The new rules follow the sweeping export controls issued on October 7, 2022, in connection with advanced computing integrated circuits (ICs), supercomputers and semiconductor manufacturing equipment (the “October 2022 Rules”). The October 2022 Rules implemented three overarching changes. First, the rules added a new Regional Security (RS) control to impose a license requirement for exports, reexports, transfers (in country) on newly controlled items under Export Control Classification Numbers (ECCNs) for certain advanced ICs (3A090), computers containing such ICs (4A090), and semiconductor manufacturing equipment (3B090). Second, the rules created new end-use restrictions on items subject to the EAR and intended for use in either semiconductor fabrication facilities or supercomputers in China. Third, the rules created three new foreign direct product (FDP) rules which designated 28 entities on the BIS Entity List with a Footnote 4 notation and expanded U.S. jurisdiction over certain foreign-made ICs and foreign-made items intended for incorporation into supercomputers. Our prior post on this subject may be found here.
The new October 2023 rules update and reinforce the October 2022 Rules, clarify existing controls, and close loopholes that have emerged in the past year. Specifically, the new rules expand the scope of ICs captured by 3A090; expand the licensing requirement to apply to exports, reexports and transfers to D:1, D:4 and D:5 countries; and establish a new license exception for advanced computing ICs. The October 17 announcement involved the publication of two interim final rules, one on advanced computing products and one on semiconductor manufacturing equipment. In the November 6 briefing, BIS indicated that it plans to continually assess the effectiveness of their controls and will update them as needed to protect U.S. national security interests.
Advanced Computing Rule
The Advanced Computing Rule, which expanded on the controls for certain advanced computing items and supercomputers, will become effective on November 17, 2023. The Advanced Computing Rule has two primary impacts relating to chip capacity and circumvention respectively.
First, the rule adjusts controls on certain chips based on total processing performance (TPP) and performance density. This adjustment broadens the parameters established by the October 2022 Rules on advanced computing ICs. The rule modifies and condenses ECCN 3A090, reflecting the parameters of control.
In the November 6 briefing, BIS clarified that its intent in refining 3A090 was to impose controls an ICs designed or marketed for use in data centers based on both their TPP and their performance density. (Note, TPP is 2 x MacTOPS x bit length of the operation, aggregated over all processing units on the integrated circuit, and “performance density” is TPP divided by applicable die area.) Alternatively, ICs not designed or marketed for use in data centers will only be controlled by 3A090 if their TPP exceeds 4800. BIS also indicated in the November 6 briefing that it plans to issue FAQs on the technical parameters of 3A090 in the near future.
BIS has provided the below chart to denote the parameters of 3A090 for chips marketed and designed for data centers and for non-data center chips. The charts also indicate where License Exception Notified Advanced Computing (NAC) (discussed below), may be applicable.
At this time, the following nine ECCNs have been identified as meeting or exceeding the new parameters of 3A090: 3A001, 4A003, 4A004, 4A005, 5A002, 5A004, 5A992, 5D002 and 5D992. The October 2023 rules add paragraph .z to each identified ECCN and outline specific items that are caught by the new controls. In the November 6 public briefing, BIS acknowledged that the new “.z” paragraphs do not fully correspond to the scope of 3A090, but that it intends to correct this in the future and plans to provide time for industry to adjust to this anticipated correction.
Second, the Advanced Computing Rule expands the Regional Stability (RS) controls announced in the October 2022 rules. ECCNs 3A090, 4A090, the new .z paragraphs referenced above, and associated technology and software ECCNs will be subject to RS controls. Under the October 2023 rules, exports, reexports and transfers of such items to a D:1, D:4 or D:5 country (excluding destinations also specified in Country Groups A:5 or A:6, which currently include Cyprus and Israel) will require a license. The license review policy for these ECCNs is a presumption of approval for exports, reexports, or transfers to or within destinations not specified in Country Group D:5 (or Macau) unless the export, reexport, or transfer is to an entity headquartered in a D:5 country (or Macau), in which case license applications will be reviewed under a presumption of denial. The license review policy for the above ECCNs is a presumption of denial for exports, reexports or transfers to destinations specified in Country Group D:5 (and Macau).
The expanded RS controls also include a license requirement for the export from abroad of 3E001 (for 3A090) technology that originates in a D:5 country (or Macau) to any destination worldwide excluding an A:5 or A:6 country, if the technology is:
- Developed by an entity headquartered in, or whose ultimate parent company is headquartered in, a D:5 country (or Macau),
- Is the direct product of software subject to the EAR, and
- Is for the “production” of commodities identified in ECCNs 3A090, 4A090, 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, or 5A992.z.
BIS indicated in the November 7 briefing that the expanded controls are not necessarily designed to restrict the ability of semiconductor companies to do business in D:1 and D:4 countries but are instead intended to prevent circumvention of the existing controls.
In addition to these amendments, the Advanced Computing Rule introduces a new license exception and a temporary general license.
- The Notified Advanced Computing (NAC) License Exception authorizes the export, reexport and transfer (in-country) of any item classified in ECCNs 3A090, 4A090, or the new “.z” paragraphs (except for items designed or marketed for use in a datacenter with a TPP of 4800 or more) to end users in a D:1, D:4 or D:5 country so long as:
- There is a written purchase order (except in the case of commercial samples)
- The export, reexport or transfer is not to a military end user or for a military end use.
- For exports or reexports (but not transfers) to a D:5 country (or Macau), the exporter or reexporter must submit a notification to BIS at least 25 calendar days in advance. After 25 days, BIS will indicate whether the transaction may proceed under the license exception or instead require a license. Consumer level chips will be granted under a presumption of approval.
- The Advanced Computing Temporary General License authorizes exports, reexports, or transfers to or within a destination specified in Country Groups D:1, D:4 or D:5 when the recipient is located in but is not headquartered or whose ultimate parent company is not headquartered in a D:5 Country (or Macau) to engage in integration, assembly (mounting), inspection, testing, quality assurance and distribution of covered items for the ultimate end use of these items outside of destinations specified in Country Groups D:1, D:4 or D:5. The General License expires on December 31, 2025 and cannot overcome restrictions based on the Entity List or Military End User list.
Semiconductor Manufacturing Equipment Rule
The new Semiconductor Manufacturing Equipment Rule (SME Rule) expands controls on semiconductor production and manufacturing equipment to apply to items being exported, reexported, or transferred to a D:5 country (or Macau).
The SME Rule also refines the license requirement imposed by the October 2022 rules on U.S. persons that support the development or production of certain integrated circuits at certain Chinese semiconductor fabrication facilities. This includes an exclusion for natural “U.S. persons” employed or working on behalf of a company headquartered in the United States or a destination specified in Country Group A:5 or A:6 and not majority-owned by an entity that is headquartered in a D:5 country (or Macau). There are also exceptions for U.S. persons working in administrative, clerical and back-end production roles, and for servicing (including installation) of advanced SMEs in legacy fabrication facilities.
BIS indicated during the November 7 briefing that the new rules do not add new restrictions on the activities of U.S. persons but attempt to make existing rules more manageable and ease the compliance burden. BIS plans to issue guidance and additional details on these exclusions in the near future.
The new SME Rule also replaces the prohibition on “fabrication” with a prohibition on “production.” This is intended to clarify that end-use controls apply where facilities are substantively producing prohibited technology. BIS has clarified that this does not apply to facilities where only development activities occur. During the November 6 briefing, BIS confirmed that it plans to issue additional guidance on this distinction
BIS also introduced a Temporary General License (TGL) in order to provide additional time to identify alternative sources of supply or to acquire individual licenses. The TGL will be valid until December 31, 2025. Under the TGL, a license is not required for certain exports, reexport, or transfers where:
- The items are only subject to antiterrorism (AT) controls;
- The recipient is “developing” or “producing” “parts,” “components,” or “equipment” at the direction of a company that is headquartered in the United States or a Country Group A:5 or A:6 destination that is not majority-owned by an entity headquartered in a D:5 country (or Macau).
Looking Ahead
The October 17 updates are the latest move towards increased efforts to protect U.S. technology in the name of national security. During the November 6 briefing, BIS indicated that it plans to issue further updates to the October 17 rule to clarify certain concerns raised by industry comments, which will include Frequently Asked Questions (FAQs) released on BIS’s website.
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