BIS Expands Export Controls on Advanced Computing Items and Semiconductor Manufacturing Items | Alston & Bird

Our International Trade & Regulatory Group discusses the latest U.S. export controls on China’s advanced computing, supercomputer, and semiconductor sectors.

• The first rule places 140 new entities on the Entity List
• A second rule includes new controls for certain semiconductor manufacturing equipment
• The rules aim to further restrict China’s ability to produce advanced-node integrated circuits

On December 2, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) released its third package of rules on certain advanced computing items, supercomputers, semiconductor manufacturing equipment (SME), and related items. The rules are designed to further restrict and impair the capability of the People’s Republic of China to produce advanced-node integrated circuits (ICs).

The Biden Administration previously issued two packages of export controls targeting advanced computing and SME, effective on October 22, 2022 and October 25, 2023. We have published related advisories discussing these two packages of export controls, which can be found here and here, respectively.

This third package includes two concurrent rules. The first, Additions and Modifications to the Entity List; Removals from the Validated End-User (VEU) Program, is a final rule that designates 140 new entities and modifies 14 existing entities on BIS’s Entity List. The second, Foreign-Produced Direct Product Rule Additions, and Refinements to Controls for Advanced Computing and Semiconductor Manufacturing Items, is a lengthy interim final rule that institutes wide-ranging export controls, including new controls for certain SME and related items, new foreign direct product rules (FDPR) for certain commodities needed for the production of advanced-node ICs, new controls for certain high-bandwidth memory (HBM) for advanced computing, and controls on certain software keys that allow for the use of items such as software tools.

Expansion of Extraterritorial Jurisdiction

Expanded Entity List FDPR
The new FN5 FDPR to be set forth at 734.9(e)(3) extends Exports Administration Regulations (EAR) jurisdiction over certain foreign-produced SME and related items if there is “knowledge” of involvement of an FN5 entity in the transaction. The scope of the rule is primarily aimed at restricting the transfer of SME to entities of concern for “specific national security or foreign policy concerns.”

For the FN5 FDPR to apply, the transaction mst meet both the product scope and the end-user scope. The new rule covers foreign produced commodities meeting the descriptions in 3B001 (except 3B001.a.4, c, d, f.1, f.5, g, h, k through n, p.2, p.4, and r); 3B002 (except 3B002.c); 3B903; 3B991 (except 3B991.b.2.a through 3B991.b.2.b); 3B992; 3B993; or 3B994. The commodities covered include certain ‘‘equipment’’ as well as certain ‘‘specially designed’’ ‘‘parts,’’ ‘‘components,’’ and ‘‘accessories,’’ as described within the scope of each Export Control Classification Number (ECCN). If the foreign-produced item is not captured by the ECCNs within this product scope, it is not subject to the new FN5 FDPR.

New semiconductor manufacturing equipment FDPR
The new SME FDPR to be set forth at 734.9(k) extends EAR jurisdiction over foreign-produced SME when there is “knowledge” that the SME is destined to Macau or a destination in Country Group D:5. For the SME FDPR to apply, the transaction must meet both the product scope and the destination scope. The new rule covers foreign-produced commodities meeting the descriptions in 3B001.a.4, c, d, f.1, f.5, k through n, p.2, p.4, r, or 3B002.c when they are the “direct product” of certain technology or software subject to the EAR or when they are produced by or incorporate commodities produced by a plant or major component of a plant that is the direct product of certain specified U.S.-origin technology or software.

Amended de minimis rule
BIS also amends the de minimis rule set forth at 734.4 to add the following two new provisions that complement both the FN5 and SME FDPRs:

• 734.4(a)(8) – There is no de minimis threshold level of U.S.-controlled content for commodities specified in ECCNs 3B001.a.4, c, d, f.1, f.5, k through n, p.2, p.4, r or 3B002.c when the commodity is incorporated in a U.S.-origin IC or contains a U.S.-origin IC specified under Category 3, 4, or 5 of the Commerce Control List (CCL) and the commodity is destined for Macau or a destination specified in Country Group D:5.
• 734.4(a)(9) – There is no de minimis level for an item meeting the parameters in ECCNs specified in Category 3B (except 3B001.a.4, c, d, f.1, f.5, k through n, p.2, p.4, r or 3B002.c) when the commodity is incorporated in a U.S.-origin IC or contains a U.S.-origin IC specified under Category 3, 4, or 5 of the CCL and the commodity is destined for an entity with a FN5 Entity.

New Controls on HBM, SME, and Design Software

BIS added new ECCNs to cover HBM stacks with a specific memory bandwidth density and eight new ECCNs describing certain types of SME and related items that are used to produce advanced-node ICs. We discuss and summarize these new controls below:

High-bandwidth memory

• Revised ECCN 3A090 to now cover HBM, which is a key component of AI training and advanced computing. This new ECCN covers HBM stacks with a specific memory bandwidth density greater than 2 GB per second square millimeter.

  BIS also added a license exception HBM controlled under new ECCN 3A090.c. This license exception authorizes exports, reexports, and transfers (in-country) when (1) the transfer is completed by and to packaging sites that, even if located within a country of concern, are owned and operated by U.S.- or allied country-headquartered companies; and (2) when the U.S.- or allied country-headquartered company carefully tracks the HBM being sent and returned by the packaging site and resolves discrepancies or reports them to BIS.

Semiconductor manufacturing equipment

• New ECCN 3B993 covers items that enable advanced-node IC production but, BIS believes, have legitimate applications in non-advanced-node production so that a China-wide license requirement and a presumption of denial are not warranted. BIS also moves seven commodity entries formerly under ECCN 3B001 to this new ECCN because of their established usage in non-advanced-node production.
• New ECCN 3B994 covers items that can support advanced-node IC production but also have legitimate applications in non-advanced-node production. Items covered include ion implantation equipment, equipment that uses optical measurement techniques, and advanced software to determine the three-dimensional structure of patterns on a semiconductor wafer, etc.

Electronic design software

• New ECCN 3D992 controls software for specified SME, including for the development or production of specified commodities and electronic computer-aided design (ECAD) software for advanced semiconductor packaging involving multiple chips or chiplets co-packaged in a single device. This software must support complex 3D floorplans and must conduct advanced simulations to detect and mitigate potential signal degradation and electromagnetic interference.
• New ECCN 3D993 controls software for the production and development of commodities in ECCN 3B993 (3D993.a), ECAD software designed or modified for the development or production of ICs using multi-patterning (3D993.b), computational lithography software (3D993.c), and software designed or modified to improve the productivity of controlled deep ultraviolet (DUV) photolithography equipment (3D993.d).
• New ECCNs 3D994 and 3E994 control software and technology for the development or production of commodities specified in ECCN 3B994.
• New ECCNs 3E992 and 3E993 control technology for the development or production of certain commodities specified in ECCNs 3B001, 3B002, and 3B993.

New Red Flags

The new rules introduce eight new compliance red flags aimed at providing industry with additional guidance. Notably, BIS issued Red Flag No. 27:

27. The end user is a ‘‘facility’’ that is physically connected to a ‘‘facility’’ where ‘‘production’’ of ‘‘advanced-node ICs’’ occurs. This scenario raises a Red Flag that the end user is also a ‘‘facility’’ where the ‘‘production’’ of ‘‘advanced-node ICs’’ occurs, and the supplier would need to conduct additional due diligence before proceeding with the transaction. For example, if an exporter, reexporter, or transferor receives an equipment order from a company that is engaged in ‘‘production’’ of non-‘‘advanced-node ICs’’ in a building with a bridge, tunnel, or other connection to another building where the ‘‘production’’ of ‘‘advanced-node ICs’’ occurs, then both buildings would be subject to the controls under § 744.23 of the EAR. However, if the exporter or fabrication facility has received an Advisory Opinion from BIS confirming that the ‘‘production’’ technology node for the relevant facility does not qualify as an ‘‘advanced-node IC’’ technology node, that would resolve the Red Flag of the connection to the advanced facility. Unless the Red Flag is resolved through an Advisory Opinion, the two buildings are treated as a single ‘‘facility’’ for purposes of § 744.23 of the EAR.

We note that No. 27 is the first instance where BIS is ostensibly requiring direct engagement with the agency – through the submission of an advisory opinion – to resolve a red flag. BIS provides no guidance on what information is necessary to obtain resolution, nor does it provide clarity on the timeline for review.

Restrictions on Software Keys

BIS also specifies that “software keys” allow access to the use of software and hardware. In the new rule, BIS revised 734.19 to redesignate certain text to specify the treatment of software keys under the EAR as being classified and controlled under the same ECCNs as the corresponding software or hardware to which the keys provide access. If an authorization is required to export, reexport, or transfer software or hardware, the new rule clarifies that a license will also be required to export the software key to access such items.

Additions and Modifications to the Entity List; VEU Program Removals

BIS also added 140 new entities to its Entity List, including entities from China and some entities from Japan, South Korea, and Singapore. Additionally, BIS modified 14 existing entities by adding FN5 designations, updating addresses, and/or revising related licensing application review policy. BIS stated that all the newly added and modified entities are involved with the development and production of advanced-node ICs, SME, and/or have supported the Chinese government’s military-civil fusion development strategy.

BIS also removed three Chinese companies from its validated end user (VEU) program: Advanced Micro-Fabrication Equipment Inc., China, CSMC Technologies Corporation, and Shanghai Huahong Grace Semiconductor Manufacturing Corporation. VEUs are designated entities to which eligible items subject to the EAR may be exported, reexported, or transferred (in-country) under a general EAR authorization instead of a specific license.

Conclusion

The adoption of the new FDPRs, HBM controls, and Entity List license requirements will take effect on December 31, 2024. The requirements imposed by the new red flags and the expanded restrictions on software keys took effect on December 2, 2024.

Due to the complexity of these rules, interested parties are encouraged to review the rules in detail and update internal compliance programs and any previously conducted technology and risk assessments to identify any changes to their products or supply chain at large.

[View source.]

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}