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On October 17, 2023, the US Department of Commerces Bureau of Industry and Security (BIS) released two interim final rules (collectively, the October 2023 IFRs available here and here) amending the Export Administration Regulations (the EAR) to further strengthen export controls on advanced computing items, 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 long-awaited October 2023 IFRs come more than one year after BIS issued rules on October 7, 2022 (the October 2022 IFR) targeting Chinas advanced computing and semiconductor sectors and update, expand and clarify those rules in several key ways. Our previous blog post on the October 2022 IFR can be found here. BIS also issued a final rule adding two Chinese entities and their affiliates (13 Chinese entities in total) involved in the development of AI-capable advanced computing chips to the Entity List with a footnote 4 designation (the Entity List FR).

According to the BIS press release and the preambles to the October 2023 IFRs and the Entity List FR, the latest changes are intended to address the national security and foreign policy concerns in countering Chinas military-civil fusion strategy and the development of advanced or frontier AI capabilities that can lead to improved weapons of mass destruction (WMD) and advanced conventional weaponry while minimizing unintended impact on trade flows.

The updates and clarifications in the October 2023 IFRs are extensive and also include BIS responses to the many comments on the October 2022 IFR that provide noteworthy guidance and interpretation on several topics, including quite expansive jurisdictional interpretations with respect to semiconductor supply chains in the context of the end-use controls of EAR 744.23 and the scope of the Entity List Foreign-Direct Product (FDP) rules. A detailed review of all the comments is beyond the scope of this post, but should be a priority for all US and non-US participants in the semiconductor and supercomputer industries.

The October 2023 IFRs take effect on November 17, 2023 (except for a temporary general license which is effective on October 25, 2023). Note that BIS is seeking public comments on certain topics that have not been fully addressed by the October 2023 IFRs, including with respect to access to cloud/infrastructure-as-a-service (IaaS) to develop AI foundation models and deemed exports/reexports. The comment period ends on December 18, 2023.

I. Background

The earlier October 2022 IFR focused on: (i) item-based and end-use-based controls for certain advanced computing integrated circuits (ICs), commodities incorporating such advanced ICs, and supercomputers; and (ii) item-based controls for certain semiconductor manufacturing equipment (SME) and end-use-based controls related to the development and production of SME. The October 2023 IFRs expand and clarify these through an Advanced Computing/Supercomputing IFR (the AC/S IFR) and a Semiconductor Manufacturing Equipment IFR (the SME IFR).

II. Key Changes in the October 2023 IFRs

The AC/S IFR creates a new structure and updates the technical parameters used for identifying items controlled under ECCN 3A090 to ensure ICs for AI training are controlled. Structurally, the revised 3A090 replaces former paragraphs .a.1 through a.4 with a simplified paragraph .a (for the most powerful data center ICs) and a new paragraph .b (covering additional, less powerful but still advanced ICs that could be used to train large-scale AI systems). Substantively, the revised entry removes interconnect bandwidth as a technical parameter and adds performance density as a new parameter. These changes are intended to counter workarounds to the former controls involving the use of a larger number of smaller data center AI chips containing the same power as one restricted chip.

Most importantly, the AC/S IFR (i) excludes certain non-datacenter ICs from control (e.g., certain high end gaming chips) and (ii) replaces bits x TOPS with Total processing performance (TPP) values, defining clear, objective criteria that can be used to calculate the TPP value. The AC/S IFR further refines the scope of control through the addition of new notes to 3A090 and revisions of the technical notes.

The October 2022 IFR used the catch-all criteria or identified elsewhere on the CCL that meet or exceed the performance parameters of ECCNs 3A090 or 4A090 in describing the scope of certain controls (e.g., 742.6(a)(6)). BIS received comments raising concerns that this type of language is confusing, creates potentially dual ECCNs, and makes compliance burdensome.

To address these concerns, the AC/S IFR creates new .z paragraphs for nine ECCNs to affirmatively capture items that BIS has determined have performance characteristics or functions that meet or exceed the relevant performance parameters. The nine ECCNs are 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, 5A992.z, 5D002.z, and 5D992.z.

The AC/S IFR also requires exporters to identify .z items at the items level classification in the electronic export information filing in the Automated Export System and, in certain cases, on the commercial invoice for export clearance.

The SME IFR removes ECCN 3B090. Controls on SME formerly under ECCN 3B090 are expanded and placed under ECCNs 3B001 and 3B002 (with a view to these being controlled multilaterally in the future). A number of additional types of SME and equipment for manufacturing SME are now controlled, including: certain equipment designed for silicon (Si), carbon doped silicon, silicon germanium (SiGe), or carbon doped SiGE epitaxial growth; certain equipment designed for coating, depositing, baking or developing photoresist formulated for EUV lithography; semiconductor wafer fabrication cleaning and removal equipment; and inspection equipment designed for EUV mask blanks or EUV patterned masks, amongst others. These revisions to ECCNs 3B001 and 3B002 also prompted conforming changes to ECCNs 3D001, 3D002, and 3E001. For software and technology related to newly controlled SME described under 3B001, Regional Security (RS) and National Security (NS) controls have been added. The newly controlled equipment and related software/technology have been determined by BIS only to be used (with limited exceptions) for fabricating logic ICs with non-planar transistor architecture or with a production technology node of 16/14 nanometers or less. Companies should carefully review the new and revised ECCNs.

The SME IFR states that BIS licenses for equipment classified under ECCN 3B090 remain valid until expiration, unless suspended or revoked. At the same time, exporters are required to list the new ECCNs on any export clearance documentation filed after November 17, 2023.

The SME IFR provides that there will be no de minimis level for certain foreign-made lithography equipment (and specially designed parts) that are now classified under ECCN 3B001.f.1.b.2.b when destined for use in the development or production of advanced-node integrated circuits (Advanced-node ICs), except if the country from which the foreign-made item was originally exported also controls the item (currently only Japan). This means that otherwise any amount of US origin content will make a foreign-made lithography equipment subject to the EAR under this ECCN.

The AC/S IFR broadens the country scope with respect to the advanced computing FDP rule to Country Group D:1, D:4, and D:5 countries that are not also specified in Country Groups A:5 or A:6 (currently, countries that fall within both Country Groups D:1, D:4, and D:5 as well as Country Groups A:5 and A:6 include only Cyprus and Israel). The country group for this rule is further expanded to be worldwide when the foreign-made direct product is for an entity headquartered in, or whose ultimate parent entity is headquartered in, either Macau or a D:5 country.

The AC/S IFR clarifies that the model certificate published in the October 22 IFR and which appears in supplement no. 1 to part 734 of the EAR may be used for all FDP rules. The AC/S IFR clarifies that the model certificate may be provided by anyone in a supply chain and flows both forward and backward in a supply chain (e.g., from the exporter, reexporter, or transferor to another entity in the supply chain or from a consignee back to an exporter, reexporter, or transferor).

The October 2023 IFRs expand the list of countries for which licenses are required for National Security (NS) and Regional Stability (RS) reasons. This is apparently intended to close a loophole in exports to offshore affiliates of Chinese/Macau companies.

Specifically, under the revised controls in 742.4 and 742.6, a license requirement now extends to:

Applications that involve transactions falling under categories (i) and (ii) above will be reviewed consistent with license review policies in EAR 744.23(d), except applications will be reviewed on a case-by-case basis if no license would be required under part 744 of the EAR rule. For applications falling under category (iii) above, if the items are for Macau or a D:5 country, then the applicable license review policy is a presumption of denial; if the items are for non-D:5 countries, the applicable license review policy is generally a presumption of approval, unless to an entity headquartered in, or whose ultimate parent entity is headquartered in, either Macau or a D:5 country, in which case the applications will be reviewed under a presumption of denial policy.

Consistent with the October 2022 IFR, the license requirements above do not apply to deemed exports/reexports (although BIS seeks comments on this.)

The AC/S IFR expands the scope of the end-use controls in EAR 744.23 by adding two new advanced computing end-use controls under new EAR 744.23(a)(3) that impose a license requirement on:

The AC/S IFR also expanded the country/destination scope of the supercomputer end-use controls and Advanced-node IC end-use controls to Macau and any D:5 country (not limited to China).

The SME IFR further reorganizes and simplifies the end-use controls adopted in the October 2022 IFR. The changes are shown in the below table included in the SME IFR.

We note the following key takeaways from the changes to 744.23 :

The October 2023 IFRs reformat, revise and clarify the US Person restrictions under EAR 744.6(c), incorporating guidance provided by BIS under FAQs issued since the October 2022 IFR, as follows:

In short, US persons are prohibited from knowingly shipping, transmitting, or transferring (in-country), facilitating these activities, or providing services in connection with the following items, end-uses, or end-users:

No license exceptions apply to these prohibitions. The AC/S IFR creates new sections to supplement no. 2 to part 748 of the EAR with guidance on how to apply for a license under the US person restrictions.

License applications will be reviewed with a presumption of denial for Macau and D:5 countries, except activities involving a foreign-made item not subject to the EAR that performs the same function as an item subject to the EAR which will be reviewed with a presumption of approval. All other applications will be reviewed with a license review policy of case-by-case.

The October 2023 IFRs create two new TGLs as follows:

This AC/S IFR TGL overcomes the new RS controls in EAR 742.6(a)(6)(iii) to authorize the export, reexport, and transfer of certain otherwise controlled items to or within D:1, D:4, or D:5 countries (excluding countries also specified in Country Group A:5 or A:6) where the recipient is located in Macau or a D:5 country but is not headquartered in and whose ultimate parent entity is not headquartered in Macau or a D:5 country to continue or engage in integration, assembly, inspection, testing, quality assurance, and distribution of items covered by the product scope of the TGL, provided for the ultimate end use outside of a D:1, D:4, or D:5 country (excluding countries also specified in Country Group A:5 or A:6) by entities that are not headquartered in or whose ultimate parent company is not headquartered in Macau or a D:5 country.

The AC/S IFR TGL does not overcome the license requirements triggered by the involvement of a party on the Entity List or the Military End-User List or knowledge of any other prohibited end-use or end-user (with some exceptions under 744.23).

The AC/S IFR TGL is valid for two years and expires on December 31, 2025.

This SME TGL authorizes the export, reexport, or transfer (in-country) of (i) non-EAR99 items subject to the EAR and controlled only for AT reasons, (ii) to manufacturing facilities in a D:5 country or Macau, (iii) for the development or production of parts, components, or equipment of certain Category 3B ECCNs specified in EAR 744.23(a)(4), provided (iv) at the direction of companies headquartered in the United States or an A:5 or A:6 country and not majority-owned by an entity headquartered in, or whose ultimate parent entity is headquartered in, either Macau or a D:5 country.

According to the SME IFR, this TGL is intended to give SME manufacturers in the United States and A:5 and A:6 countries additional time to identify alternative sources of supply outside of restricted countries or to obtain BIS licenses to continue manufacturing front-end IC production equipment.

The SME TGL cannot be used for the indigenous development or production of Category 3B tools or parts in a D:5 country or Macau at the direction of an entity headquartered in, or whose ultimate parent entity is headquartered in, either Macau or a D:5 country. This TGL also does not overcome the license requirements triggered by the involvement of a party on the Entity List or the Military End-User List or knowledge of any other prohibited end-use or end-user.

The SME TGL is effective immediately, valid for two years and expires on December 31, 2025.

The AC/S IFR creates a new License Exception NAC (at EAR 740.8) authorizing exports, reexports, and transfers of (1) certain less powerful but still advanced ICs under the new ECCN 3A090.b and (2) certain 3A090.a commodities that are not for data centers but do have a TPP of 4800 or more. License Exception NAC cannot be used for ECCN 3A090.a data center ICs and, with limited exceptions, is generally not available for transactions that are subject to a license requirement under Parts 744 or 746 of the EAR or for transactions involving a military end-use/user.

For exports and reexports (excluding in-country transfers) to Macau or a D:5 (arms embargoed) country, prior notification of 25 calendar days must be provided to BIS via STELA prior to the first export or reexport. Notification requirements do not apply for transfers (in-country) within D:1 or D:4 countries. This notification requirement is intended to enable the US Government to collect information about the export of less advanced ICs. BIS will publish a further notice when STELA is ready to accept License Exception NAC notifications.

The October 2023 IFRs make commodities classified under ECCNs 3A991.p and 4A991.l eligible for License Exception Consumer Communications Devices (CCD), add eligibility for License Exception TMP for temporary exports of advanced computing items under 3A090 and 4A090 for inspection, test, calibration and repair, make other adjustments to various license exceptions related to the new .z ECCN paragraphs, amongst other changes.

The SME IFR introduces two newly defined terms: advanced-node ICs and extreme ultraviolet.

These two terms are used in the US person restrictions in EAR 744.6, the end-use controls in EAR 744.23, and various ECCNs.

In response to comments to the October 2022 IFR, the AC/S IFR adds five new red flags to the Know Your Customer Guidance in supplement no. 3 to part 732 of the EAR to help the public ensure compliance with the new rules. These include a red flag for knowledge of future intent to develop or produce restricted supercomputers or advanced ICs. Additional due diligence may be required to address and resolve these red flags before proceeding with a transaction.

III. Entity List FR

BIS added two Chinese entities and their affiliates (13 Chinese entities in total) to the Entity List with a footnote 4 designation for their involvement in the development of large AI models and AI chips for defense purposes.

The Entity List FR includes a savings clause that exempts shipments from the new license requirements associated with the Entity List party that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on October 17, 2023, pursuant to actual orders.

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Despite some simplifications, the new restrictions remain extensive, highly complex and technical. Companies in the advanced computing, semiconductor manufacturing equipment and supercomputer sectors should carefully review the new October IFRs to assess the impact on their operations. We will continue to monitor developments and are available to answer questions.

Read more:
BIS Strengthens Export Controls on Advanced Computing Items ... - Sanctions & Export Controls Update -