International Trade & Investment Alert
8 minute read | October.11.2022
On October 7, 2022, the U.S. Commerce Department’s Bureau of Industry Security (“BIS”) released new export control regulations (the “New Regulations”) that intensify and complicate U.S. and non-U.S. companies’ international trade control challenges with respect to China. The New Regulations, among other things, impose restrictions on advanced computing integrated circuits (“ICs”), computer commodities that contain such ICs and certain semiconductor manufacturing items, and expand controls on transactions involving items for supercomputer and semiconductor manufacturing end uses.
With respect to China, the U.S. government is adopting and expanding a variety of what would have been, until recently, novel international trade restrictions and initiating a new chapter in export controls. As a general matter, companies in the microelectronics sector will need to adjust business planning to account for the U.S. government’s new goal of freezing China’s IC production capability rather than merely keeping China two generations behind in technology development.
Adapting to the New Regulations
The New Regulations move U.S. export controls considerably beyond the paradigm of determining whether a license is needed for an export based on the classification of the item to be exported and the country of destination. It will be important for companies to assess their China-related compliance risk and update their compliance arrangements in reaction to, among other things, the following:
Key Provisions of New Regulations
a. Addition of Advanced Computing ICs, Certain Related Items and Certain Semiconductor Manufacturing Equipment to the Commerce Control List
Effective October 7, 2022, the New Regulations require a license for supply to China of certain semiconductor manufacturing deposition equipment and certain associated software and technology.
In addition, effective October 21, 2022, supply to China of the following items will require a license:
b. New Export Controls Due to Semiconductor Manufacturing or Supercomputer End Uses or End Users
Effective October 7, 2022, the New Regulations also require a license for supply of items that are subject to the EAR when a party has knowledge they are destined to be used in the development or production of ICs at a semiconductor fabrication facility in China that produces:
In some circumstances, the license requirements apply where a party does not know whether such semiconductor fabrication facility fabricates ICs that meet the criteria described above. Thus, the New Regulations shift the burden of proof, and if a person does not know whether the facility falls within scope, the person must apply for a license.
Moreover, as of October 7, 2022, the New Regulations require a license for supply of any item that is subject to the EAR if the item will be used in the development or production in China of certain semiconductor manufacturing equipment.
Effective October 21, 2022, the New Regulations will also require a license for the supply of certain items, including certain ICs, that are subject to the EAR if a party has knowledge (reason to know) that they are destined for use in either:
c. Licensing Requirements for Exports From China
Effective October 21, 2022, export from China of technology for the design, development, or production of certain advanced computing ICs will require a license, where such technology:
BIS warns that parties outside of China that receive technology from Chinese entities that could be covered by this provision should confirm that the Chinese entities received a BIS authorization. Absent BIS authorization, General Prohibition 10 could prohibit those third-country entities to take any further action with respect to such technology.
d. Restrictions on Certain Activities of U.S. Persons
Effective October 12, 2022, the New Regulations require U.S. persons to obtain a license prior to engaging in certain activities that could “support” specified weapons of mass destruction end-uses. The designated activities include, but are not limited to:
e. New Foreign Direct Product Rules
Effective October 21, 2022, two new Foreign Direct Product rules related to advanced computing and “supercomputers” and an expansion of an existing Foreign Direct Product rule to additional Entity List designees will become part of the EAR.
f. Unverified List
BIS also added 31 entities, including Yangtze Memory Technologies Co., Ltd., to the EAR Unverified List (“UVL”). Suppliers must obtain a written statement from a UVL entity that is a party to the transaction prior to supplying any item subject to EAR that is not subject to a licensing requirement.
g. Temporary General License
To mitigate the New Regulations’ impact on supply chains, BIS issued a temporary general license, effective October 21, 2022 through April 7, 2023. The general license authorizes supply to China by companies not headquartered in certain countries subject to national security or arms control restrictions (such as China, Lebanon, Russia, Venezuela and Vietnam) to continue or to engage in integration, assembly (mounting), inspection, testing, quality assurance, and distributions of items covered by some of the new control list entries (such as certain high-performance ICs, electronic assemblies and components containing such ICs, and associated software and technology) if the items are destined for use outside of China.
 “U.S. persons” include any U.S. citizen, permanent resident alien, entity organized under U.S. law or person in the United States.