BIS Imposes New Controls to Limit the Development and Production of Advanced Computing and Semiconductor Capabilities in China

For decades, the EAR have prohibited U.S. persons, wherever located, from knowingly providing without a license “support,” broadly defined, for the development or production of missiles, nuclear weapons, chemical and biological weapons, and foreign maritime nuclear projects, even if all the underlying items involved are otherwise uncontrolled and not subject to the EAR.  The EAR also give BIS the authority to inform U.S. persons that their activities could be in support of such end uses, even without their knowledge, and that, therefore, a license is required for specific exports.  This is informally referred to as the “is informed” process.  There were media reports of several U.S. companies receiving such notifications over the summer of 2022 pertaining to their exports to China that could be for use in the development or production of advanced node semiconductors or advanced computing capabilities.  The new rules essentially codify and expand upon the reported “is informed” letters so that their obligations now apply to all U.S. persons.  

BIS stated in the rule’s preamble that the policy basis for the new U.S. person controls is that the Chinese government could use advanced node semiconductors to develop or produce WMD or to support military-intelligence end users.  BIS stated that U.S. persons may not always know of such end uses because the “PRC government expends extensive resources to eliminate barriers between China’s civilian research and commercial sectors, and its military and defense industrial sectors. It also is developing and producing advanced integrated circuits (packaged or unpackaged) for use in weapons systems.”    

Meaning of “U.S. Person”

The EAR define “U.S. person” to include:

• U.S. companies and other entities incorporated in the U.S. and their foreign branches;
• Individuals, wherever located and regardless of the nationality of their employer, who are U.S. citizens, permanent legal residents, or refugees and asylees in the United States; and
• Any company or individual in the United States. (§ 772.1)

Types of U.S. Person Support Activities Affected

These new U.S. person activity controls apply when the commodities, software, or technology involved in the activity are “not subject to the EAR,” which includes almost all non-U.S.-made commodities, software, and technology of any sort or sophistication outside the U.S.  The specific U.S. person “support” activities now controlled are:

• “shipping, transmitting or transferring (in-country)” to or within China items not subject to the EAR;
• “facilitating” such shipments, transmissions or transfers, and
• “servicing” items not subject to the EAR.

Activity Controls Pertaining to Semiconductor Fabrication Facilities

The first group of newly controlled U.S. person support activities is directed at “semiconductor fabrication facilities” in China that develop or produce:

• Logic integrated circuits using a non-planar architecture or with a production technology node of 16/14 nm or less;
• NAND memory integrated circuits with 128 layers or more; or
• DRAM integrated circuits using a production technology node of 18 nm half-pitch or less.

In other words, a license is now required for U.S. persons to (i) ship or transmit to, or transfer within, China; (ii) facilitate such shipments, transmissions, or transfers; or (iii) service any commodity, software, or technology not subject to the EAR (e.g., most foreign-made items) that the U.S. person knows will be used in the development or production of integrated circuits at a fabrication facility in China that develops or produces the advanced node logic, NAND, or DRAM referred to in the new rule. (§§ 744.6(c)(2)(i), (ii), and (iii)).  These controls apply even when all the shipments or other activities would occur completely outside the U.S. or by individual foreign persons acting on behalf of a U.S. company.

If a U.S. person does not know if a semiconductor fabrication facility in China develops or produces covered advanced node semiconductors, then the same license obligations apply to its (i) shipment, transmission, or transfer; (ii) facilitation of the shipment, transmission, or transfer, or (iii) servicing of commodities, software, or technology not subject to the EAR (e.g., any non-U.S.-made item) if the items are described in Export Control Classification Number (ECCN) Groups 3B, 3C, 3D, or 3E.  These groups of ECCNs describe, among other things, most semiconductor-related production equipment, and related components, materials, software, and technology.  (§§ 744.6(c)(2)(iv), (v), and (vi)).

These new controls are directed at “semiconductor fabrication facilities” in China that develop or produce covered advanced node semiconductors. The EAR define “facilities” to mean “a building or outdoor area in which people use an item that is built, installed, produced, or developed for a particular purpose.” (§ 772.1).  Thus, if a U.S. person is engaging in a covered support activity for such a “facility,” the activity is still controlled even if it would be for a mature node production line that happens to be in the same facility.  

Activity Controls Pertaining to Semiconductor Fabrication Equipment

The second group of newly controlled U.S. person support activities is directed at newly identified semiconductor production equipment for use in producing advanced node semiconductors described in new ECCN 3B090, and the software and technology required for the development or production of such equipment.  This means that U.S. persons now require a license to (i) ship, transmit, or transfer to or within China; (ii) facilitate such shipments, transmissions, or transfers; or (iii) service in China any commodity, software, or technology not subject to the EAR (e.g., any foreign-made item) if the item is one of the newly identified semiconductor production equipment-related items described in new ECCN 3B090 or is software or technology for the development or production of such items. (§§ 744.6(c)(2)(vii), (viii), and (ix)). 

Scope of “Facilitation” and “Servicing” Prohibitions

A novel implication of the new rule is that if a U.S. corporation wants to “facilitate” the shipment of foreign-made items from outside the U.S. to a covered facility in China, then the U.S. corporation would need a license even if all the work would be done by non-U.S. persons.  The EAR does not define the term “facilitate.” The term is, however, commonly used in the sanctions regulations administered by the Treasury Department’s Office of Foreign Assets Control (OFAC).  OFAC has not defined the term, but has interpreted it to cover numerous activities that have the effect of supporting an underlying transaction that would be prohibited if the facilitator engaged in it directly.  OFAC has also indicated in sanctions programs that the following activities carried out by a U.S. person constitute prohibited “facilitation:”

• Altering its operating policies or procedures, or those of a foreign affiliate, to permit a foreign affiliate to accept or perform a specific contract, engagement or transaction that would be prohibited if performed directly by a U.S. person.
• Referring to a foreign person purchase orders, requests for bids, or similar business opportunities to which the U.S. person could not directly respond as a result of sanctions prohibitions.
• Changing the operating policies and procedures of a particular affiliate with the specific purpose of facilitating transactions that would be prohibited if performed by a U.S. person.

See 31 C.F.R. § 560.417.  BIS’s interpretation of the term “facilitate” remains to be seen, and BIS is neither bound by, nor does it reference, OFAC’s rules or definitions.   Until BIS states its position on the issue, U.S. companies and persons may want to consider OFAC’s approach to “facilitation” as they examine how to comply with the new rules.  

The prohibitions on “servicing” non-U.S.-made items in China are also novel for the EAR.  BIS has not defined the term.  Absent regulatory definitions, the normal position of BIS is that dictionary and industry-standard definitions govern.

The new rules impose controls on the export, reexport, or transfer by anyone from anywhere of various types of commodities, software, and technology subject to the EAR (e.g., all U.S.-origin items) if there is knowledge that they will be used to develop, produce, or use various types of integrated circuits, semiconductor production equipment, or supercomputers.   Each control has a slightly different scope.   

Development or Production of Integrated Circuits

A license is required to export, reexport, or transfer a commodity, software, or technology subject to the EAR if there is knowledge that the item will be used in the development or production of integrated circuits at a fabrication facility in China that develops or produces one of the covered types of advanced node logic, DRAM, or NAND.   (§§ 744.23(a)(1)(iii) and (a)(2)(iii)).  If one does not know if the fabrication facility develops or produces covered advanced semiconductors, then a license is required if the item to be exported, reexported, or transferred is described in any of the Group 3B, 3C, 3D, or 3E ECCNs.  These ECCNs describe most semiconductor production and related items. (§§ 744.23(a)(1)(iv) and (a)(2)(iv)).  In essence, BIS wants to stop the flow of any type of material U.S.-origin content for use in developing or producing in China advanced node semiconductors.

Development or Production of Semiconductor Production Equipment

A license is required to export, reexport, or transfer any item subject to the EAR if the item will be for use in the development or production in China of any part, component, or equipment described in ECCNs 3B001, 3B002, 3B090, 3B611, 3B991 or 3B992, regardless of end use or end user.  (§§ 744.23(a)(1)(v) and (a)(2)(v)).  The ECCNs describe most types of semiconductor production equipment, and their specially designed components.  In essence, BIS wants to stop the flow of any type of material U.S.-origin content for use in developing or producing in China almost every type of semiconductor production equipment, and related components, regardless of the technology nodes of the semiconductors to be produced from such equipment.

Development, Production, or Use of a Supercomputer

A license is required to export, reexport, or transfer most types of integrated circuits, computers, and electronic assemblies subject to the EAR and described on the CCL if there is knowledge that the items will be for use in the development, production, use, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of a supercomputer in or destined to China.  (§§ 744.23(a)(1)(i), (ii) and (a)(2)(i), (ii)).  The specific ECCNs for the integrated circuits covered are 3A001, 3A991, 4A994, 5A002, 5A004, and 5A992.  The specific ECCNs for computers and electronic items covered are 4A003, 4A004, 4A994, 5A002, 5A004, and 5A992.  In essence, BIS wants to stop the flow of almost any type of U.S.-origin electronics for use in developing, producing, or using supercomputers in China.

The term “supercomputer” is defined as “[a] computing system having a collective maximum theoretical compute capacity of 100 or more double-precision (64-bit) petaflops or 200 or more single-precision (32-bit) petaflops within a 41,600 ft³ or smaller envelope.”

BIS’s Due Diligence Advice

BIS uses the new rule to remind the public that:

BIS has added to the EAR’s control list several new controls over specific types of advanced computing integrated circuits, electronics containing them, and specific types of semiconductor manufacturing equipment, and related components, software, and technology.

A. New Controls on Advanced Computing Integrated Circuits and Electronics Containing Them (ECCNs 3A990 and 4A990)

New ECCN 3A090 controls integrated circuits 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 integrated circuits other than volatile memories, and also:

• One or more digital processor units executing machine instructions having a bit length per operation multiplied by processing performance measured in Tera Operations per Second (TOPS), aggregated over all processor units, of 4,800 or more;
• One or more digital primitive computational units, excluding those units contributing to the execution of machine instructions relevant to the calculation of TOPS for 3A090.a.1, having a bit length per operation multiplied by processing performance measured in TOPS, aggregated over all computational units, of 4,800 or more;
• One or more analog, multi-value or multi-level primitive computational units having a processing performance measured in TOPS multiplied by 8, aggregated over all computational units, of 4,800 or more; or
• Any combination of digital processor units and primitive computational units whose calculations according to 3A090.a.1, 3A090.a.2 and 3A090.a.3 sum to 4,800 or more.

The types of integrated circuits that could be within the scope of this new control include graphic processing units (GPUs), tensor processing units (TPUs), neural processors, in-memory processors, vision processors, text processors, co-processors/accelerators, adaptive processors, field-programmable logic devices (FPLDs) and application-specific integrated circuits (ASICs).

New ECCN 4A090.a controls computers, electronic assemblies, and components “containing any integrated circuits, any of which exceeds the limit in 3A090.a.”  ECCN 4A090.a thus essentially adopts the “see-through” rule approach of the International Traffic in Arms Regulations (ITAR), which means that any computer, assembly, or component that “contains” a 3A090.a integrated circuit is controlled.  This is a rare break from the traditional EAR rule that one determines the control status of an item by its characteristics, not its components.

New ECCNs 3A090 and 4A090, and related software and technology, are controlled for the new China-specific Regional Stability (RS) reasons and also Anti-Terrorism (AT) reasons.  This means that, for such items, licenses are required to export or reexport to, or transfer within, China, Russia, Belarus, Iran, North Korea, Cuba, and Syria.  Licenses for such exports, reexports, or transfers will be presumptively denied.

Software and Technology Controls, and Deemed Export Carve-Out (§ 742.6(a)(6)(ii))

BIS has created new controls over the software and technology for the development or production of integrated circuits, computers, and other items described in the new ECCNs 3A090 and 4A090. Unlike most export controls, however, the new China-specific license requirements for such technology and source do not exist for deemed exports or deemed reexports — i.e., releases to Chinese nationals who are outside of China.  (There continue to be deemed export controls for releases to nationals of countries subject to Anti-Terrorism controls.)

Limited License Exceptions

Unlike for most of the new controls, license exceptions RPL (for replacement parts), TSU (for bug fixes), and GOV (for government end uses) are, in part, authorized for use in connection with the newly controlled 3A090 and 4A090 items. (§ 740.2(a)(9)).  These license exceptions, however, are not available with respect to controlled shipments to entities on the Entity List or in connection with newly controlled supercomputer or semiconductor production equipment end uses. To use license exceptions RPL and TSU, the equipment or software at issue must have been shipped legally and continue to be used legally.

Novel Control on Exports From China of Integrated Circuit Technology (§ 742.6(a)(6))

The new rule imposes a novel license requirement for anyone to export from China to any destination technology for the development or production of 3A090 integrated circuits if (i) the technology is developed by an entity headquartered in China that is the direct product of software subject to the EAR and (2) the technology is for the production of integrated circuits, or the commodities containing them, that meet or exceed the performance thresholds of ECCNs 3A090 or 4A090. 

The goal of this control is to limit the design capabilities of Chinese entities using software produced from U.S. technology to develop for production outside of China semiconductors for advanced computing applications in China.  BIS advises that entities outside of China that receive such technology from China confirm that a license was obtained to export such technology from China. (Because the licensing policy is one of presumptive denial, there are not likely to be many such licenses in existence.)  Without such evidence, the recipient could become involved in a violation of the EAR.  This is because EAR section 764.2(e) prohibits, among other things, buying or using an item, including technology, subject to the EAR with knowledge that the item was shipped in violation of the EAR. 

Impact on Encryption Items Normally Available for Export to China Without a License

One can no longer rely on the availability of License Exception ENC (encryption) or mass market classification of encryption commodities or software for export to, reexport to or transfer within China.  Specifically, ECCN 5A002 commodities and ECCN 5D002 software that meet or exceed the performance parameters of new ECCNs 3A090 or 4A090 may no longer use License Exception ENC for China. (§ 740.2(a)(9)).  Similarly, ECCN 5A992 and 5D992 mass market encryption items now require a license for China if they meet or exceed the performance parameters of new ECCNs 3A090 or 4A090. (§ 742.6(a)(6)).  Companies with such products will need to update their internal classification marking and control systems to reflect that the License Exception ENC and mass market authorizations do not apply for China, notwithstanding the products’ ECCNs.  

B. Expanded ECCNs for Lower-Level High-Performance Integrated Circuits and Electronics Containing Them (ECCNs 3A991.p and 4A994.l)

BIS created new subparagraph ECCN 3A991.p to control lower-level high-performance integrated circuits, not otherwise controlled, that have a processing performance of 8 TOPS or more, or an aggregate bidirectional transfer rate over all inputs and outputs of 150 Gbyte/s or more to or from integrated circuits other than volatile memories. BIS also created new subparagraph 4A994.l to control computers, electronic assemblies, and components, not otherwise controlled, “containing integrated circuits, any of which exceeds the limit of ECCN 3A991.p.”  Technology and software for such integrated circuits and electronics are controlled at the same level. 

These items are controlled for Anti-Terrorism reasons only, meaning that they do not require a license to China, unless there is knowledge of a military end use or end user, or a General Prohibition is implicated.  Because these items were EAR99 items before the rule change, they did not require a license for most countries, including to Russia or Belarus. They now require a license to Russia, Belarus, and other countries subject to Anti-Terrorism controls.

C. New ECCN for Semiconductor Production Equipment (ECCN 3B090)

BIS created a new ECCN 3B090 for specific types of semiconductor manufacturing equipment important to producing advanced node logic semiconductors.  The new controls also apply to specially designed parts and components for such equipment, and software and technology for their development or production.  The new Regional Stability controls only impose requirements for the export, reexport, or transfer of such items to China.  The additional Anti-Terrorism controls also imposes license requirements involving Russia and countries subject to comprehensive embargoes.  As with other items subject to the new China-specific Regional Stability controls, the traditional deemed export and deemed reexport controls do not apply to software or technology covered by these new controls.  (Deemed export controls, however, apply to releases to nationals from countries subject to Anti-Terrorism controls.)

The scope of the new ECCN is detailed and complex, but the types of equipment at issue are, in essence:

• Semiconductor deposition equipment for depositing cobalt through electroplating processes.
• Chemical vapor deposition equipment capable of deposition of cobalt or tungsten fill metal having various characteristics.
• Equipment capable of fabricating a metal contact within one processing chamber in specific ways.
• Equipment capable of fabricating a metal contact in a vacuum environment in specific ways.
• Equipment capable of depositing a cobalt metal layer selectively in a vacuum environment in specific ways.
• Physical vapor deposition equipment capable of depositing a cobalt layer of specific types.
• Atomic layer deposition equipment capable of depositing a work function metal for specific purposes.
• Equipment capable of fabricating copper metal interconnects in a vacuum environment in specific ways.
• Equipment capable of area selective deposition of a barrier or liner using an organometallic compound.
• Atomic layer deposition equipment capable of producing a void/seam free fill of tungsten or cobalt in specific types of structures.

The EAR has, for decades, subjected foreign-made items outside the United States to the jurisdiction of the EAR if they were the direct product of technology or software controlled for “National Security” reasons (i.e., identified as a dual-use item by the Wassenaar Arrangement participating states) and the foreign-made item was also identified as a type of item controlled for “National Security” reasons.  In other words, sensitive dual-use foreign-made items made from sensitive dual-use U.S.-origin technology are controlled the same as if the item had been made in the United States.

In August 2020, BIS created a novel Huawei-specific foreign direct product rule to subject otherwise uncontrolled items not subject to any country’s export controls produced outside the U.S. to the jurisdiction of the EAR if they were the direct product of specific types of technology or software, or produced by equipment that was produced from specific types of technology or software.  In response to Russia’s invasion of Ukraine, BIS created two additional foreign direct product rules to impose controls over items produced outside of the U.S. that were destined to Russia or Belarus. 

In the new China-specific rules, BIS has expanded the once-Huawei-specific foreign direct product rule to apply to 28 other listed entities.  It also created two new foreign direct product rules focused on otherwise uncontrolled foreign-origin content for advanced computing and supercomputer-related applications in China.  There are now seven materially different, and extraordinarily complex, ways in which a non-U.S.-made item can be subject to the jurisdiction of the EAR under a foreign direct product rule.  (§ 734.9).  This count does include the ways in which a non-U.S.-made item could be subject to the EAR under the de minimis rules. (§ 734.3(a)(3)).  Companies that are involved in the shipment of non-U.S.-origin items involving China or Russia, at a minimum, will need to substantially update their internal controls, classification efforts, and training programs to account for the wide range of extraordinarily complex extraterritorial applications of the EAR. 

A. Expanded “Entity List FDP Rule” (§ 734.9(e)(2))

The rule amends the existing Entity List foreign direct product rule to designate 28 already-listed entities as “Footnote 4” entities.  The policy basis for the new control over foreign-produced items destined to any of these 28 entities is that “many supercomputer parts and components based on U.S. technology and software are not produced in the United States, and more conventional export control measures would not effectively limit the U.S. contribution to Chinese advanced computing efforts by these entities.”   A short-hand way of thinking about this change is that there are now 28 Huawei-like (but not identical) foreign direct product rules regulating foreign-produced items for use in connection with the entities.  

The 28 “Footnote 4” entities are:

• Beijing Institute of Technology
• Beijing Sensetime Technology Development Co., Ltd.
• Changsha Jingjia Microelectrics Co., Ltd.
• Chengdu Haiguang Integrated Circuit
• Chengdu Haiguang Microelectronics Technology
• China Aerospace Science and Technology Corporation (CASC) 9th Academy 772 Research Institute
• Dahua Technology
• Harbin Institute of Technology
• Higon
• IFLYTEK
• Intellifusion
• Megvii Technology
• National Supercomputer Center Zhengzhou
• National Supercomputing Center Changsha
• National Supercomputing Center Guangzhou
• National Supercomputing Center Jinan
• National Supercomputing Center Shenzhen
• National Supercomputing Center Tianjian (NSCC-TJ)
• National Supercomputing Center Wuxi (NSCC-WX)
• National University of Defense Technology
• New H3C Semiconductor Technologies Co., Ltd.
• Northwestern Polytechnical University
• Shanghai High-Performance Integrated Circuit Design Center
• Sugon
• Sunway Microelectronics
• Tianjin Phytium Information Technology
• Wuxi Jiangnan Institute of Computing Technology
• Yitu Technologies

Determining when a foreign-produced item is subject to the EAR under the Entity List foreign direct product rule is complicated.  In essence, as with the Huawei-specific rule, if there is knowledge that a foreign-produced item is either (i) the direct product of specific types of semiconductor, computer, or telecommunication software or technology subject to the EAR; or (ii) produced by equipment that is the direct product of various types of technology or software subject to the EAR, then a license is required before shipping the non-U.S.-origin item to anyone either (i) for incorporation into, or use in producing or developing, any commodities produced, purchased, or ordered by one of the Footnote 4 entities; or (ii) when a Footnote 4 entity is a party to the transaction.  

The scope of the foreign-made items caught by the new Footnote 4 controls is, however, slightly broader than the Huawei-specific rules.  Specifically, a foreign-produced item can be caught by the new rules if it is the direct product of software or technology subject to the EAR for encryption-related reasons, or produced with equipment that is the direct product of such software or technology.  This is not the case for the Huawei-specific rules.  In addition, the licensing policy for Footnote 4 entities is presumptive denial, which is not the case for many types of items affected by the Huawei-specific policies.  For some of the Footnote 4 entities, however, there is a possibility of a license if the shipment is necessary to detect, identify, or treat infectious diseases.

B. New “Advanced Computing FDP Rule” (§ 734.9(h))

If there is knowledge that a foreign-produced item is either:

1. destined to China or will be incorporated into any commodity described on the Commerce Control List that is destined to China; or
2. technology developed by an entity headquartered in China for the production of a mask or an integrated circuit wafer or die,

then the foreign-produced item is subject to the EAR under the new Advanced Computing foreign direct product rule if it is:

1. the direct product of certain types of semiconductor, computer, telecommunications or encryption-related software or technology subject to the EAR; or
2. produced by equipment that is the direct product of such technology or software;

and is also:

1. described in one of the new ECCNs for advanced computing integrated circuits, and related equipment, software and technology (i.e., specified in ECCNs 3A090, 3E001 (for 3A090), 4A090 or 4E001 (for 4A090)); or
2. an integrated circuit, computer, electronic assembly or component that meets the performance parameters of ECCNs 3A090 or 4A090.