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On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued sweeping new export controls under the Export Administration Regulations (“EAR”) aiming to cut off support for China’s advanced computing and supercomputing capabilities, with the new controls targeting specified chips, chipmaking equipment, and related services.
The BIS rule, which runs over 100 pages, is the most significant expansion of semiconductor-related export controls in recent memory, if not the history of the EAR, and marks a decisive inflection point in the U.S. strategic competition with China. Companies in the semiconductor industry should gauge their exposure to China-related risk, which could be present in oblique and non-obvious ways, and service providers to the industry should assess their risk exposure in light of the rule’s provisions regarding U.S. person “support” for restricted activities.
The new measures are notable for their:
(a) expansion of the Commerce Control List (“CCL”) to cover a range of semiconductor items and production equipment,
(b) introduction of new “foreign direct product” (“FDP”) rules to restrict exports of various non-U.S. items derived from U.S. technology, and,
(c) prohibition of U.S. person “support” for covered activities, which could capture activities tangentially related to semiconductor manufacturing (such as financing, shipping, and logistics).
The controls apply to (a) items “subject to the EAR,” i.e., items that are:
(1) located in the United States;
(2) of U.S.-origin, wherever located;
(3) of non-U.S.-origin, but incorporating more than 25% “controlled” U.S. content; and,
(4) of non-U.S.-origin, but the “direct product” of certain U.S. technology and software (as noted below); and (b) certain activities of U.S. persons with respect to non-EAR items.
As a result of the new rule, a BIS license will be required to export to China a range of items or engage in certain China-related activities. The key aspects of the rule are as follows:
- High-performance integrated circuits (“ICs”) and related computers. Effective October 21, the BIS rule controls exports to China of specified high-performance ICs in new Export Control Classification Number (“ECCN”) 3A090, and computers incorporating such ICs in ECCN 4A090.
- New FDP rules. Effective October 21, BIS is controlling the export of the following non-U.S. items derived from U.S. technology or software:
- items that are the “direct product” of specified U.S. semiconductor technology or software, when exported to certain Chinese companies on the BIS Entity List;
- items that meet the parameters of ECCNs 3A090 or 4A090 and are the “direct product” of specified U.S. semiconductor technology or software,
- (a) when exported to any party in China, or
- (b) in the case of technology developed by a China-headquartered company, when exported to any country in the world; or
- items that are the “direct product” of specified U.S. semiconductor technology or software, when used in the development, production, or use of a supercomputer or supercomputer components located in or destined to China.
- Supercomputer end-use / end-user controls. Effective October 21, specified ICs or computers are subject to controls when intended for development, production, or use of a supercomputer in China.
- Semiconductor manufacturing. The BIS rule imposes export controls on:
- exports to China of specified semiconductor manufacturing equipment described in new ECCN 3B090 (effective October 7);
- any item for use in the development or production of:
- (a) ICs at a semiconductor fabrication facility in China that fabricates specified ICs, or
- (b) specified semiconductor manufacturing equipment in China (effective October 21); and
- production or test equipment, software, or technology listed in Category 3 of the CCL, when for the development or production of ICs at a semiconductor fabrication facility in China, under circumstances in which the exporter does not know whether the facility is manufacturing ICs meeting the parameters noted above (effective October 21).
- U.S. person support for development or production of specified ICs. Effective October 12, the rule prohibits the following U.S. person activities involving items not subject to the EAR:
- (a) shipping, transmitting, or transferring items to or within China, (b) facilitating such activities, or (c) servicing items, in each case for use in the development or production of ICs at a fabrication facility that fabricates specified ICs;
- (a) shipping, transmitting, or transferring production or test equipment, software, or technology listed in Category 3 of the CCL to or within China, (b) facilitating such activities, or (c) servicing such items, in each case for use in the development or production of ICs at a fabrication facility that fabricates specified ICs; and
- (a) shipping, transmitting, or transferring semiconductor manufacturing equipment described in ECCN 3B090 (or related software or technology) to or within China, (b) facilitating such activities, or (c) servicing such items, regardless of end use or end user.
- Temporary General License (“TGL”). To avoid disruptions to supply chains, BIS has issued a TGL, effective from October 21 through April 7, 2023, authorizing certain China-related exports of 3A090 and 4A090 items (and associated software and technology) ultimately destined to customers outside China.