BIS Targets China With Sweeping New Advanced Computing, Chip Controls

The rule also will impose new restrictions on U.S. items destined to a Chinese semiconductor fab if those items are capable of advanced logic or memory chip production over certain thresholds. Other measures expand the scope of one of the agency’s foreign direct product rules to cover more items and Entity List entries, create two additional FDP rules, and will impose a license requirement on certain activities meant to support the “development, production, or use of” integrated circuits at certain China-based chip facilities.

The controls are designed to target “predominantly commercial items” that could help China’s military and allow it to commit human rights abuses, a senior administration official said during a press briefing last week. The official also stressed that the restrictions targeting advanced semiconductors are for “really high-end advanced chips,” adding that they won’t damage U.S. industry.

“These are, in our view, very high end, with relatively little commercial applications to date,” another official said. “So we don't anticipate a significant commercial impact.”

The new restrictions on advanced semiconductor manufacturing items take effect Oct. 7, while other restrictions on “U.S. persons’ ability to support the development, production, or use of” integrated circuits at certain China-based chip facilities take effect Oct. 12. Other restrictions, including the rule’s advanced computing and supercomputer controls, take effect Oct. 21. Public comments on the changes are due Dec. 12.

BIS also announced a six-month temporary general license to “minimize short term impact on the semiconductor supply chain from this rule.” The license will allow “specific, limited manufacturing activities in China related to items destined for use outside China” as long as those items aren’t transferred to Chinese customers.

The agency is also introducing a new “model certificate” to help companies comply and conduct due-diligence on customers and items that may be subject to the new restrictions. The certificate “may assist exporters, reexporters, and transferors with the process of resolving potential red flags regarding whether an item is subject to the” Export Administration Regulations, the agency said.

“We are encouraging companies in the supply chain to set up a certification process so that they identify when the thing they're making is subject … to the control, and then make sure that if they don't know who the ultimate end-user is, the next party in the chain knows somebody is responsible,” an official said. “And so that's how we think the companies can manage this issue of, how do they ultimately know whether the chip they're making or the printed circuit board is or is not going into super computers, as we're defining it?”

The officials said they want to make sure they minimize any negative effects on industry and plan to do “quite a bit of outreach” with U.S. and foreign companies, particularly in Asia. BIS will hold an Oct. 13 public briefing on the rule, where it will describe the restrictions and answer written questions submitted by 3 p.m. Oct. 11. The agency also is “really eager” to review public comments on the new controls, an official said, adding that the agency is willing to “adjust” the restrictions “if appropriate.”

“We don't have an interest in restricting a U.S. company from exporting a tool that would immediately be backfilled by a foreign firm,” another official said. “We certainly recognize the importance of the semiconductor industry,” the person said, adding that they “have taken a lot of care to scope these measures to focus on the chips, equipment, activities, and entities of greatest national security concern to ensure these actions have a minimal impact on commercial activity and don't cause disruptions to the global supply chain.”

Among the new controls are new restrictions for certain advanced computing semiconductor chips and computer commodities that contain those chips, which will be controlled for Regional Stability (RS) purposes. BIS said China is “rapidly developing exascale supercomputing capabilities,” which it’s using to improve its military and weapons. The agency also said China’s development of advanced artificial intelligence tools, “enabled by efficient processing of huge amounts of data,” are being used to track and surveil citizens “without regard for basic human rights.”

BIS said it’s creating a “new unilateral RS control” for these “newly identified advanced computing integrated circuits and related computers,” which will be subject to various licensing requirements. Most applications will be reviewed under a policy of presumption of denial, with certain exceptions.

The agency is specifically imposing new license requirements on certain advanced computing chips and the computers, “electronic assemblies,” and “components” that contain them. The agency is also establishing a new end-use control for certain items on the Commerce Control List destined for supercomputers, creating two new Foreign Direct Product rules for advanced computing and supercomputers and expanding an existing FDP rule for certain entities on the Entity List.

Another set of controls will target certain semiconductor manufacturing items and activities involving the “development” or “production” of advanced integrated circuits, either packaged or unpackaged, in China. BIS said these items can be used to produce integrated circuits for weapons or other military uses.

While BIS already imposes restrictions on some of these activities in the EAR, they generally “only apply when the ‘U.S. person’ has knowledge that their activities are contributing to prohibited end uses or end users.” the agency said. “China’s military-civil fusion effort makes it more difficult to tell which items are made for restricted end uses, thereby diminishing the effect of these existing controls,” BIS said. The controls will now apply “even when the precise end use of such items cannot be determined by the U.S. person.”

Another important change will add new license requirements for items that meet certain thresholds and that are destined to certain chip facilities in China. The restrictions will apply to logic chips with “non-planar transistor architectures” of “16nm or 14nm, or below”; “DRAM memory chips of 18nm half-pitch or less”; and “NAND flash memory chips with 128 layers or more.” Licenses for facilities owned by Chinese entities will face a review policy of presumption of denial, BIS said, while applications for facilities owned by multinationals will be decided on a case-by-case basis.

The U.S. hopes these controls and the rest of the new restrictions outlined in the 139-page rule help it to widen its technology advantage over China. “We believe we need to move away from the previous and long-standing approach of maintaining a relative advantage over strategic competitors, and instead to maintain as large of a lead as possible,” an official said during the press briefing. “And that's what we hope the measures that are going to be implemented will accomplish.”

The officials stressed they “briefed and consulted with” U.S. allies before moving ahead with these controls, and expect “all countries and companies to comply with these measures.” But they declined to say how receptive U.S. allies were to the restrictions and whether the U.S. believes its trading partners will eventually adopt similar controls.

“We recognize that the unilateral controls we're putting into place will lose effectiveness over time if other countries don't join us, and we risk harming U.S. technology leadership if foreign competitors are not subject to similar controls,” one official said. “That engagement is a priority for the Commerce Department.”

All exports that now require a license as a result of the changes that were aboard a carrier to a port as of Oct. 7 may proceed to their destinations under the previous eligibility as long as they have been exported by Nov. 7, BIS said. Any item not exported by Nov. 7 will require a license. Deemed exports of technology and software related to Export Classification Numbers 3A991.p and 4A994.l that now require a license “will only require licenses if the technology or software release exceeds the scope of the technology or software that the foreign national already had access to prior to the implementation of controls in this rule,” the agency said.

The Semiconductor Industry Association said it’s “assessing the impact” of the controls and working with the government and its member companies to “ensure compliance.”

Senate Majority Leader Chuck Schumer, D-N.Y., in an emailed news release called the rules “tough” and “absolutely necessary” but said “there is still much more that needs to be done to stop the Chinese Communist Party from cheating and stealing its way to technological dominance.” Schumer said the administration should “act swiftly on other export control actions,” such as adding China’s Yangtze Memory Technologies Co., Ltd. to the Entity List to “protect America’s technology supply chains and American consumers.”

Rep. Michael McCaul of Texas, the top Republican on the House Foreign Affairs Committee and one of Congress' most frequent critics of BIS export control policies, applauded the new controls. "These rules are a step in the right direction and a long time coming," McCaul said in an emailed statement. "If BIS implements and enforces these rules to the strictest of standards, then it will strike at the core of [China's] strategic objecties." McCaul said he will expect "full transparency" from BIS on how it approves or denies licenses. "Lax licensing standards would undermine the intent of what these rules aim to achieve," he said.