Recent Updates on Foreign Investment Restrictions and Export Controls Governing Semiconductors, Quantum Computing and Artificial Intelligence (AI)

Pillsbury Winthrop Shaw Pittman LLP


  • Secretary Raimondo announced that the United States will not be compromising with China on “matters of national security” in response to calls to reconsider the recent Executive Order directing the Department of Treasury to create a regulatory mechanism to prohibit exports of certain semiconductors to China.
  • Comments are due to the Department of Treasury by September 28 to help shape forthcoming regulations on outbound investment.
  • The United States continues to limit the export of semiconductors to China, and given recent congressional attention on U.S. exports, these restrictions may expand in the coming months.

From August 27 to August 30, U.S. Secretary of Commerce Gina Raimondo visited China, marking the first trip to China by a U.S. commerce chief in five years. The trip, which came amid growing tensions between China and the United States, sought to open dialogue on crucial matters, including export controls, investment restrictions and national security. One reported success from Raimondo’s trip was the creation of a commercial working group which will meet twice a year at the vice minister level. While Raimondo stressed that this group will not “solve everything overnight,” it has been hailed as a welcome step towards transparency between either country.

Simultaneously, while Raimondo acknowledged that the United States does not want to “decouple” from China, she held firm that the United States would not be “compromising or negotiating on matters of national security. Period.” Accordingly, the visit offers useful insight into U.S. policy at a critical time for the Chinese-U.S. relationship. While additional trade controls are likely in coming months, the visit demonstrates the possibility of continued dialog between both nations, informed by relevant industry stakeholders.

A Focus on Exports to China
The past several years have seen significant restrictions placed on trade between the United States and China. In October 2022, the U.S. Department of Commerce’s Bureau of Industry (BIS) issued restrictions on exports of certain advanced computing chips to China and Russia. The BIS cited concerns about foreign adversaries’ use of computer chips, such as for military modernization efforts. (See Pillsbury’s initial analysis of these rules.)

Reports indicate that the BIS is considering amendments to its regulations which could include additional limitations, such as restrictions on cloud computing services that provide a China-located user with access to advanced chips. These reports also suggest that further revisions could be made to the technical control parameters of what is considered an “advanced computing” integrated circuit.

Investment Regulation
In August 2023, the Biden Administration issued a long-awaited Executive Order (EO) on outbound investment, which lays the groundwork for forthcoming regulations to require notifications or, in some cases, outright prohibit U.S. companies from making certain investments in countries of concern, including China. The EO identifies semiconductors, quantum computing and artificial intelligence (AI) as the primary areas of focus. (See Pillsbury’s initial analysis of the Executive Order.) Comments on the Department of Treasury’s notice of proposed rulemaking carrying out the EO are due September 28.

Congress has also focused on outbound investment regulation. Included in the National Defense Authorization Act (NDAA), as passed out of the Senate, is the Outbound Investment Transparency Act (OITA), which would require companies exporting advanced semiconductors (among other covered sector technologies) to notify the Treasury Department 14 days prior to making investments in countries of concern. During Senator Casey’s statements on the floor of the Senate supporting the OITA, he commented that outbound investment harms U.S. strategic interests when it facilitates technology transfer and that these investments can undermine the long-term competitiveness of American firms. Independent of the NDAA’s passage, it appears likely that Congress will implement some form of outbound investment restriction or monitoring, though questions remain whether any legislation will go beyond what is already called for in the Administration’s EO.

Separately, in January 2023, the U.S. House of Representatives voted to create the House Select Committee on Strategic Competition Between the United States and the Chinese Communist Party, commonly referred to simply as the Select Committee on the CCP. Over the summer, the Select Committee has launched a number of investigations into U.S. investments and business relations in China. Prior to Raimondo’s trip to China, the Committee wrote to Raimondo, urging her to declare that compromising on U.S. export controls with China is non-negotiable—an action Raimondo did take. The Committee has made clear that they believe it is paramount to keep advanced semiconductors “out of China’s reach.”

Given the increasing complexities to engage with trade in China, some U.S. companies have publicly expressed distress regarding the difficulty of operating in both jurisdictions. As noted by Raimondo on her trip to China, American firms still have a desire to do business in China and access the Chinese market.

Comments and Criticism of Limiting Semiconductor Exports
Companies working with semiconductors at home and abroad should be mindful of the changing market landscape caused by evolving policies.

As outlined in the August 2023 EO, the prohibition on U.S. companies to sell semiconductors to countries of concern will limit China’s ability to develop AI products in the short term. Companies that export chips to China have made clear that in response to export controls, China will dedicate massive resources to accelerate companies specializing in the development of graphics processing units (GPUs). American companies have also raised concerns about the long-term impacts of overly broad restrictions on exports to China, which can cause China to develop its own capabilities, impact visibility on technology developments in China, and result in displacing U.S. technology worldwide.

China’s Ministry of Commerce, in reaction to the announcement of the 2022 export block, noted that the restrictions on advanced computer chips to China would “hinder international scientific and technological exchanges and economic cooperation, and have an impact on the stability of global industrial and supply chains and the recovery of the world economy.” To support the manufacturing strategies of domestic semiconductor companies, the China Integrated Circuit Industry Investment Fund, known as the Big Fund, is set to launch a $40 billion investment fund, backed by the Chinese government. This would be the largest fund to date—two prior funding rounds were released in 2014 and 2019. The goal of the fund is to make China self-sufficient. While it will take time to raise the investments and see results from the Big Fund’s initiative, it is indicative of the government’s dedication to build up its domestic capacity in light of international restrictions.

Engagement Opportunities
Companies that may be impacted by future outbound investment regulations should submit comments and feedback to the Department of Treasury before the September 28 deadline. In addition, some companies may seek the opportunity to meet with members of Congress to help educate on chip supply chain issues as it relates to AI. Senator Schumer (D-NY), who announced the SAFE AI Innovation Framework in June, is hosting the AI Insight Forum this fall. On September 13, Schumer held a closed-door meeting with high-profile tech leaders to discuss potential AI regulation. The meeting was attended by 60 senators who, according to Schumer, all agreed that the government must play a role in regulating AI. Several bills and frameworks have already been proposed or discussed on the Hill, and we expect more to be introduced as the Senators glean more information during forum meetings. Companies may want to reach out to those attending the meeting, as well as coordinate with Senate staff to be involved in future AI Insight Forums.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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