What You Need To Know

• The Commerce Department’s Bureau of Industry and Security (BIS) has published new FAQs that offer further guidance on two interim final rules that went into effect in November 2023.
• These rules, for which the BIS is accepting comments until January 17, 2024, expand export controls related to advanced computing and semiconductors, aimed at China and other national security concern countries.
• The just-published FAQs offer guidance on several areas, including: the new export license exception and its advance notification requirement for certain advanced chips and products containing them; controls on U.S. persons’ activities in support of advanced chip production; scope of its end-use controls relating to advanced computing and semiconductors; and clarified directions for electronic export information filers.
• The FAQs also provide a preview of at least one expert control revision that is expected to be made, and detailed several export scenarios where a license may be required under the interim final rules.
• Businesses that engage with semiconductors and related items should take care to ensure their activity complies with the new semiconductor export controls.

On October 17, 2023, the U.S. Commerce Department's Bureau of Industry and Security (“BIS”) released two interim final rules that expanded export controls related to advanced computing and semiconductors, aimed at China and other national security concern countries: (1) the Advanced Computing/Supercomputing Interim Final Rule (“AC/S IFR”) and (2) the Semiconductor Manufacturing Equipment Interim Final Rule (“SME IFR”). These new rules both modify and expand the October 7, 2022, semiconductor export controls. The two interim final rules went into effect on November 17, 2023. BIS is accepting comments for both rules until January 17, 2024, and corrections and changes to the rules are expected to be published as well.

On January 4, 2023, BIS published FAQs that offer guidance on the new (i) export license exception and its advance notification requirement for certain advanced chips and products containing them; (ii) controls on U.S. person activities in support of advanced chip production; (iii) scope of its end-use controls relating to advanced computing and semiconductors; as well as, (iv) clarified directions for electronic export information filers. Within the FAQs, BIS also provided a preview of at least one export control revision that is expected to be made, and detailed several export scenarios where a license may be required under these interim final rules. More clarifications and revisions are expected to be published by the agency.

This advisory provides background on the semiconductor controls, followed by a discussion of the newly issued guidance from BIS.

Background on the Updated Advanced Computing/Supercomputing Rules

I. Advanced Computing/Supercomputing Interim Final Rule

The AC/S IFR makes significant changes to the October 2022 rule related to advanced computing items and advanced-node integrated circuits (“ICs”).

a. ECCN 3A090

The AC/S IFR makes significant changes to Export Control Classification Number (“ECCN”) 3A090, which controls advanced computing ICs subject to the Export Administration Regulations (“EAR”) – the criteria for that ECCN have been overhauled from the initial version of the ECCN released in October 2022. The revised ECCN 3A090.a captures high-performance ICs that could be particularly useful in data center processing, with a total processing performance of 4800 or more, or a total processing performance of 1600 or more and a performance density of 5.92 or more. The newly created ECCN 3A090.b captures less-advanced ICs that are nonetheless useful in data center chip training, with a total processing performance of 2400 or more, but less than 4800, with a performance density of 1.6 or more, but less than 5.92; or a total processing performance of 1600 or more and a performance density of 3.2 or more, but less than 5.92. A carve-out exists under Note 2 to ECCN 3A090, by which ICs are not subject to ECCN 3A090 if they have a total processing performance of below 4800, but otherwise meet the performance density criteria, and are not designed or marketed for use in data centers.

Items that are subject to the EAR and meet the criteria of ECCN 3A090 are subject to the Regional Stability (“RS”) controls described below.

b. New Paragraph .z for Additional ECCNs

The AC/S IFR extends the performance criteria of ECCN 3A090 to items otherwise described by other ECCNs. These performance criteria are captured in a “.z” paragraph in the following ECCNs: 3A001, 4A003, 4A004, 4A005, 4A090, 5A002, 5A004, 5A992, 5D002, and 5D992. In other words, items normally controlled in those ECCNs that also meet the performance criteria of 3A090 are controlled in the new paragraph .z of their respective ECCNs. These items are also subject to the RS controls described below, as well as standard Anti-Terrorism controls.

c. Expanded Geographic Scope

The new rule substantially expanded the geographic scope of the restrictions on these advanced ICs controlled under ECCN 3A090 and the items that incorporate them. The restrictions previously only applied to China (including Hong Kong) and Macau. The most recent amendment expanded the restrictions on ICs controlled by ECCN 3A090, computers and electronic assemblies controlled by ECCN 4A090, and items otherwise controlled by other ECCNs that meet the performance criteria of ECCNs 3A090 or 4A090 to all destinations listed in Country Groups D:1, D:4, and D:5 (excluding destinations also specified in Country Groups A:5 or A:6, currently Cyprus and Israel). These destinations include China and other countries subject to national security, missile technology, and arms embargo controls. These controls are imposed under a new RS policy found at 15 C.F.R. § 742.6(a)(6).

Accordingly, the new RS controls impose a licensing requirement on exports, reexports, and in-country transfers of the above items for this expanded group of countries. License applications for these items to a destination specified in Country Group D:5 (such as China) or Macau will be reviewed under a presumption of denial. License applications for these items to destinations specified in Country Groups D:1 or D:4 (excluding Macau) will be reviewed under a presumption of approval, unless the export, reexport, or in-country transfer is to an entity headquartered in, or whose ultimate parent company is headquartered in, a destination specified in Country Group D:5 or Macau. In this case, a license application would be reviewed under a presumption of denial.

d. New License Exception Notified Advanced Computing (“NAC”)

The AC/S IFR created a new License Exception NAC, found at 15 C.F.R. § 740.8, that authorizes exports, reexports, and in-country transfers of ICs that meet the criteria of ECCN 3A090 (excluding items that both meet the performance criteria of ECCN 3A090.a and are designed or marketed for data center use) and items controlled in other ECCNs that also meet the criteria of ECCN 3A090 (e.g., the “.z” paragraphs). Where an item meets the performance criteria of ECCN 3A090.a and is designed or marketed for use in a data center, License Exception NAC may not be used for the export, reexport, or in-country transfer of the item. Where an item meets the performance criteria of ECCN 3A090.b, License Exception NAC is available for items designed or marketed for use in a datacenter.

The export or reexport under License Exception NAC must be made pursuant to a written purchase order (with a narrow exception for commercial samples). License Exception NAC cannot be used for export, reexport, or in-country transfer to or for a prohibited end user or prohibited end use, except for a license required under § 744.23(a)(3) in limited cases.

Where the exporter seeks to use License Exception NAC for exports or reexports (not required for in-country transfers) to Macau or Country Group D:5, the exporter must provide BIS with a minimum of 25 days’ advanced notice and receive approval from BIS prior to the export or reexport occurring.

e. Temporary General License

The AC/S IFR creates a new Temporary General License (“TGL”), found at Supplement No. 1(d)(2) to Part 736 of the EAR, for the export, reexport, and in-country transfer of items described under ECCNs 3A090 or 4A090, or items controlled under other ECCNs that meet the performance criteria of ECCNs 3A090 or 4A090 that would otherwise require a license under this new rule. The TGL authorizes the export, reexport, and in-country transfer to destinations specified in Country Groups D:1, D:4, and D:5 where the recipient entity is not headquartered or whose parent is not headquartered in Country Groups D:1, D:4, or D:5 (excluding destinations also specified in Country Groups A:5 or A:6). The items must be for ultimate end use outside of Country Groups D:1, D:4, and D:5 (excluding destinations also specified in Country Groups A:5 or A:6), and by end users that are not D:5 or Macau entities. The recipient may only use the TGL for limited activities, including integration, assembly (mounting), inspection, testing, quality assurance, or distribution. Other activities, including product R&D and engineering, are not authorized under the TGL. The TGL is valid through December 31, 2025.

f. U.S. Person Restrictions

In addition to restricting the movement of hardware, software, and technology subject to EAR, U.S. export controls also restrict certain activities of U.S. persons related to advanced-node ICs that are not otherwise subject to the EAR. The AC/S IFR clarifies and expands the restrictions on activities of U.S. persons related to advanced semiconductors implemented in the October 2022 rule. Under the October 2022 rule, a license was required for any U.S. person to ship, transmit, transfer, or service specified end items or services to Advanced IC development or production facilities in China or Macau.

Under the new AC/S IFR, restrictions on the activities of U.S. persons are broadened to encompass U.S. person support for development or production of advanced-node ICs at any facility where the entity or its parent company is headquartered in Country Group D:5 or Macau (excluding destinations also specified in Country Groups A:5 or A:6). These restrictions are found at 15 C.F.R. 744.6(c)(2)(i)-(ii).

g. Advanced Computing Foreign Direct Product Rule

The AC/S IFR expands the country scope of the Advanced Computing Foreign Direct Product Rule (“FDPR”), found at 15 C.F.R. § 734.9(h). The original Advanced Computing FDPR controlled items subject to the advanced computing ECCNs if destined for China or Macau, or for incorporation into items (excluding EAR99 items) destined for China or Macau. The revised Advanced Computing FDPR captures all of Country Groups D:1, D:4, and D:5 (excluding destinations also specified in Country Groups A:5 or A:6). The Advanced Computing FDPR country scope extends to any country worldwide where the foreign-produced item is destined for an entity headquartered in or whose parent is headquartered in Country Group D:5 or Macau. This worldwide end use restriction applies when companies headquartered in Country Group D:5 or Macau are a party to the transaction involving the foreign-produced item, including as a purchaser, consignee, or end user.

I. Semiconductor Manufacturing Equipment Interim Final Rule

The SME IFR makes significant changes to the October 2022 rule related to semiconductor manufacturing items.

a. Removal of ECCN 3B090 and Expansion of ECCNs 3B001 and 3B002

Semiconductor manufacturing items previously described in ECCN 3B090 have been moved to ECCNs 3B001 and 3B002, which were expanded to capture that equipment. These RS-controlled SME items described in ECCNs 3B001 and 3B002 require a license for export, reexport, or in-country transfer to Country Group D:5 and Macau.

b. Clarification of U.S. Person Restricted Activities

The SME IFR clarifies the U.S. person support restrictions related to semiconductor manufacturing, found at 15 C.F.R. § 744.6(c)(2)(iii). The U.S. person restrictions apply to facilities where advanced-node semiconductor production occurs, even where the production does not necessarily amount to fabrication. This includes early-stage manufacturing and late-stage product engineering, but does not include back-end steps, such as assembly, testing, or packaging. The U.S. person restrictions do not restrict the activity of U.S. persons employed by an entity headquartered in the United States or Country Groups A:5 or A:6 where the entity is not majority owned by an entity headquartered in Country Group D:5 or Macau.

c. Temporary General License

The SME IFR creates a new TGL for semiconductor manufacturing equipment producers headquartered in the United States or Country Groups A:5 or A:6, found at Supplement No. 1(d)(1) to Part 736 of the EAR. Under this TGL the qualifying SME producer may continue to send items to manufacturing facilities in Country Group D:5 or Macau for the development or production of certain Category 3B items on the Commerce Control List (“CCL”). The TGL is valid until December 31, 2025.

Newly Published FAQs

The FAQs issued on January 4, 2024, address industry inquiries and feedback received in response to the AC/S IFR and SME IFR.

I. License Exception NAC

In the FAQs, BIS highlighted that it will review NAC notifications for national security concerns and “require a license application for any notifications that raise concerns.” This means that even if the chip meets all technical parameters for the license exception, a license application may still be required if the type of item, quantity, and the end user/end use raises a concern for the agency.

BIS also confirmed that because the NAC review process considers additional factors such as end users, uses, and volume, the agency does not plan to publish a list of advanced computing chips that are eligible for the NAC License Exception.

BIS noted that it plans to revise ECCN 4A090.b to clarify an issue that was raised concerning the scope of the requirements related to License Exception NAC. BIS explained that exporters should “assess all computers, ‘electronic assemblies,’ and ‘components’ containing integrated circuits, any of which meets or exceeds the limits in 3A090.b, against the requirements of License Exception NAC notwithstanding ECCN 4A090.b currently being reserved.”

BIS also stated that in situations where the exporter is not the designer/manufacturer of the chip, the NAC notification submissions should provide authorization to allow BIS to contact the chip designer or manufacturer on the exporter’s behalf to obtain information on the chip’s performance density.

Additionally, BIS stated that it expects to receive “duplicative” NAC notifications related to the same chip but submitted by different exporters. However, BIS made clear that an approval of one notification does not mean all other exporters shipping that item are similarly approved. License Exception NAC approvals are only valid for the exporter who submitted the approved application.

II. U.S. Person Controls

The FAQs clarified that certain exclusions for controls on activities of U.S. persons under the chip restrictions only apply to “natural” U.S. persons – not a U.S. entity. BIS explained that the exclusion of “natural” U.S. persons from the controls was intended to prevent discrimination against U.S. person employees of non-U.S. person entities headquartered in allied countries.

In response to a comment asking for clarification on whether the exclusion in § 744.6(d)(5) impacts what type of facilities are covered under § 744.6(c)(2)(iii), BIS stated that since § 744.6(c)(2)(iii) states, “regardless of end use or end user,” the type of facility is not relevant to the application of paragraph (c)(2)(iii). The U.S. person restrictions related to semiconductor manufacturing equipment apply more broadly than those relating to advance-node ICs and are implicated whenever the equipment is destined for the restricted countries.

III. Clarification on Status of Cyprus

BIS clarified that while it has not yet removed Cyprus from Country Group D:5, it is effectively removed because the restrictions under 22 C.F.R. § 126.1 of the State Department’s International Traffic in Arms Regulations (“ITAR”) do not apply to Cyprus. Accordingly, Cyprus has been excluded under these rules from restrictions on destinations specified in Country Group D:5, per the carve-out for countries also listed in Groups A:5 or A:6.

IV. Regional Stability (“RS”) Controls and .z ECCNs

The Electronic Export Information (“EEI”) filing to the Automated Export System (“AES”) is used by BIS to gather information from exporters for compliance purposes. EEI filings are generally required for exports of hardware and software where the value is over $2500. However, BIS confirmed that the mandatory AES EEI filing for “.z” category items applies to transactions below the $2500 threshold and licenses are required for any items that fall under ECCNs 3A090/4A090 and another ECCN on the CCL.

BIS explained that the .z paragraphs were created to retain the original license requirements for that item plus the new RS-related license requirements from the October 17 AC/S IFR, as well as related license exceptions. Accordingly, the exporter must ensure the export, reexport, or in-country transfer of .z items complies with the new RS license requirements in addition to the preexisting requirements of the applicable ECCN, irrespective of the applicability of License Exception NAC. BIS provided the example that ECCN 4A003.z “controls items that meet both ECCN 4A003.b and ECCN 4A090.” Therefore, it requires a license to the same destinations as 4A003.b items plus the additional restrictions on ECCN 4A090 items; and outside of Country Group D:1, D:4, and D:5 countries, it is eligible for the same license exceptions as a ECCN 4A003.b item.

V. Clarification of Facility Definition in SME IFR

The SME IFR implements several end-use restrictions related to facilities where the development or production of advanced-node ICs occur. BIS confirmed that its definition for “facility” in the SME IFR includes:

• facilities where “production” may occur beyond a fabrication facility, including “beyond the clean room or production floor”;
• facilities where important late-stage product engineering or early-stage manufacturing steps (among others) may occur; and
• “development” and product engineering activities at R&D fabrication “facilities” that may not engage in volume manufacturing.

Key Takeaways

The AC/S IFR and the SME IFR expanded the scope of semiconductor export controls and clarified provisions of the October 2022 rule. Businesses that engage with semiconductors and related items should take care to ensure their activity complies with the new semiconductor export controls, including:

• Conducting export classifications to determine whether their items and related technology are captured under the new controls;
• Developing alternative production and export channels for items captured under the new controls, including relocating manufacturing activities outside of restricted destinations;
• Updating internal compliance policies and programs, including red flag indicators of diversion into restricted destinations; and
• In making representations and warranties to foreign buyers and investors, scrutinizing whether the business is a “critical technology” company and whether the transaction is subject to review by the Committee on Foreign Investment in the United States (“CFIUS”).