U.S. Government Authorization Now Required for Certain Business with SMIC and Over 70 Additional Entities in China

Wilson Sonsini Goodrich & Rosati

As of December 18, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has added 77 new entities to the Entity List. Among the most notable additions are Semiconductor Manufacturing International Corporation of China (and 10 of its affiliated entities, collectively “SMIC”) and China Communications Construction Company Ltd. (CCCC). A license from BIS is now required for exports, reexports, and in-country transfers of all items subject to the Export Administration Regulations (EAR). Items subject to the EAR include almost all U.S.-origin technology, software, and commodities, as well as certain foreign-produced items. The license requirement is triggered by the involvement (including as a purchaser, consignee, or end-user) of these companies in a transaction, not the sensitivity (or lack thereof) of the item being shipped. The items that are subject to the license requirement include, but are not limited to, U.S.-origin technology, hardware, chips, and software, even if located abroad, as well as software or technical updates, bug fixes, and/or other updates to items that had previously been exported to the companies. These companies were added to the Entity List because the U.S. government believes they have been acting “contrary to the national security and foreign policy interests of the United States.”

Even though the EAR amendment will not be published officially in the Federal Register until on or about December 22, 2020, BIS has confirmed that the restrictions were effective as of December 18, 2020”—the date the notice was made available for public inspection. A copy can be viewed here.

The restrictions regarding SMIC are the result of China’s military-civil fusion (MCF) doctrine and the U.S. government’s belief that SMIC is supporting entities of concern in the Chinese military industrial complex. The license review policy for the SMIC-listed entities is case by case, except for items uniquely required to produce semiconductors at advanced technology nodes 10 nanometers or below, which are subject to a presumption of denial. The license review policy for the remaining new additions is generally a presumption of denial.

The addition of SMIC and CCCC to the Entity List follows the Department of Defense’s designation of those companies and others as “Communist Chinese military companies.” President Trump’s Executive Order from November 12, 2020, prohibited U.S. investors from purchasing publicly traded securities of Communist Chinese military companies beginning on January 11, 2021. Securities purchased before that date must be divested of before November 12, 2021.

Beyond the additions to the Entity List, BIS has also removed four entities, including Ben Gurion University, located in Israel. Ben Gurion University’s removal from the Entity List comes over 23 years after its addition, made on February 3, 1997.

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