Recently, the US Department of Commerce Bureau of Industry and Security (BIS) issued an interim final rule imposing additional export controls on certain advanced computing and semiconductor manufacturing items and for supercomputer and semiconductor end-uses. Notably, the interim final rule also imposes restrictions on specific activities of US persons handling semiconductor manufacturing equipment (and associated software and technology) not subject to the Export Administration Regulations (EAR) and supporting the development or production of integrated circuits (ICs) meeting any the following criteria (the IC Criteria):

• Logic integrated circuits using a non-planar architecture or with a “production” technology node of 16/14 nanometers or less;
• NOT-AND (NAND) memory integrated circuits with 128 layers or more; or
• Dynamic random-access memory (DRAM) integrated circuits using a “production” technology node of 18 nanometer half-pitch or less.

These new rules are intended to restrict China’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacturer advanced semiconductors, which China may use to produce advanced military systems including weapons of mass destruction; improve its autonomous military systems and the speed and accuracy of its military decision-making, planning, and logistics, and engage in surveillance and other human rights abuses. Although the interim final rule clearly targets these items due to their potential military applications, these items may be used in commercial and civil applications as well.

The interim final rule marks a change in how BIS controls the activities of US persons. Previously, these controls generally only apply when the US person has knowledge that their activities are contributing to prohibited end-uses or end-users, but China’s military-civil fusion makes it more challenging to determine which items are made for restricted end uses, which has reduced the impacts of the controls. These new controls on the activities of US persons address such concerns by requiring a license even when the US person cannot determine the specific end-use of an item.

License exceptions and review standards

The interim final rule provides that no license exceptions apply to the activities listed in italics above. US persons who are employees of US government department or agency—including “contractor support personnel” of a US government department or agency—may generally engage in the activities not listed in italics if the support is provided in the performance of official duties in furtherance of a US government program that is authorized by law and subject to control by the President by other means.

License applications with respect to the above activities will be reviewed with a presumption of denial. However, license applications for end-users in China that are headquartered in the United States or in certain allied countries will be reviewed on a case-by-case basis, taking into account factors such as technology level, customers, and compliance plans.

BIS releases clarifying FAQs

BIS has also released a number of Frequently Asked Questions (FAQs), clarifying various aspects of the interim final rule.

Applicable definition of US persons. The FAQ confirms that the term US person, for the purposes of the controls on the activities of US person, includes: (1) any individual who is a citizen of the United States, a permanent resident alien of the United States, or a protected individual; (2) any juridical person organized under the laws of the United States or any jurisdiction within the United States, including foreign branches; and (3) any person in the United States.

The FAQs also note the EAR’s broad definition of person, which includes “[a] natural person, including a citizen or national of the United States or of any foreign country; any firm; any government, government agency, government department, or government commission; any labor union; any fraternal or social organization; and any other association or organization whether or not organized for profit.”

Certain related activities not controlled. The FAQs emphasize that the interim final rule’s targeted policy objective means the controls on activities of US persons do not extend to US persons conducting administrative or clerical activities—like arranging for shipment or preparing financial documents—or otherwise implementing a decision to approve a restricted shipment, transmittal, or in-country transfer, or “development” or “production” activities that are not directly related to the provision of specific items to or servicing of specific items for advanced China fabs (i.e., those developing or producing ICs meeting the IC Criteria), absent evidence of knowledge of a violation by those persons.

Immediate effects and implications

In response to the controls, US chip equipment suppliers have reportedly suspended sales and services to chip manufacturers in China. Additionally, Chinese chipmaker Yangtze Memory Technologies Corp. (YMTC) has reportedly ousted numerous US employees following BIS’ imposition of the new controls. YMTC’s CEO Simon Yang, who holds a US passport, also reportedly stepped down in the run-up to new controls, along with a number of other US citizens employed at YMTC. Concerns have also been raised about a potential chip shortage moving forward, as Chinese manufacturers are expected to run low on inventory.

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