On November 17, 2023, two interim final rules issued by the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) took effect, which together impose new export controls on certain advanced semiconductors, semiconductor manufacturing equipment, and items that can support end uses related to the development and production of supercomputers, advanced-node integrated circuits and semiconductor manufacturing equipment. The Biden administration has stated that the new rules aim to prevent the use of this advanced U.S. technology in China’s military modernization efforts.

In particular, one of the new rules, which BIS has referred to as the Advanced Computing Chips Rule, expands export controls on certain advanced semiconductors, computers containing such semiconductors, and related items. A summary of the key provisions of the Advanced Computing Chips Rule is provided below.

Expansion of Controls to Capture Integrated Circuits with Lower Processing Performance Capabilities

The Advanced Computing Chips Rule expands the scope of Export Control Classification Number (“ECCN”) 3A090, which covers certain integrated circuits (“ICs”) and related items, to include additional semiconductors with lower processing performance capabilities. This expansion is intended to limit the ability of a party to acquire smaller, non-controlled ICs and then combine them to achieve the processing power and related capabilities that more advanced, controlled ICs provide. Notably, the Advanced Computing Chips Rule also expands the scope of items controlled under ECCN 4A090, which includes computers, electronic assemblies, and components thereof containing ICs that are covered under ECCN 3A090.

Expansion of Licensing Requirements Beyond China

In addition, the Advanced Computing Chips Rule expands the licensing requirements for ECCNs 3A090 and 4A090 beyond China and Macau to cover shipments to or within approximately 40 countries. These countries include Afghanistan, Armenia, Azerbaijan, Bahrain, Belarus, Burma, Cambodia, Central African Republic, China, Democratic Republic of the Congo, Cuba, Egypt, Eritrea, Georgia, Haiti, Iran, Iraq, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Moldova, Mongolia, North Korea, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Somalia, South Sudan, Sudan, Syria, Tajikistan, Turkmenistan, United Arab Emirates, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe (each, a “Restricted Country”). Accordingly, exports, reexports, and in-country transfers to or within any of these Restricted Countries will require a license from BIS, unless a license exception applies. BIS will review license applications under a presumption of approval, except for those applications destined to a Prohibited Country (as defined below), which BIS will review under a presumption of denial.

New Worldwide End-Use Restrictions

The Advanced Computing Chips Rule also introduces a new “worldwide” end-use control for shipments of items controlled under ECCNs 3A090 or 4A090 when the exporter, reexporter, or transferor has knowledge that the item is destined for any entity, wherever located, that is headquartered in, or whose ultimate parent company is headquartered in, any of the following countries: Afghanistan, Belarus, Burma, Cambodia, Central African Republic, China and Macau, Democratic Republic of Congo, Cuba, Eritrea, Haiti, Iran, Iraq, North Korea, Lebanon, Libya, Russia, Somalia, Republic of South Sudan, Sudan, Syria, Venezuela, and Zimbabwe (each, a “Prohibited Country”). Such shipments require a license from BIS, unless a license exception applies. BIS will review license applications for such shipments under a presumption of denial.

New U.S. Person Restrictions and Due Diligence Requirements

The Advanced Computing Chips Rule also expands the restrictions on support activities by U.S. persons related to the development or production of semiconductors. Specifically, the rule imposes licensing requirements where U.S. persons provide support with respect to an item not otherwise subject to U.S. export controls when the person knows the item will be used in the development or production of ICs at a facility of an entity headquartered in, or whose ultimate parent company is headquartered in, a Prohibited Country. Covered support activities include authorizing shipments, conducting deliveries, and servicing (including maintaining, repairing, overhauling, or refurbishing) applicable items.

Per BIS guidance, appropriate due diligence by U.S. persons considering a transaction potentially covered by these requirements includes, among other things, a review of publicly available information, the capability of the items to be provided, proprietary market data, and end-use statements.

License Exception Notified Advanced Computing

The Advanced Computer Chip Rule also creates a new License Exception Notified Advanced Computing (“NAC”) that authorizes exports, reexports, and transfers of certain AI-capable, consumer-grade ICs that fall slightly below the control thresholds to or within a Restricted Country. In addition, the Advanced Computer Chip Rule creates a parallel notification requirement for exports or reexports of such dual-use ICs to or within a Prohibited Country.

When a notification must be made, the parties must submit a notification to BIS via its System for Tracking Export License Applications (STELA) at least 25 calendar days in advance of the export or re-export. BIS will have 25 days to review the notification, after which time BIS will determine whether the exporter or re-exporter can rely on License Exception NAC for the shipment or instead be required to obtain a license for the transaction.

Conclusion

The Advanced Computer Chip Rule has significant implications for the semiconductor industry and its customers, especially those that operate in or deal with entities in countries where the controls apply. Exporters, reexporters, and transferors of items controlled under the Advanced Computer Chip Rule should exercise caution and conduct due diligence to identify the destination, end users, and end uses for their products. Companies should also review their existing contracts and supply chains to assess the impact of the rule on their business operations and compliance obligations to ensure continued compliance in the future.

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