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October 20, 2022
2022-1591

US Implements new technology export controls on China

  • The United States Department of Commerce, Bureau of Industry and Security has announced a series of major updates to the Export Administration Regulations focused on export controls around semiconductors, integrated circuits, related manufacturing equipment, advanced computing, and supercomputers.
  • The new restrictions, outlined in this Alert, are generally focused on activities involving the People's Republic of China.
  • The impact of these changes on the semiconductor industry is immense, and the greatest impact will be felt by companies with business in the PRC involving semiconductor manufacturing, advanced computing, and supercomputers.

Executive summary

On 7 October 2022, the United States (US) Department of Commerce, Bureau of Industry and Security (BIS) announced a series of major updates to the Export Administration Regulations (EAR) focused on export controls around semiconductors, integrated circuits (ICs), related manufacturing equipment, advanced computing, and supercomputers.1 The new restrictions are generally focused on activities involving the People's Republic of China (PRC).2

Key aspects of the new restrictions include:

  • New and amended Export Control Classification Numbers (ECCN) on the EAR's Commerce Control List (CCL) requiring a license for the PRC
  • Expansion of the EAR's jurisdiction over items made outside the US that are a direct product of specified US goods, software, or technology
  • New EAR end-use rules for semiconductor manufacturing and supercomputers
  • New and significant restrictions on activities performed by US persons involving the PRC related to semiconductor manufacturing
  • Revisions to the EAR's Unverified List, a restricted party list

These new export controls are among the broadest and most substantial in recent years.

US and non-US companies in the semiconductor sector and adjacent sectors with business operations in the PRC may be significantly impacted. The restrictions will also create exceptional challenges for US persons to provide technical engineering support for PRC companies in the semiconductor or advanced computing sectors.

The impact may be felt by companies in all industries, located in any country, which supply items or services to the PRC involving computers, servers or ICs.

Detailed discussion

New and amended ECCNs

BIS is making the below updates to the CCL, effective at varying dates as listed below.

BIS is making four new ECCNs on the CCL and related revisions. (1) 3B090 contains broad range of semiconductor manufacturing equipment and related items; (2) 3A090 contains certain advanced ICs that have or are programmable to have an aggregate bidirectional transfer rate over all inputs and outputs of 600 Gbyte/s or more to or from ICs other than volatile memories (and other characteristics in the ECCN); (3) 4A090 contains certain computers, electronic assemblies, and components containing ICs that exceed the limit in 3A090.a; and (4) 4D090 contains software specially designed or modified for development or production of items controlled under 4A090. Revisions to 3A991 and 4A994 have also been made. Restrictions for 3B090 are effective 7 October, others are effective 21 October.

BIS has also revised several related ECCNs in the implementation of this rule for related Software 3D001, Technology 3E001 and 4E001, and 5A992.a/5D992 items that exceed performance levels of 3A090 or 4A090.

Licensing requirements for the PRC are based on the EAR's Regional Stability (RS) licensing reasons, although limited to the PRC only (RS-PRC). Anti-Terrorism (AT) licensing reasons apply to Iran, Syria, and North Korea.

Restrictions to license exceptions

BIS is limiting the use of license exceptions for certain exports, reexports, or in-country transfers to or within the PRC.

Effective 7 October 2022, only License Exception GOV will be available for exports, reexports, or in-country transfers to or within the PRC for items under ECCNs 3B090, 3D001 (regarding software for items under 3B090), or 3E001 (regarding technology for items under 3B090).3

Effective 21 October 2022, only License Exceptions GOV, RPL, and TSU will be available for exports, reexports, or in-country transfers to or within the PRC for items under ECCNs 3A090, 4A090, 3D001 (regarding software for items under 3A090), 3E001 (regarding technology for items under 3A090), 4D090, and 4E001 (regarding technology for items under 4A090).4

Expanded scope of EAR jurisdiction

Generally, the EAR's Foreign Direct Product Rule (FDPR) expands the EAR's jurisdiction to foreign-produced items outside the US that are a direct product of specified technology or software, or are produced by a plant or major component of a plant that itself is a direct product of specified technology or software.

Effective 21 October 2022, BIS is adding three new FDPRs specific to the PRC to further extend EAR jurisdiction to items produced outside the United States. As a result, US and non-US companies will face challenges with supplying semiconductor and supercomputer-related hardware and software to the PRC when the supply chain contains US software, technology or commodities.

The EAR updates from October 2022 create three new FDPRs specific to the PRC, and each FDPR has extensive detail and should be carefully read in full.

Generally, the FDPRs include:

  • Entity List FDPR, covering items destined to 28 PRC-based entities already listed on the BIS Entity List5
  • Advanced Computing FDPR, covering advanced ICs, commodities containing such ICs, or related technology6
  • Supercomputer End-Use FDPR, covering items related to supercomputers located in or destined for the PRC7

End-Use controls for semiconductor manufacturing and computers

BIS is also implementing new licensing requirements based on end-use for semiconductor manufacturing and supercomputers, where exports, reexports, and in-country transfers of items subject to the EAR will require a BIS license when the exporter knows that the item will be used in the newly designated restricted end-uses.

Each of the end-use restrictions has detail around covered products and circumstances. Generally, license exceptions are not available for these restricted end-uses, and BIS will review license applications under a presumption of denial.

Restrictions on US person activities

Effective 12 October 2022, a BIS license is required before US persons (US citizens, permanent residents, and limited other residency statuses) can provide certain support for the development or production of certain ICs produced at a semiconductor fabrication facility located in the PRC. BIS will review these license applications under a presumption of denial, except a more general review policy related to end-users in the PRC which are headquartered in the US or in EAR Country Groups A:5 or A:6.8

Notably, these restrictions can apply to activities involving items not subject to the EAR, e.g., items which are completely manufactured in the PRC.

The term "support" encompasses a number of activities. More specifically, the following types of support incur the license requirement:

  • Shipping, transmitting, or transferring, or facilitating such movement, to or within the PRC, or servicing, any item not subject to the EAR (i.e., outside of EAR jurisdiction) with knowledge that the item will be used in the development or production of ICs at a semiconductor fabrication facility in the PRC that produces ICs meeting any of the following criteria:
    • Logic ICs using a non-planar transistor architecture or with a "production" technology node of 16/14 nm or less
    • NOT AND (NAND) memory ICs with 128 layers or more
    • Dynamic random-access memory (DRAM) ICs using a "production" technology node of 18 nm half-pitch or less.
  • Shipping, transmitting, or transferring, or facilitating such movement, to or within the PRC, or servicing, any item (if meeting the parameters of any ECCN in CCL Category 3 Product Groups B, C, D, or E) not subject to the EAR with knowledge that the item will be used in the development or production of ICs at a semiconductor fabrication facility in the PRC where the US person does not have knowledge of whether the facility produces ICs meeting the above technical criteria
  • Shipping, transmitting, or transferring, or facilitating such movement, to or within the PRC, or servicing, any item not subject to the EAR and meeting the parameters of ECCN 3B090, 3D001 (for 3B090), or 3E001 (for 3B090) regardless of the end-use or end-user

License exceptions are not available for these restrictions. BIS will review license applications under a presumption of denial, except for end-users in the PRC that are headquartered in the US or in countries under Country Groups A:5 or A:6. In limited cases, certain support may be provided without a license by contractors of the US Government.

Savings clause

BIS provided a savings clause for these new restrictions and licensing requirements. As a result, shipments of items otherwise removed from license exception eligibility or eligibility for export, reexport or in-country transfer that were on dock for loading, on lighter, laden aboard an exporting carrier, or en route aboard a carrier to a port of export, on 7 October 2022, may continue to the destination under the previous license exception eligibility or without a license so long as they have been exported, reexported or transferred before 7 November 2022.

Certain limited authorization in this savings clause is also available for deemed exports related to ECCNs 3A991.p and 4A994.l.

Temporary General License

BIS issued a Temporary General License (TGL) in an effort to mitigate disruption to supply chains for the US and other countries with respect to items produced in the PRC that are ultimately destined to recipients outside of the PRC, effective 21 October 2022 through 7 April 2023.

Updates to Entity List determination criteria and unverified list

On 7 October 2022, BIS released a separate Federal Register Notice with new criteria for adding a party to the BIS Entity List, including a sustained lack of cooperation by the host government (e.g., the government of the country in which an end-use check is to be performed) that effectively prevents BIS from determining compliance with the EAR. The expected result of this change is that more companies and institutions in the PRC will later be added to the Entity List.

In addition, BIS designated 31 entities in the PRC to the BIS Unverified List (UVL), a restricted party list identifying parties for which BIS has been unable to confirm their bona fides. Generally, license exceptions may not be used for transactions with parties on the UVL, and certain written statements must be acquired from the UVL party in advance, in addition to other requirements imposed by a UVL listing.9

Actions for businesses

The impact of these changes on the semiconductor industry is immense, and the greatest impact will be felt by companies with business in the PRC involving semiconductor manufacturing, advanced computing, and supercomputers. However, companies in any industry that ship to or use computers or ICs in the PRC will need to review these new restrictions.

The restrictions on US persons will also create exceptional challenges for companies involved in engineering or technical work with PRC-based semiconductor or advanced computing companies.

Notably, the FDPR updates demonstrate the US Government's broad assertion of jurisdiction over companies and activities outside the US, based on the use of US technology in the global supply chain.

Companies in the semiconductor and advanced computing spaces should consider the following immediate actions:

  • Identify any products or service offerings involving the PRC, including technology and software, that may be captured under the new ECCNs related to semiconductor manufacturing equipment, ICs, and items containing ICs.
  • Regarding the FDPRs and the EAR's jurisdiction over items made outside the US, review operations and shipment activity originating outside the US and involving the PRC with respect to advanced computing and supercomputers.
  • Review global shipments and operations related to PRC-based IC fabrication or supercomputers, with respect to end-use restrictions. IC fabrication may also require certifications and assurances throughout a multi-step supply chain to ensure that end use is not in the PRC.
  • Review the activities of US personnel supporting engineering or technical work for PRC companies in the semiconductor, advanced computing, or supercomputer fields.
  • Review the applicability of the TGL to activities in China to reduce supply chain disruptions in the near term as supply chain adaptation are made.

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For additional information with respect to this alert, please contact the following:

Ernst & Young LLP (United States), Global Trade

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ENDNOTES

1 See 87 Fed. Reg. 62,186 (13 October 2022).

2 Note: Under the EAR, the PRC and Hong Kong are generally considered the same country, and EAR provisions specific to the PRC are also generally applicable to Hong Kong. Under the EAR, Taiwan is a separate country from the PRC, and EAR provisions specific to the PRC are generally not applicable to Taiwan.

3 See 15 C.F.R. § 740.11 (License Exception GOV; "Governments, international organizations, international inspections under the Chemical Weapons Convention, and the International Space Station").

4 See 15 C.F.R. § 740.10 (License Exception GOV), 15 C.F.R. § 740.11 (License Exception RPL; "Servicing and replacement of parts and equipment"), 15 C.F.R. § 740.13 (License Exception TSU; "Technology and software unrestricted").

5 See 15 C.F.R. § 734.9(e).

6 See 15 C.F.R. § 734.9(h).

7 See 15 C.F.R. § 734.9(i).

8 See 15 C.F.R. § 744.26.

9 See 87 Fed. Reg. 61,971 (13 October 2022).

 

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