on China

South Korea’s reliance on China for key semiconductor materials is notably high. Data from the South Korean National Assembly reveal that over half of South Korea’s major overseas imports—particularly rare earth metals and core secondary battery materials—are sourced from China. For instance, in the first half of the year, 79.4 percent of rare earth metal imports, vital for chip production, came from China.

Furthermore, South Korea’s dependence on China for gallium and germanium—crucial semiconductor materials currently under Chinese export control—stands at 87.6 percent. This reliance exposes South Korea to heightened risks, especially in the context of the growing U.S.-China tensions and China’s history of using resource export as economic leverage, as seen in the 2021 vehicle urea export restriction and the recent halting of urea exports to South Korea.

The South Korean government is intensifying diplomatic efforts to diversify its supply chains in response to these vulnerabilities. Collaborating with the Netherlands within the broader multilateral security framework, including the United States and Japan, is a strategic move to mitigate supply chain risks. This initiative is expected to bolster South Korea’s supply foundation for core minerals crucial in semiconductor production, enhancing its resilience against potential disruptions.