New US Export Control Rules Targeting Advanced Computing and Semiconductor Products for China
26 October 2022
26 October 2022
On 7 October 2022, the U.S. Commerce Department, Bureau of Industry and Security (“BIS”) announced a sweeping set of export control rules aimed at restricting China's ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. The new rules, titled the Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification (full text can be found here), follow several regulatory and enforcement actions taken over the past few months and is a part of the ongoing review of BIS's export control policies towards China.
Importantly, the new rules limit the availability of most license exceptions for certain exports, reexports, or transfers to or within China. License applications will be reviewed by BIS with a presumption of denial, with limited exceptions (e.g., applications to export, reexport, or transfer items subject to the EAR to end users in China that are headquartered in the U.S.) to be considered on a case-by-case basis.
Taking into account a potential disruption to the global semiconductor supply chain involving China, BIS also included in the new rules a Temporary General License to temporarily (from 21 October 2022, through 7 April 2023) allow specific, limited manufacturing activities related to items destined for use outside China.
The restrictions on semiconductor manufacturing items became effective immediately upon the announcement of the new rules on 7 October 2022; the restrictions on U.S. persons’ ability to support the development, production, or use of ICs at certain semiconductor fabrication “facilities” in China became effective on 12 October 2022; and the advanced computing and supercomputer controls, as well as the other changes in the EAR, have come into effect on 21 October 2022.
The new rules further introduced revisions to the Commerce Department’s Unverified List (“UVL”), which identifies parties for which BIS has been unable to confirm their bona fides. The new rules added 31 Chinese technology companies/entities (including China's top memory chipmaker YMTC) to the UVL while removing nine Chinese companies/entities previously on the list. No license exceptions may be used for exports, reexports, or transfers to entities on the UVL, and certain outbound export filing requirements also apply to these entities.
Separate from the UVL, BIS clarified with the new rules criteria that may lead to the addition of an entity to the Entity List, including a sustained lack of cooperation by the host government that effectively prevents BIS from determining compliance with the EAR. Compared to the UVL (which denies license exceptions to entities listed there), entities on BIS' Entity List are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items.
In response to the expansive export controls imposed by BIS, China criticized the U.S. for politicizing tech and trade issues and destabilizing global supply chains. While China has not yet widely enforced any of its previously adopted and broadly-worded countermeasures (e.g., the Countering Foreign Sanctions Law) against private companies, we may witness a response from the Chinese government by way of additional rules or even enforcement measures. On the other hand, the Chinese government has sought to empower its Export Control Law that took effect on December 1, 2020, by publishing detailed interim implementation rules for public consultation in April this year. We may expect to see more vigorous enforcement of the Export Control Law in response to the new U.S. export control rules in the near future.
These expansive export control measures will further accelerate the U.S.-China decoupling and will likely result in increased and focused enforcement actions targeting Chinese entities. While the new rules seem to impose heightened knowledge standards and diligence requirements on parties subject to U.S. jurisdiction, given the complexity, breadth and vagueness (in some key definitions) of the new rules, companies may confront challenges, not only as to what can be exported to China, but how their business must adapt to meet the new requirements under U.S. laws.
Relying on limited available guidance and evolving industry standards, we believe that Chinese and international companies could consider the following risk factors and utilize the following risk mitigation measures:
We hope you find this summary helpful. If you have any questions about any specific element of the new rules or their application, please do not hesitate to contact us.
Authors: Alexander Dmitrenko, Partner; and Vicki Tang, Associate.