U.s. Government Revises Comprehensive Export Controls on Semiconductors and Semiconductor Manufacturing Equipment

• Publication year: 2024
• Citation: Vol. 1 No. 2

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Steven F. Hill, Jerome J. Zaucha, Guillermo S. Christensen, Jeffrey Orenstein, Catherine A. Johnson, and Brian J. Hopkins ^*

In this article, the authors summarize the most salient changes from two new interim final rules issued by the U.S. Department of Commerce's Bureau of Industry and Security revising and expanding controls under the U.S. Export Administration Regulations on semiconductor manufacturing equipment, integrated circuits, and supercomputers.

The U.S. Department of Commerce's Bureau of Industry and Security (BIS) has issued two new Interim Final Rules (collectively, the Updated Rule) that significantly revise and expand controls under the U.S. Export Administration Regulations (EAR), ¹ on semiconductor manufacturing equipment (SME), integrated circuits (semiconductors or ICs), and supercomputers. The Updated Rule revises comprehensive regulations that BIS issued on October 7, 2022, imposing broad new export controls relating to semiconductor and advanced supercomputing technology (the October 7 Rule). Final versions of the two regulations were published in the Federal Register on October 25, 2023. ²

The October 7 Rule, also issued as an Interim Final Rule, represented a significant sea change in U.S. export control policy.

Notably, the October 7 Rule introduced expanded export controls on SME, advanced ICs, and supercomputers; created new SME, advanced IC, and supercomputer end-use restrictions for items subject to The EAR; created new foreign direct product rules tied to certain entities or activities; and introduced restrictions on U.S. person dealings related to such items anywhere in the world, even where no products subject to The EAR were involved.

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BIS issued some guidance providing interpretations of the October 7 Rule following its issuance, but follow-on amendments were expected to further clarify (and likely build on) those restrictions. The Updated Rule reflects an effort by BIS to both expand and streamline the October 7 Rule by enacting key revisions that tailor its application and close loopholes that limited its effectiveness over the year since its issuance. While the October 7 Rule was targeted primarily at exports to and operations in China (PRC) and Macau, the Updated Rule expands certain restrictions to other countries including Bahrain, Egypt, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Vietnam, and more.

The Updated Rule includes several key revisions that are likely to be impactful to companies operating in this space.

Most critically, the Updated Rule imposes more expansive license requirements on additional SME and ICs with lower performance parameters.

In addition, over the past year, BIS observed certain PRC entities using third countries to divert or access restricted items. On this basis, BIS has expanded the geographic scope of these restrictions in order to prevent circumvention via third countries by expanding licensing requirements to cover additional destinations.

The following is a high-level summary of the most salient changes coming out of the Updated Rule.

Focus on Artificial Intelligence

First, the various revisions made by the Updated Rule share a common theme: BIS's primary concern in issuing the Updated Rule is to ensure continued U.S. technological leadership in the field of artificial intelligence (AI). Many of the technologies subject to the October 7 Rule are instrumental in training large AI models. In the intervening year, many AI companies released their technology publicly, thus demonstrating the powerful capabilities of modern AI systems, most notably with the release of large language models like ChatGPT.

The Updated Rule, BIS stated, is designed to "strengthen and improve those controls by addressing national security concerns that have come to light through open-source reporting, public comments, and the intelligence community." Accordingly, the Updated Rule adds restrictions on technology that furthers development

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of advanced AI systems and closes loopholes that enabled entities with AI commercial and research ties to the PRC to circumvent prior regulations.

Additional Controls on SME

A significant change resulting from the Updated Rule is the control of additional SME. In the Updated Rule, BIS expanded the scope of the SME export controls to capture additional tools and equipment critical to the development of certain advanced ICs, revised the Export Control Classification Numbers (ECCNs) of previously controlled SME, and expanded the SME controls to restrict exports to additional destinations.

The controlled SME, including newly controlled items, are now captured under ECCN 3B001.a.4, c, d, f.1.b, and k to p. Newly controlled items include certain equipment and components for the most advanced IC production operations, such as extreme ultraviolet (EUV) etching and advanced deposition processing.

Items previously controlled under ECCN...