On October 7, the Department of Commerce, Bureau of Industry and Security (BIS), announced new controls on exports to China related to semiconductors. Additionally, that same day, BIS added 38 Chinese entities to the Unverified List (UVL) and established new criteria for adding entities to the Entity List. Specific details of these rules, particularly the expansive action regarding semiconductors, are laid out below.
Semiconductor Rule Creates Significant New Restrictions
The semiconductor rule covers multiple areas, including the following:
- It establishes new Export Control Classification Numbers (ECCNs) and new Regional Security (RS) controls on exports to China.
- It expands catch-all controls for supercomputer and semiconductor manufacturing end use.
- It extends restrictions on the actions of U.S. Persons.
- It establishes two new foreign direct product rules.
As part of the rule, BIS is issuing a Temporary General License (TGL) that permits certain otherwise licensable transactions through April 7, 2023.
New ECCNs and China-Specific Regional Stability Controls
The rule establishes four new ECCNs, each of which is unilaterally controlled for export for RS reasons to China:
- 3A090 – certain specified high-performance integrated circuits (ICs) – advanced chips.
- 4A090 – certain computers and electronic assemblies and components that contain 3A090 chips.
- 3B090 – certain semiconductor manufacturing equipment.
- 4D090 – software for the production or development of 4A090 computers and electronic assemblies and components.
Other existing ECCNs, such as 3D001, 3E001, and 4E001, have also been revised to comport with the requirements of the new ECCNs.
The new RS controls also impose a license requirement for export to any destination from China by a company headquartered in China where the exported technology is the direct product of certain Export Administration Regulations (EAR)-controlled software for the production of advanced chips. BIS advises companies to obtain proof of ultimate end use and confirm that a license was obtained to export from China such technology for the production of advanced chips. BIS warns that it would violate the EAR to move forward with a transaction absent the required authorization.
According to this new advanced chip rule, BIS has adopted a presumption of denial for license applications. License applications for ultimate end use by companies in China headquartered in the United States, Wassenaar Arrangement member countries, and certain other favorable destinations such as Singapore and Taiwan, will be reviewed on a case-by-case basis.
In addition, certain license exceptions, including certain portions of license exceptions RPL (servicing and replacement parts and equipment), GOV (governments, international organizations, international inspections under the Chemical Weapons Convention, and the International Space Station); and TSU (technology and software unrestricted), are available.
Catch-All Controls Added for Specific ECCNs for “Supercomputer” and Semiconductor Manufacturing End Uses
The new rules add a category of end use and end user controls for “supercomputer” and semiconductor manufacturing end uses. Unlike other catch-all controls, this control applies to specified ECCNs that would be used for the development, production, or use of a supercomputer or ICs meeting certain parameters. As with other catch-all controls, in theory, this control has a knowledge requirement. However, a license is required even if the exporter does not know that a facility in China produces ICs captured by the section.
The license review policy for applications under this catch-all control is presumption of denial. License applications for export to companies in China headquartered in the United States, Wassenaar Arrangement member countries, and certain other favorable destinations such as Singapore and Taiwan, will be reviewed on a case-by-case basis. No license exception is available for exports under this catch-all control.
Expansion of U.S. Person Controls
The new rule sets forth restrictions on support activities by U.S. persons such as shipping, transporting, servicing, or facilitation thereof of any item not subject to the EAR to or within China when such activity would assist the development or production of certain ICs, such as logic ICs, NAND memory ICs, or DRAM ICs. These revised controls would apply even when the U.S. person cannot determine the technical parameters of the ICs, the end user, or end use.
The license review policy for U.S. persons who wish to engage in these support activities is presumption of denial. License applications to end users in China headquartered in the United States, Wassenaar Arrangement countries and certain favorable destinations like Singapore and Taiwan, the license review policy is case-by-case. No license exception is available under the revised U.S. Person controls.
Foreign Direct Product Rules
The new rule amends the foreign direct product rules in three ways. First, the new rule revises the Entity List by adding a footnote to certain entities located in China. For those entities, a license is required to re-export foreign-produced items if the item is a direct product of certain U.S. software or technology or was made by a plant or any major component of a plant that is itself a direct product of certain U.S. software or technology.
Second, for advanced computing, a license is required to re-export to China certain foreign-produced items if the item is a direct product of certain U.S. software or technology or is made by a plant or any major component of a plant that is itself a direct product of certain U.S. software or technology. There is a knowledge requirement that is met if the re-exporter knows that the foreign-made item is destined for China; will be incorporated into any part, component, computer, or equipment that is destined for China; or is technology that is developed by an entity headquartered in China for the production of a mask or IC wafer or die.
Third, as to supercomputers, a license is required to re-export to China certain foreign-produced items if the item is a direct product of certain U.S. software or technology or was made by a plant or any major component of a plant that is itself a direct product of certain U.S. software or technology. A knowledge requirement is met if the re-exporter knows that the foreign-made item will be incorporated into or used in the design, development, production, or use of a supercomputer in or destined for China.
Temporary General License (TGL)
BIS established a TGL to allow, until April 7, 2023, exports, re-exports, and in-country transfers for integration, assembly, inspection, testing, quality assurance, and distribution of certain items. According to BIS, the purpose of the TGL is to avoid disruption to supply chains for ultimate customers outside China. Therefore, the TGL is unavailable to end users or ultimate consignees in China or entities on the Entity List.
BIS Expands UVL, Creates New Process for Adding Parties to Entity List
BIS added 31 Chinese entities to the UVL because it could not verify those companies’ bona fides. Unless specified elsewhere in the EAR, as a general matter, a license is not required to export or re-export any item subject to the EAR to a party on the UVL. However, any export or re-exports must have a UVL statement from the entity that it will not use the item for prohibited end uses and that it agrees to cooperate with end-use checks. (BIS also removed nine entities from the UVL because it verified the bona fides of those companies.)
In the rule, BIS announced its intention to add entities to the Entity List if it cannot verify the bona fides of an entity due to a sustained lack of cooperation from the host government.
Complex Rule, Different Effective Dates Means Careful Review Is Needed
As described briefly above, these two new rules cover considerable ground. New regulatory requirements are complicated and highly fact specific, particularly concerning the semiconductor rule. In addition, certain provisions of the semiconductor rule are effective immediately and others at varying times in October 2022. It is therefore essential to carefully review the rule and additional guidance that BIS may issue to ensure compliance.
