January 31, 2023

Volume XIII, Number 31

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January 30, 2023

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BIS Implements New Chinese Supercomputer and Semiconductor Manufacturing Export Controls

On Thursday, October 13, 2022, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) published in the Federal Register an Interim Final Rule, 87 Fed. Reg. 62186, amending the Export Administration Regulations (EAR) (15 CFR parts 730-774) to impose new export controls on Chinese advanced computing integrated circuits (ICs), computer commodities containing such ICs, and certain semiconductor manufacturing items. These controls, all of which are currently effective, include:

  • New Foreign Direct Product (FDP) Rules, as outlined in EAR § 734.9, including Entity List Modifications;

  • New license requirements for export, reexport, or transfer (in-country) to or within China certain advanced computing semiconductor chips and semiconductor manufacturing items, as outlined in EAR § 742.6;

  • U.S. Persons “Support” Modifications that Implicate General Prohibitions in EAR § 744.6; and

  • New Supercomputing and Semiconductor Manufacturing End Use and End User Controls, as outlined in EAR § 744.23.

These controls generally fall into two broad categories: (1) semiconductor manufacturing and (2) advanced chips and supercomputing.

Background

China’s military civil fusion strategy has necessitated a new approach to export controls, particularly for technology such as advanced logic and memory chips. Accordingly, BIS implemented this rule to address the national security and foreign policy concerns arising particularly from China’s intention to develop and employ advanced Artificial Intelligence (AI) capabilities facilitated by supercomputing built on advanced semiconductors. Yet, recognizing the importance of the semiconductor industry to the world economy, the scope of the rule applies only to those chips, equipment, activities, and entities that pose the greatest national security concern.

New Rules

Semiconductor Manufacturing

  1. Specified Manufacturing Equipment

This Interim Final Rule adds new Export Control Classification Number (ECCN) 3B090 for specified semiconductor manufacturing equipment and its associated software and technology in 3D001 (for 3B090) and 3E001 (for 3B090). Under EAR § 742.6(a)(6), these new ECCNs are controlled for Regional Stability (RS) reasons and will require a license to export, reexport, or transfer (in-country) these items to or within China. This license requirement does not apply to deemed exports or reexports. The only license exemption available for 3B090 and associated technology and software (3D001 and 3E001) is the Governments, International Organizations, International Inspections under the Chemical Weapons Convention and International Space Station (GOV) exemption available under the requirements outlined in EAR § 740.11(b)(2)(ii).

A license is also required for any item subject to the EAR if you know that the destined end-use is for the “development” or “production” in China of any parts, components, or equipment specified under certain ECCNs in product group B of category 3 of the Commerce Control List (CCL), including the new ECCN 3B090. See EAR § 744.23(a)(2)(v).

Similarly, BIS informs U.S. persons in EAR § 744.6(c)(2)(vii)-(ix) that engaging in certain activities (“Covered Activities”) involving any item not subject to the EAR that meets the parameters of ECCNs 3B090, 3D001 (for 3B090), or 3E001 (for 3B090) support weapons of mass-destruction-related ends uses and, accordingly, requires a license. Covered Activities include:

  • Shipping, transmitting, or transferring in country any item that is not subject to the EAR;

  • Facilitating the shipment, transmission, or transfer of any items that are not subject to the EAR; or

  • Servicing any item not subject to the EAR.

  • Integrated Circuit Fabrication Facilities

The Interim Final Rule implements two other Semiconductor Manufacturing End Use requirements at EAR § 744.23 with corresponding restrictions in EAR § 744.6 for U.S. persons engaged in Covered Activities that BIS now informs them support weapons of mass destruction end uses. First, under EAR § 744.23, a license is required for any item subject to the EAR if you have knowledge that it is destined for the “development” or “production” of integrated circuits at a semiconductor fabrication “facility” located in China that fabricates ICs meeting the following criteria (“Informed Products”):

  • Logic ICs using a non-planar transistor architecture or with a “production” technology node of 16/14 nanometers or less;

  • NOT AND (NAND) memory ICs with 128 layers or more; or

  • Dynamic random-access memory (DRAM) ICs using a “production” technology node of 18 nanometer half-pitch or less.

For any item not subject to the EAR, BIS informs U.S. persons in EAR § 744.6 that they may not engage in Covered Activities without a license if they know the item will be used in the “development” or “production” of ICs at semiconductor fabrication facilities in China that fabricate Informed Products.

No license exceptions apply to these end-use and U.S. persons restrictions.

Second, under EAR § 744.23, for any item classified in an ECCN in Product Groups B, C, D, or E in Category 3 of the CCL, a license is required when you know the item will be used in the “development” or “production” of ICs at semiconductor fabrication facilities in China – even if you do not know whether the fabrication facility fabricates Informed Products.

Similarly, for any item not subject to the EAR that meets the parameters of an ECCN in Product Groups B, C, D, or E in Category 3 of the CCL, U.S. persons may not engage in Covered Activities without a license if they know the item will be used in the “development” or “production” of ICs at semiconductor fabrication facilities in China – even if they do not know whether the fabrication facility fabricates Informed Products. See EAR § 744.6

No license exceptions apply to these end-use and U.S. persons restrictions.

Advanced Chips and Supercomputing

  1. High Performance Integrated Circuits and Computers

This Interim Final Rule adds new ECCNs:

  • 3A090 for specified high-performance ICs;

  • 4A090 for computers, electronic assemblies, and components not specified elsewhere containing IC in ECCN 3A090; and

  • Associated software and technologies found in ECCNs 3D001 (for 3A090 or 4A090), 3E001 (for 3A090 or 4A090), 4D090, 4E001 (for 3A090 or 4A090), and 5D992 (that meet or exceed the performance parameters of ECCNs 3A090 or 4A090).

Under EAR § 742.6(a)(6), these new ECCNs are controlled for Regional Stability (RS) reasons and will require a license to export, reexport, or transfer (in-country) these items to or within China. A license is also required for items specified in ECCN 5A992 that meet or exceed the parameters of 3A090 or 4A090. These license requirements do not apply to deemed exports or deemed reexports. The only license exemptions available for 3A090, 4A090, and associated software and technology in are:

  • Servicing and Replacement of Parts and Equipment (RPL) under the provisions of EAR § 740.10, including § 740.10(a)(3)(v), which prohibits exports and reexports of replacement parts to countries in Country Group E:1;

  • GOV, restricted to eligibility under the provisions of § 740.11(b)(2)(ii);

  • Technology and Software – Unrestricted (TSU) under the provisions of § 740.13(a), (c); or

  • Temporary General License in Supplement No. 1 to Part 736 of the EAR (discussed below)

The Interim Final Rule adds an Advanced Computing FDP Rule in EAR § 734.9(h), placing controls on certain foreign-made items that meet the parameters of the new ECCNs 3A090 or 4A090. Under this rule, a license is required to export, reexport, or transfer (in-country) any item subject to the EAR that falls within the product scope when you have “knowledge” that the item is destined for the end-use scope. The product scope includes foreign produced items that are:

  • The direct product of certain specified “technology” or “software” subject to the EAR, and the foreign-produced items is

    • specified in the new ECCN 3A090, 3E001 (for 3A090), 4A090, or 3E001 (for 4A090); or

    • an IC, computer, electronic assembly, or component specified elsewhere in the CCL that meets or exceeds the performance parameters of ECCN 3A090 or 4A090; or

  • The product of a complete plant or major component of a plant that is itself the direct product of certain U.S.-origin “technology” or “software,” and the foreign-produced items is

    • specified in the new ECCN 3A090, 3E001 (for 3A090), 4A090, or 3E001 (for 4A090); or

    • An IC, computer, electronic assembly or component specified elsewhere in the CCL which meets or exceeds the performance parameters of ECCN 3A090 or 4A090.

 The end-use scope includes when you have knowledge that the foreign produced item is:

  • Destined to China or will be incorporated into any “part,” “component,” computer’ or equipment” not designated EAR99 that is destined to China; or

  • Technology developed by an entity headquartered in China for the “production” of a mask or an IC wafer or die.

Accordingly, a license is required to export, reexport or transfer (in-country) the above listed items to or within China when you have knowledge that it for the above listed end-uses. The rule provides a Model Certification in Supplement No. 1 to Part 734 of the EAR to assist exporters, reexporters, and transferors in determining whether the items being exported, reexported, or transferred (in-country) are subject to this FDP Rule. The certification is not a required step and does not remove the need to conduct due diligence and know your customer.

  • Supercomputers

This Interim Final Rule also implements a new Supercomputer End Use requirement in EAR § 744.23 that imposes new controls for chips and other items used in or for supercomputers in China or destined for China. These controls apply to:

  • ICs subject to the EAR and specified in ECCN 3A001, 3A991, 4A994, 5A002, 5A004, or 5A992; and

  • Computers, electronic assemblies, or components subject to the EAR and specified in ECCN 4A003, 4A004, 4A994, 5A002, 5A004, or 5A992.

Accordingly, you cannot export, reexport, or transfer (in-country) these items without a license when you have “knowledge” at the time of export, reexport, or transfer (in country) that it is destined for either: 

  • The “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing of a “supercomputer” located in or destined to China; or

  • The incorporation into, or “development,” or “production” of any “component” or “equipment” that will be used in a “supercomputer” located in or destined to China.

The restrictions on exports to China’s supercomputers apply only to computers capable of at least 100 petaFLOPS at 64 bits in its specified physical volume.

These controls also apply to foreign made items under a new FDP Rule in EAR § 734.9(i). Under the Supercomputer FDP Rule in EAR § 734.9(i), a license is required to export, reexport, or transfer (in country) to or within China foreign-produced items that are the direct product of certain software or technology subject to the EAR, or a product of a complete plant or major component of a plant that is itself the direct product of certain U.S.-origin “technology” or “software” if you have knowledge that the foreign produce item will be used in either:

  • The “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing of a “supercomputer” located in or destined to China; or

  • The incorporation into, or “development,” or “production” of any “component” or “equipment” that will be used in a “supercomputer” located in or destined to China.

  • Entity List Modifications

Lastly, the new rule expands the scope of controls for 28 Chinese entities previously on the Entity List involved in supercomputer related activities or advanced integrated circuits. These entities are identified with a new Footnote 4 designation. Under the new FDP Rule in EAR § 734.9(e)(2), a license is required to export, reexport, or transfer (in-country) to any of the 28 entities (or where one of the 28 entities is a party to the transaction) any foreign produced item subject to the EAR that is the direct product of certain software or technology subject to the EAR, or a product of a complete plant or major component of a plant that is itself the direct product of certain U.S.-origin “technology” or “software.”

Temporary General License

This rule provides a 6-month temporary general license (TGL) in Supplement No. 1 to Part 736 of the EAR that applies to supply chain related activities, such as testing and verification, in China related to certain items. Companies not headquartered in Country Groups D:1 or D:5 or E may use this TGL to continue or engage in integration, assembly (mounting), inspection, testing, quality assurance, and distribution of

  • Items covered by ECCN 3A090 (ICs), 4A090 (computers) and associated software and technology in ECCN 3D001, 3E001, 4D090, or 4E001; or

  • Items that are a computer, IC, “electronic assembly,” or “component,” and associated software and technology, specified elsewhere on CCL which meets or exceeds the performance parameters of ECCN 3A090 or 4A090.

 The TGL does not authorize, however, items in China to be transferred to end users or ultimate consignees in China. Once this license expires, license applications will be reviewed on a case-by-case basis.

© Copyright 2023 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 306
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