TOKYO (Reuters) - The Japanese government, fretting over the future of Toshiba Corp’s flagship memory chips unit, is prepared to block a sale to bidders it deems a risk to national security, sources said, a stance that gives U.S. suitors a major advantage.

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The government would use Japan’s foreign exchange and foreign trade laws to control the auction if need be, one of the sources said. The sources are directly involved in the sale process, but declined to be identified because it is not public.

“The United States is the only feasible partner from Japan’s national security standpoint,” said another source, noting that cutting-edge chips are at the heart of robotics, artificial intelligence and connected devices.

Seeking to plug an upcoming $6.3 billion writedown for its U.S. nuclear unit Westinghouse and create a buffer for future potential losses, Toshiba is rushing to sell most or even all of the unit - world’s second-biggest NAND chip producer - which it values at at least $13 billion.

With Westinghouse woes deepening to the point of it hiring bankruptcy lawyers to explore a possible Chapter 11 filing, the Japanese industrial conglomerate is also leaning towards U.S. suitors given the potential for friction with the United States.

“It’s obvious U.S. players are more suitable bidders,” a Toshiba executive said. “We’ll probably need to fight over Westinghouse (with the U.S.), so we could cooperate over chips in exchange.”

U.S. suitors include data storage firm Western Digital which operates a Japanese chip plant with Toshiba, rival Micron Technology Inc and financial investors like Bain Capital, sources have previously said.

Preferring those bidders would exclude others including South Korean chipmaker SK Hynix Inc, Taiwan’s Foxconn, the world’s largest contract electronics maker, and TSMC, the world’s biggest contract chip manufacturer.

Only Foxconn has publicly said it plans to bid while SK Hynix has said it is considering an offer. A Toshiba spokeswoman declined to comment on the specifics of the sale process.

Japan is concerned the firesale could hand key capabilities to rival China, sources with knowledge of the matter have said.

Japan’s Foreign Exchange and Foreign Trade Act dictates that an overseas company looking to buy a Japanese company with technology considered key to national security must obtain government permission in advance.

It has been rarely used directly but in 2011, the law deterred foreign suitors from bidding to buy a stake in medical equipment and camera maker Olympus Corp as optical technology is also used in military equipment, financial sources said.

Japanese Trade Minister Hiroshige Seko at a parliamentary committee on Wednesday declined to comment when asked if Toshiba’s memory chips would be considered sensitive technology.

The sale is being conducted as Toshiba faces a March 14 deadline to publish its earnings after postponing their release a month ago so that it could probe potential problems at Westinghouse. If it misses that date, it has eight working days to March 27 to file or face a possible delisting from the Tokyo bourse.

People familiar with the matter have told Reuters that Westinghouse, hit by huge cost overruns at two U.S. projects, had brought in law firm Weil Gotshal & Manges LLP as an exploratory step, but had not yet taken a decision on a bankruptcy filing.

Japan’s finance minister said on Friday the company should decide in the coming weeks whether to file for Chapter 11 bankruptcy, freeing it up to report up to date earnings.