Earlier today the Bureau of Industry and Security (BIS) announced an interim final rule to be fully released on October 13th. The rule will amend the EAR for controls on “controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items” as it relates to China. This is paired with a renewed emphasis on controls targeting supercomputer and semiconductor manufacturing end uses. This article is not intended to be a line-by-line analysis of the new ruling but will provide an overview of some of the important takeaways.
Source: https://public-inspection.federalregister.gov/2022-21658.pdf
This ruling begins to address many of the risks raised by CNS researchers in our recent Sectoral Guidance publication in relation to semiconductors and high-performance computing sectors. Recent work at CNS has isolated key concerns for these sectors including the lack of controls for digital components involved in advanced computing and the multitude of components that go into the full production cycle of advanced IC technologies. Due to the Chinese emphasis not only on technology acquisition but indigenization of the full production cycle, many of the inputs to their indigenization strategy are those items used to produce components of a finished IC product or supercomputer. These elements of technology development previously were not subject to the same level of controls as the finished IC products. Especially in the context of China’s military-civil fusion program many licitly sold items may end up in a state-supported strategic supply chain in the future.
Within that context, it is perhaps most important from this new ruling the altering of language used in previous restrictions in place of a new term of art. Replacing the word “equipment” with “commodities” is intended to capture “parts, components, and assemblies” used in the production of semiconductors and supercomputers. This change seeks to close a massive regulatory gap in the semiconductor supply chain. Importantly this includes explicit mention to software and digital components of the supply chain as well.
Another noteworthy component to the new ruling includes regulations on in-country transfers of technology in China. This importantly addresses the large number of American firms operating in China which may be involved in the production process for semiconductor equipment.
The new ruling also notes that review of licenses with the newly identified ECCNs will operate under the presumption of denial. It is worth mentioning that there are noted exceptions in the report. These include those entities with headquarters in the US and for technology for which the trading partner already had legal access to. This includes for repairs and software updates on lawfully exported items.
Notably, the messaging in this report is quite clear in stating concerns about the technology’s use in human rights violations through surveillance or other forms of technological suppression. This is paired with the traditional justifications for export controls, including WMD development and military modernization. In addition to these concerns, however, there is also language around securing the US technological edge in these fields. While the core of this reasoning is still for access to technology in support of national defense, this is part of a much broader strategic trade competition between the US and China.
For industry compliance professionals, this ruling emphasizes the need for end-user controls due to the PRC’s MCF strategy. Specifically, the report suggests asking for a Model Certificate for any related transactions. Language being emphasized in this regard also includes transactions for the “development” or “production” of IC and on associated “software” and “technology” when implementing these restrictions.
Finally, while end user controls should be implemented thoroughly beyond the entity lists provided by BIS, this ruling features a revised Entity List which is below.
The 28 revised entities are:
- Beijing Institute of Technology;
- Beijing Sensetime Technology Development Co., Ltd
- Changsha Jingjia Microelectronics Co., Ltd
- Chengdu Haiguang Integrated Circuit
- Chengdu Haiguang Microelectronics Technology
- China Aerospace Science and Technology Corporation (CASC) 9th Academy 772 Research Institute
- Dahua Technology
- Harbin institute of technology
- Higon
- IFLYTEK
- Intellifusion
- Megvii Technology
- National Supercomputer Center Zhengzhou
- National Supercomputing Center Changsha (NSCC-CS)
- National Supercomputing Center Guangzhou (NSCC-GZ)
- National Supercomputing Center Jinan
- National Supercomputing Center Shenzhen
- National Supercomputing Center Tianjin (NSCC-TJ)
- National Supercomputing Center Wuxi (NSCC-WX)
- National University of Defense Technology
- New H3C Semiconductor Technologies Co., Ltd.
- Northwestern Polytechnical University
- Shanghai High-Performance Integrated Circuit Design Center
- Sugon
- Sunway Microelectronics
- Tianjin Phytium Information Technology
- Wuxi Jiangnan Institute of Computing Technology
- Yitu Technologies