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1. The U.S. Is Focused on Limiting China’s Access to Advanced Integrated Circuits
The stated goal of the new restrictions is limiting China’s access to the most advanced integrated circuits. To that end, the U.S. has (1) placed new license requirements on specified highly advanced U.S. integrated circuits — as well as computers, electronic assemblies, and components that contain such integrated circuits — when destined to China; (2) restricted the non-U.S. supply of integrated circuits meeting the same parameters if the non-U.S. integrated circuits are produced using U.S. software, technology, or equipment; and (3) imposed a license requirement for the export from China to any destination of technology for the production of these advanced integrated circuits in certain scenarios, impacting the ability of Chinese companies to produce these integrated circuits at facilities outside of China.
The U.S. also targeted China’s domestic chip manufacturing capabilities by adding a license requirement to China for (1) semiconductor manufacturing equipment necessary for producing the highly advanced integrated circuits; (2) items subject to U.S. jurisdiction that could be used in the development or production of advanced logic and storage integrated circuits; and (3) even old and low-level technology related to the development or production of semiconductor manufacturing equipment.
2. Not All Controls Are Focused on Advanced Technology
As noted above, BIS placed new restrictions on even low-level items involved in certain end uses in China. As a result, even companies that sell lower-technology items or only indirectly support the semiconductor industry in China should assess whether their items require a license under the new rules.
Most broadly, a license is now required for exporting, reexporting, or transferring any item subject to U.S. jurisdiction (including items classified as EAR99) to China where the item will be used in the development or production of semiconductor manufacturing equipment or related parts and components. BIS also targeted lower-technology items that are used in the development or production of advanced logic and storage chip-making or supercomputer end uses.
3. New Foreign Direct Product Rules Will Subject More Foreign-Made Items to U.S. Jurisdiction
BIS added three new FDP rules in the interim rule. These FDP rules, along with the prior FDP rules, extend the reach of U.S. export controls over certain items produced outside of the U.S. when the items are made using U.S. software, technology, or equipment. Given that much of the semiconductor manufacturing equipment worldwide is produced using U.S. technology, many foreign companies will need to consider whether their items are subject to U.S. jurisdiction for the first time.
Under the new FDP rules, any foreign-produced item made from even minimally controlled U.S. software or technology relating to electronics, computers, telecommunications, or information security, or made from equipment that was made from such software or technology, now requires a license when (1) going into the supply chain for certain Entity List entities involved in supercomputing with ties to the Chinese military or (2) being used in connection with supercomputers in or destined to China. Additionally, any advanced integrated circuits made using the technology, software, or equipment discussed above will require a license when destined to China.
4. U.S. Person Restrictions Are Not Tied to Products Subject to U.S. Jurisdiction
Although U.S. export controls typically apply to items subject to U.S. jurisdiction, a license is now required for U.S. persons (including U.S. citizens, permanent residents of the U.S., persons in the U.S., and any company incorporated under the laws of the U.S. and their foreign branches) to perform or facilitate certain activities related to advanced logic and storage integrated circuits and related equipment even in the absence of items subject to U.S. jurisdiction. This rule attempts to close a perceived loophole whereby a U.S. company could switch to supplying from offshore facilities in response to new U.S. export controls.
Specifically, these U.S. person restrictions relate to authorizing a shipment, making a shipment or delivery, or servicing (such as maintenance, repair, overhaul, or refurbishing) of commodities, software, or technology that will be used in the production or development of integrated circuits at semiconductor fabrication facilities capable of producing certain advanced logic and storage integrated circuits (or, in some cases, where the facility capabilities are unknown).2 The same activities are restricted when involving advanced semiconductor manufacturing equipment and related software and technology in China.
BIS has helpfully clarified in the first round of FAQs that this rule does not cover administrative activities by U.S. persons where those persons do not have knowledge that their administrative tasks relate to activities that would violate the EAR. Nevertheless, because the new restrictions apply to “facilitating” certain activities, without explicitly defining “facilitation,” the potential scope of these restrictions has generated concern in industry.
5. Negotiations With U.S. Allies on Semiconductor-Related Controls Could Take Time
BIS has indicated that it will propose the new controls on highly advanced integrated circuits for multilateral control at the Wassenaar Arrangement in 2023.3 The process of adding items to the Wassenaar List can be lengthy. However, the U.S. has also been actively liaising with allied supplier nations to impose multilateral controls faster. Under Secretary of Commerce for Industry and Security Alan F. Estevez recently noted that he expects allies to adopt similar rules in the near term,4 though it remains unclear which specific controls from this latest package are under consideration and by which allies. Indeed, Bloomberg reported on November 35 that Commerce Secretary Gina Raimondo told chip companies that the United States is negotiating an agreement with Japan and the Netherlands but that it could take up to nine months for those negotiations to conclude.
1 Written Presentation of Assistant Secretary Thea D. Rozman Kendler Public Briefing on BIS rule: “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification,” BIS (posted Oct. 28, 2022), https://www.bis.doc.gov/index.php/documents/product-guidance/3182-2022-10-28-bis-written-presentation-public-briefing-on-advanced-computing-and-semiconductor-manufacturing-items-rule/file.
2 The end-use and U.S. persons controls apply where a semiconductor fabrication facility is capable of producing any of the following: (A) logic integrated circuits using a nonplanar architecture or with a “production” technology node of 16/14 nanometers or less, (B) NOT-AND memory integrated circuits with 128 layers or more, or (C) dynamic random-access memory integrated circuits using a “production” technology node of 18 nanometer half-pitch or less.
3 Written Presentation of Assistant Secretary Thea D. Rozman Kendler Public Briefing on BIS rule: “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification,” BIS (posted Oct. 28, 2022), https://www.bis.doc.gov/index.php/documents/product-guidance/3182-2022-10-28-bis-written-presentation-public-briefing-on-advanced-computing-and-semiconductor-manufacturing-items-rule/file (“As noted above, we will seek multilateral controls on the new ECCNs added to BIS’s CCL by this rule”).
4 Special Event | A Conversation with Under Secretary of Commerce Alan F. Estevez, Center for New American Security (Oct. 27, 2022), https://www.cnas.org/events/special-event-a-conversation-with-under-secretary-of-commerce-alan-f-estevez.
5 “US Chip-Gear Makers Told to Wait for Relief From China Curbs,” https://www.bloomberg.com/news/articles/2022-11-03/us-chipmaking-gear-makers-told-to-wait-for-relief-on-china-curbs#xj4y7vzkg.
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