Semiconductors and supercomputers – Commerce greatly expands export controls on China

On October 7, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) released an interim final rule (Interim Final Rule) that implements several new export controls to restrict the People’s Republic of China’s (PRC) ability to obtain certain advanced computing, semiconductor and related manufacturing items from the United States and overseas sources that rely on US technology.

These controls are reflected in several broad and sweeping changes to the Export Administration Regulations (EAR) and apply both to US-origin items and items developed or produced outside the United States that are the “direct product” of US technology, software, plant or manufacturing equipment:

First, the Interim Final Rule imposes restrictive export controls on certain advanced computing semiconductor chips and semiconductor manufacturing items.

Second, the Interim Final Rule imposes new controls on transactions for supercomputer end-uses or for certain IC end uses.

Third, the Interim Final Rule expands the scope of the Foreign Direct Product Rule to control more foreign-produced items intended for advanced computing, supercomputers, or certain PRC entities designated on the Entity List.

Fourth, the Interim Final Rule imposes controls on the activities of US persons with respect to shipping, transmitting, transferring, facilitating, or servicing items that will support the development or production of certain advanced ICs in the PRC.

The Interim Final Rule targets several new technologies, including the advanced 2.5D and 3D field effect transistor (FET) integrated circuit (IC) architectures such as FinFET and GAAFET, which are increasingly being used in a wide range of advanced processor and circuit designs. The Interim Final Rule also targets NAND flash and DRAM memory technology and the high-speed processor and multi-core designs that comprise the chips powering advancements in artificial intelligence, edge computing, autonomous vehicles, voice-to-text, and other data and image intensive applications. 

By introducing a new definition of “supercomputer” and new metrics for data processing speed – such as the number of primitive computational units and “era operations per second – the Interim Final Rule also covers multi-core, networked, and system-on-a-chip implementations that can meet or exceed processing capabilities historically reserved for traditional supercomputer designs.

I. New controls on advanced computing semiconductor chips and manufacturing software and equipment

Additions to the Commerce Control List (CCL)

The Interim Final Rule adds controls on advanced computing semiconductor chips by creating new Export Control Classification Numbers (ECCNs) and associated export license requirements. These new ECCNs are found in Categories 3 and 4 of the Commerce Control List (CCL):

• ECCN 3A090: specified high-performance ICs (Effective October 21, 2022)
• ECCN 4A090: computers, “electronic assemblies,” and “components,” not elsewhere specified, containing ICs in ECCN 3A090 (Effective October 21, 2022)
• ECCN 3B090: specified semiconductor manufacturing equipment (Effective October 7, 2022)

These ECCNs are controlled for anti-terrorism (AT) reasons, as well as regional stability (RS) when they are exported, reexported, or transferred (in-country) to or within the PRC. Software and technology associated with items described in these ECCNs also are controlled for RS reasons when destined for the PRC. ECCNs 3A991 and 4A994 have been expanded to control lower-level computing ICs and computer commodities that contain them. These items, and their associated software and technology, are now controlled for AT reasons as well.

Expansion of regional stability controls

The newly added RS controls (found in § 742.6(a)(6) will require an export license for items described under these new ECCNs, and for software and technology described under associated ECCNs, including ECCNs 3D001, 3E001, 4D090, and 4E001. Additionally, BIS added RS license requirements to existing ECCNs 5A992 and 5D992 to address circumstances when items containing or utilizing encryption classified under these ECCNs meet or exceed the performance parameters of ECCN 3A090 or 4A090.

The RS control also imposes an export license requirement for the export from the PRC to any destination worldwide of technology for the design, development, or production of advanced computing chips (ie, ECCN 3E001 for ECCN 3A090), which has been (1) developed by an entity headquartered in the PRC; (2) is the “direct product” of certain software subject to the EAR; and (3) is for the “production” of certain advanced computing ICs and computers or assemblies containing them.

The license requirements under the newly added RS controls do not apply to deemed exports or reexports. However, deemed exports and reexports of technology and software related to ECCNs 3A991.p and 4A994.l that previously did not require a license, may now require an export license if the technology or software release exceeds the scope of the technology or software that the foreign national already had access to prior to the implementation of the Interim Final Rule. 

Generally, export license applications related to the PRC for items controlled under the EAR for the new RS reasons will be reviewed under a presumption of denial. Export license applications by U.S. and or Country Group A:5 and A:6 companies will be reviewed on a case-by-case basis.

Limits on license exception eligibility

License exceptions previously available for ICs, computers, and electronic assemblies may no longer be available. The Interim Final Rule limits the license exceptions available for exports or reexports of items controlled under ECCNs 3A090 and 4A090 (and the associated software and technology in 3D001, 3E001, 4D090, and 4E001). 

Effective October 21, 2022, the only license exceptions available for these ECCNs are the following:

• Servicing and replacement of parts and equipment (RPL) under § 740.10
• Governments, international organizations, International Inspections Under the Chemical Weapons Convention, and the International Space Station (GOV), restricted to eligibility under the provisions of § 740.11(b)(2)(ii) (exports, reexports, and transfers (in-country) made by or consigned to a department or agency of the United States Government) and
• Technology and Software Unrestricted (TSU), under the provisions of § 740.13(a) (operation technology and software) and (c) (software updates).

Effective October 7, 2022, the only license exception available for exports or reexports of items controlled under ECCN 3B090 (and the associated software and technology in ECCNs 3D001 and 3E001) is License Exception Governments, International organizations, international inspections under the Chemical Weapons Convention, and the International Space Station (GOV), restricted to eligibility under the provision of § 740.11(b)(2)(ii) (exports, reexports, and transfers (in-country) made by or consigned to a department or agency of the United States government).

II. Restrictions on the intended end-use of “supercomputers” and semiconductor manufacturing

To supplement the CCL-based controls described above, the Interim Final Rule adds a new § 744.23, which requires an export license for a broad range of products, software, and technology where there is “knowledge” at the time of export, reexport, or transfer (in-country) that the item will be used, directly or indirectly, for end uses related to “supercomputers” and semiconductor manufacturing.

The Interim Final Rule defines a “supercomputer” 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.” The definition notes that a supercomputer typically is “a high-performance multi-rack system having thousands of closely coupled compute cores connected in parallel with networking technology and having a high peak power capacity requiring cooling elements.” 

Effective October 7, 2022, the following products, software, and technology will require an export license:

• any item subject to the EAR to be used in the development or production of ICs at a semiconductor fabrication facility located in the PRC that fabricates ICs with specified parameters
• most ECCNs in Category 3 of the CCL to be used the development or production of ICs at a semiconductor fabrication facility located in the PRC if unknown whether such facility can produce ICs according to the specified parameters
• any item subject to the EAR to be used in the development or production in the PRC of any parts, components or equipment specified under ECCNs 3B001, 3B002, 3B090, 3B611, 3B991, or 3B992.

Effective October 21, 2022, ICs, computers, electronic assemblies, and components specified under ECCNs 3A001, 3A991, 4A003, 4A004, 4A994, 5A002, 5A004, or 5A992 will require an export license for the export, reexport, and transfer to or within the PRC if:

• the item is intended to be used in the development, production, use, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of a “supercomputer” located in or destined to the PRC or
• the item is intended to be incorporated into or used in the development or production of any component or equipment that will be used in a “supercomputer” located in or destined to the PRC.

No license exceptions are available to overcome the end-use license requirements in § 744.23. Export license applications related to § 744.23 will be reviewed under a presumption of denial. Export license applications by US and Country Group A:5 and A:6 companies will be reviewed on a case-by-case basis.

III. Expanded scope of Foreign-Direct Product (FDP) Rule

The Interim Final Rule revises the scope of foreign-produced items that are subject to the EAR because they are manufactured or developed using US-origin software or technology. Foreign-produced items may also be subject to the EAR if they are manufactured using equipment that itself is a direct product of certain specified US-origin technology or software.

Effective October 21, 2022, the Interim Final Rule expands the FDP Rule to include advanced computing items, supercomputer items, and creates a new Entity List footnote, a tactic first used to expand FDP Rule controls on Huawei Technologies and its affiliates in 2020.

FDP Rule applicable to supercomputers and advanced computing

The new Advanced Computing FDP Rule, set forth in § 734.9(h), provides that a foreign-produced item is subject to the EAR if it is the direct product of certain specified software or technology subject to the EAR (or developed using certain US-origin technology or software or equipment), and:

• the foreign-produced item is specified in ECCN 3A090 or 4A090 or is an IC, computer, electronic assembly, or component specified elsewhere on the CCL that meets or exceeds the limit in the performance parameters of ECCN 3A090 or 4A090, or is an item used in the development, production, use, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of any item in the PRC used in the development or production, of certain ICs and
• there is knowledge that the foreign-produced item is being exported, reexported, or transferred (in-country) to or within the PRC, or being incorporated into any part, component, computer, or equipment destined to the PRC.

The new Supercomputer FDP Rule, set forth in § 734.9(i), provides that a foreign-produced item is subject to the EAR if it is the direct product of certain specified software or technology subject to the EAR (or developed using certain US-origin technology or software or equipment), and

• the foreign-produced item will be used in the design, development, production, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of a “supercomputer” located in or destined to the PRC or
• incorporated into, or used in the development, or production, of any part, component, or equipment that will be used in a “supercomputer” located in or destined to the PRC.

Because the scope of the FDP Rule applicable to supercomputers generally matches the license requirements in § 744.23 of the EAR, a license under § 744.23 of the EAR is likely required.

New Entity List Footnote 4

Effective October 21, 2022, the Interim Final Rule adds a newly created Footnote 4 to 28 PRC entities previously designated on the Entity List. 

All items subject to the EAR require an export license to provide to these entities. But now, additional foreign-produced items will be subject to the EAR and require a license when destined to or for use by any of these 28 entities. Specifically, a foreign-produced item will require an export license to a Footnote 4 entity if the item is (i) the direct product of software or technology subject to most ECCNs in Category 3, 4 and 5 of the CCL and (ii) the foreign-produced item will be incorporated into, or will be used in the production or development of any part, component, or equipment produced, purchased, or ordered by any entity with a Footnote 4 designation.

An export license will be required for any transaction involving the foreign-produced item and a Footnote 4 entity, regardless of its role (eg, ultimate, consignee, purchaser, intermediate consignee).

IV. Restrictions on specific activities of US persons

Effective October 12, 2022, the Interim Final Rule revises § 744.6, which now specifies that no US person may support the development or production of ICs at certain PRC-located semiconductor fabrication facilities without an export license. Specifically, the following activities by a US person now require an export license:

• Shipping, transmitting, or transferring (in-country) to or within the PRC any item not subject to the EAR if that item will be used for the development or production of ICs (meeting specified technical parameters) at a semiconductor fabrication facility in the PRC; facilitating or supporting such shipment, transmission, or transfer (in-country); or servicing of any such item;
• Shipping, transmitting, or transferring (in-country) to or within the PRC any item not subject to the EAR but that meets the parameters of most Category 3 items on the CCL if that item will be used for the development or production of ICs (if it is unknown whether such facility can produce ICs that meet the specified technical parameters) at a semiconductor fabrication facility in the PRC; facilitating or supporting such shipment, transmission, or transfer (in-country); or servicing of any such item; and
• Shipping, transmitting, or transferring (in-country) to or within the PRC any item not subject to the EAR and meeting the parameters of ECCN 3B090 and related software (3D001) and technology (3E001) regardless of end use or end user; facilitating or supporting such shipment, transmission, or transfer (in-country); or servicing of any such item.

No license exceptions are available and there is a presumption of denial for applications to engage in these activities. License applications by US and or Country Group A:5 and A:6 companies will be reviewed on a case-by-case basis.

V. Temporary general license

Most of the new restrictions described above take effect immediately or within the next few weeks. However, the Interim Final Rule establishes a temporary general license (TGL) that allows, through April 7, 2023, exports, reexports, and in-country transfers destined to or within the PRC by companies not headquartered in Country Groups D:1 or D:5 or E to continue or to engage in integration, assembly (mounting), inspection, testing, quality assurance, and distribution of:

• items now subject to ECCN 3A090, 4A090, and associated software and technology in ECCN 3D001, 3E001, 4D090, or 4E001 or
• any item that is a computer, integrated circuit, electronic assembly or component and associated software and technology, specified elsewhere on the CCL that meets or exceeds the performance parameters of ECCN 3A090 or 4A090.

This TGL is intended to avoid disruption of supply chains for items newly subject to these controls that are ultimately destined to customers outside of the PRC. The TGL does not authorize the export, reexport, or in-country transfer to end-users or ultimate consignees in the PRC, and the TGL does not overcome any license requirements set forth in the EAR involving an entity on the Entity List or other prohibited end use and end-user restrictions (e.g., those applicable to military end uses and end users).

Please contact the DLA Piper International Trade team with questions related to these new and complicated export control regulations.