The UK has expanded its export controls regime to include a number of key emerging technologies, including in relation to semiconductors and quantum technology. These changes take effect on 1 April 2024, following which an export licence will be required to export the newly controlled items to any destination. These changes are very much in line with the current global trend of using export controls and other legal measures to protect these technologies for economic and national security purposes.

What changes have been made?

As announced by the Export Control Joint Unit in its Notice to Exporters 2024/04 on 12 March 2024, the UK government has amended and expanded its export control regime through changes introduced by The Export Control (Amendment) Regulations 2024. Of particular relevance to the semiconductor and emerging technology industry are the changes to Schedule 3 (UK controlled dual-use goods, software, and technology) of the Export Control Order 2008 (ECO). These changes introduce new controls on:

• semiconductor technology (including integrated circuits (including TPUs, GPUs, ASICs and other processers and accelerators), as well as certain equipment used in manufacturing semiconductors including dry etching and micro imaging);
• quantum technology;
• cryogenic technology;
• additive manufacturing equipment designed to produce certain metal or metal alloy components; and
• certain advanced materials.

What are the implications for businesses?

The export controls on the newly targeted technologies under the ECO prohibit export or “transfer by electronic means” of goods, “software,” and “technology” falling within the new categories to any destination. These concepts under the ECO are interpreted broadly and potentially capture a wide range of activity. Businesses involved in the export of the items targeted by the UK’s expanded export control regime will need to ensure that they adhere to these new controls where applicable, including applying for export licences. No general licences have been issued yet, meaning that exporters will need to rely on specific licence applications for all exports from the UK. A breach of UK export controls may amount to a criminal offence and can also result in administrative penalties.

The expansion of export control in relation to these items also has implications for investors, as investments in any entities with UK nexus who are engaged in such activities could now be caught by the National Security and Investment Act (NSIA) and require approval of the UK Government before closing. The regulations which define the mandatory sectors under the NSIA refer in a number of places to the Export Control Order, often meaning that transactions involving entities engaged in the supply of restricted goods or technologies will be within the scope of mandatory filing requirements.

Comment

The amendments targeting semiconductor and other emerging technologies are the first significant step by the UK Government to put in place enhanced protections on the export of these technologies in recognition of their importance to national security. Plans to expand export controls in this area were trailed in the government’s National Semiconductor Strategy policy paper, published in May 2023, in which it committed to strengthen protection for the UK semiconductor assets, including through expansion of export controls to prevent “hostile actors” building tech capability that could cause harm to national security.

These changes are also in line with actions being taken or proposed by international partners. In June 2023, the EU announced its European Economic Security Strategy, highlighting the need to assess and tackle risks to security and technological competitiveness linked to the export and outward investment in key dual-use technologies such as quantum, advanced semiconductors, and artificial intelligence. Building on that strategy, in January 2024, the EU adopted a European Economic Security Package of five initiatives to enhance the EU’s economic security, including more coordinated action at the EU level on export controls. The European Commission published a White Paper on Export Controls proposing short- and medium-term actions to be taken to ensure rapid and coordinated action on export controls. The White Paper focuses, in particular, on risks arising from divergence between Member States on controls relating to semiconductor technology, quantum computing, and other emerging technologies. For more detail on the European Economic Security Package, see our previous client alert on the subject. In parallel, 2023 saw the adoption of tighter export control rules for semiconductor, quantum, and other emerging technologies under the national export control regimes of EU Member States, such as the Netherlands (as noted below) and Spain.

In the United States, in October 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) announced wide-ranging new export controls on advanced computing and semiconductor manufacturing technology to China. These new export controls were clarified and expanded through new controls announced by BIS in October 2023. Further, as part of a tri-lateral agreement between the United States, Japan, and the Netherlands, the Netherlands and Japan announced the introduction of export control restrictions on certain semiconductor technology in March and May 2023, respectively.

We expect the trend of tightening protections around sensitive emerging technologies through export controls and other national security measures to continue in the UK and internationally. Businesses operating in this sector are advised keep track of the changing export controls landscape and ensure they remain compliant as it continues to evolve.

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