United States Further Expands Restrictions on Exports of Advanced Computing Chips and Semiconductor Manufacturing Items to China

The Biden Administration has taken further steps to constrain Chinese access to advanced computing and artificial intelligence technology by refining and expanding existing export control rules restricting China’s access to U.S. semiconductors and related technologies. Building on measures implemented in October of 2022, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) has imposed new controls on the export of advanced computing and semiconductor manufacturing items to China as well as transactions related to supercomputer end-uses in China. In announcing the new rule, Secretary of Commerce Gina M. Raimondo set out three goals: “working to protect our national security by restricting access to critical technology, vigilantly enforcing our rules, while minimizing any unintended impact on trade flows.” In keeping with these goals, the new measures demonstrate a determination to counter efforts to circumvent existing rules measures but also reflect careful consideration of input from U.S. industry to ensure that new restrictions do not stifle the vital U.S. semiconductor industry.

In addition to enhancing the October 2022 measures (discussed in our alert United States Imposes New Restrictions on Exports of Advanced Computing Chips and Semiconductor Manufacturing Items to China), the controls build on other U.S. national security measures targeting China dating back to the Trump Administration. See our prior alerts: The Biden Administration Ends the Year with Several National Security-Driven Measures Targeting China, Unfinished Business and Potential New Directions: The Biden Administration Faces Many Decisions in Addressing Trump Administration Measures Targeting China and other National Security Threats, Trump Administration Takes Further Actions Targeting China as Term Nears End, and United States Expands Export Controls Targeting Huawei’s Access to US Technology.

Notable Features of New Rules

The new rules are multi-faceted, complex and innovative, and most notably include the following:

• Amended Controls for Restricted Chips Address Reported Work-Arounds: Responding to industry concerns, BIS adjusted the control parameters established in the October 2022 rule. A new “performance density” parameter is also designed to pre-empt design work arounds for companies that simply deploy larger numbers of lower performance chips.
• Additional Destinations Subject to Restricted Chip Controls: Responding to reports of Chinese companies accessing data centers outside of China to use AI chips that cannot be exported to China, the rule expands licensing requirements to a number of countries, most notably in the Middle East.
• Monitoring Exports: Recognizing that chip designers have responded to past measures by designing chips with performance just below restricted thresholds, the new rule requires the notification to BIS of exports for certain chips with performance just below the restricted levels. The rule also establishes more precise export clearance reporting requirements on certain chips.
• Semiconductor Manufacturing Equipment: BIS expanded controls by adding new restrictions on existing types of equipment, and expanding the list of controlled destinations to all countries subject to a U.S. arms embargo.
• Expanded Jurisdiction over Foreign-Made Lithography Equipment: In an unprecedented assertion of jurisdiction over equipment made wholly outside the United States, the new rules establish a licensing requirement for certain lithography equipment with any U.S. content if that equipment is being used to develop or produce certain advanced node ICs. Such rules do not apply if the country making the lithography equipment has its own equivalent export controls.
• End-Use Restrictions Based on Ownership: Reflecting a concern that companies based in allied countries that have parent companies in China (and other countries of concern) pose greater circumvention risk, BIS established new license requirements for certain IC technology destined for such entities.

The new rules are interim final rules published today in the Federal Register and are effective November 17, 2023.

Implications

While the goals of the new measures are clear, the rules themselves are extremely complex, meriting close study by all affected U.S. and non-U.S. firms. The new anti-circumvention and monitoring measures, and expanded assertions of jurisdiction demonstrate that the Biden Administration is determined to creatively and assertively adapt its regulatory tools to more effectively address the continued and growing national security concerns that undermine the U.S.-China trade relationship.

In parallel to issuing these new rules, BIS has sought industry comment on a number of issue as it grapples with a continuously evolving threat landscape and changes in technology. The semiconductor sector is likely to see more changes in this regulatory area in the months and years to come.

U.S. export control policy is just one of several areas the United States is pursuing its ongoing economic and strategic competition with China. Through the CHIPS Act, the United States is incentivizing domestic production of semiconductors and conditioning the receipt of federal funding on restricting operations in China. In June, the Commerce Department issued its Final Rule on Securing the Information and Communications Technology and Services Supply Chain implementing the telecommunications supply chain restrictions established in Executive Orders 13873 and 14017, which restrict the use in the United States of foreign telecommunications technology that raises national security concerns. Taken together, these actions demonstrate that the United States continues to aggressively pursue a concerted strategy to decrease U.S. dependence on China, hinder China’s development of critical technologies, and maintain U.S. leadership in various advanced technologies. 

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta L. Nightingale, an O’Melveny partner licensed to practice law in the District of Columbia, and David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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