The rule, published on October 7, 2022, imposes new controls aimed at addressing U.S. national security and foreign policy concerns, including:
- Adding certain advanced and high-performance computing chips and computer commodities that contain those chips, as well as certain semiconductor manufacturing equipment and related items, to the Commerce Control List (CCL);
- Implementing new license requirements for items destined for a supercomputer or semiconductor development or production end use or the development or production of semiconductor manufacturing equipment, as well as for items destined for certain semiconductor fabrication facilities in China;
- Expanding the scope of the Export Administration Regulations (EAR) over certain foreign-produced advanced computing items and foreign-produced items for supercomputer end uses;
- Implementing expanded license requirements applicable to foreign-produced items for 28 existing entities on the Entity List located in China; and
- Establishing a Temporary General License allowing specific, limited manufacturing activities related to items destined for use outside China.
As part of the new controls, BIS expanded its jurisdiction by informing U.S. persons that the following activities now require a license, even if the item is not subject to the EAR:
- Shipping, transmitting, or transferring (in-country) to or within China any item the U.S. person knows will be used in the “development” or “production” of integrated circuits at semiconductor manufacturing “facilities” in China that make certain high-performance chips;
- Shipping, transmitting, or transferring (in-country) to or within China any item meeting the parameters of any Export Control Classification Number (ECCN) in Product Groups B, C, D, or E in Category 3 of the CCL that the U.S. person knows will be used in the “development” or “production” of integrated circuits at semiconductor manufacturing “facilities” in China, regardless of the type of chips the facilities manufacture;
- Shipping, transmitting, or transferring (in-country) to or within China any item meeting the parameters of ECCN 3B090, 3D001 (for 3B090), or 3E001 (for 3B090), regardless of the end use or end user;
- Facilitating any of the actions above;
- Servicing any item, regardless of its location, the U.S. persons knows will be used in the “development” or “production” of integrated circuits at semiconductor manufacturing “facilities” in China that make certain high-performance chips;
- Servicing any item meeting the parameters of any ECCN in Product Groups B, C, D, or E in Category 3 of the CCL that, regardless of the item’s location, the U.S. person knows will be used in the “development” or “production” of integrated circuits at semiconductor manufacturing “facilities” in China, regardless of the type of chips the facilities manufacture; and
- Servicing any item located in China and meeting the parameters of ECCN 3B090, 3D001 (for 3B090), or 3E001 (for 3B090), regardless of the end use or end user.
U.S. persons include (1) citizens and permanent residents of the United States; (2) entities organized under the laws of the United States or any jurisdiction within the United States, including foreign branches; and (3) people in the United States. Absent a person’s knowledge of a violation, these restrictions do not apply to U.S. persons performing administrative or clerical activities. BIS is considering revisions to the new controls to provide maximum clarity on what is prohibited. In addition to the FAQs published on October 28, BIS is also expected to publish additional guidance in the coming months.
Because the new controls apply to U.S. persons, wherever they are located, and include not just traditional exports, reexports, and transfers (in-country) but also servicing certain controlled items, businesses will need to (1) examine personnel involved in potentially covered transactions with China and (2) conduct enhanced know your customer (KYC) and end-use due diligence.
In addition to understanding the technical aspects of BIS’s new controls, international businesses should also take note of the following key points:
- The new restrictions on exports and reexports to China apply to both mainland China and Hong Kong. The EAR treats Hong Kong and mainland China as the same destination since December 2020. Macau, however, is considered a separate destination under the EAR and is, therefore, not subject to the new regional stability (RS) controls applicable to China.
- Although Macau is not subject to the China-specific license requirements, BIS continues to encourage exporters and reexporters to conduct appropriate due diligence and identify potential red flags when shipping items to Macau.
- The new RS controls do not apply to deemed exports/reexports, but all of the relevant ECCNs and the associated technology or software are controlled for anti-terrorism (AT) reasons. ECCNs controlled for AT reasons are subject to the deemed export/reexport requirements.
Comments by key Commerce Department officials during the first week of November 2022 indicate the Biden administration is in discussions with allies, including the Netherlands and Japan, to reach a broader, multilateral agreement on these types of controls on exports to China. According to Secretary of Commerce Gina Raimondo, discussions are expected to take six to nine months.
BIS is currently accepting public comments on these new controls until December 12. Impacted companies should consider filing a comment. Since the new controls are premised on U.S. national security and foreign policy, the public comment process is unlikely to result in substantial changes to the rule. Nevertheless, public comments can help BIS assess the new controls’ impact on U.S. industry and how to minimize that impact.
Client Alert 2022-367
