October 20, 2022
US Implements new technology export controls on China
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:
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.
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:
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:
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.
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:
For additional information with respect to this alert, please contact the following:
Ernst & Young LLP (United States), Global Trade
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).