United States: BIS issues FAQs regarding China’s advanced computing and semiconductor sectors

On October 28, 2022, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued a first round of FAQs regarding the advanced computing and semiconductor manufacturing Interim Final Rule, published on October 13, 2022 (87 Fed. Reg. 62,186) (the “Rule”) and amending the Export Administration Regulations (“EAR”).  The FAQs are available here and the Rule is available here.  Our blog post related to the Rule is located here.

The FAQs address certain questions around: (i) the geographic scope of the Rule; (ii) the definition of “facility” under the Rule; (iii) the deemed export and reexport implications of the Rule; (iv) the definition and controlled activities of US persons under § 744.6(c) as they relate to the Rule; (v) licensing and the license review policy for the Rule; and (vi) the Rule’s implications for end items with encryption functionality classified under new ECCNs 3A090 and 4A090.

Geographic Scope

The FAQs clarify that that the new restrictions on exports and reexports to China also apply to Hong Kong.  The new restrictions, however, do not apply to Macau, as BIS treats Macau as a distinct destination from China.  Therefore, Macau is not subject to the same license requirements that are specific to China.  Nonetheless, BIS encourages exporters and reexporters to conduct due diligence and be aware of red flags when shipping to Macau.

Meaning of “Facility”

The FAQs indicate that exporters and reexporters may rely on the definition of “facilities” under § 772.1 of the EAR: “a building or outdoor area in which people use an item that is built, installed, produced, or developed for a particular purpose.”  Thus, a semiconductor fabrication “facility” is a building where the production at the restricted technology level occurs.  The Rule does not, however, cover subsequent steps at facilities (e.g., assembly, test, and/or packaging) that do not alter the technology levels.

BIS also clarified that under § 772.1 of the EAR, the definition of “facilities” is considered at the “building” level.  Thus, if a building/facility contains both a restricted line of production and an unrestricted line of production, the entire building/facility is subject to the Rule.  Exporters and reexporters should exercise due diligence and be aware of red flags when shipping to an unrestricted building located at a property that also has a restricted building on the same campus.

Deemed Export and Reexport Implications

The new regional security (“RS”) controls applicable to China for advanced computing and semiconductor manufacturing items (see EAR § 742.6) do not apply to deemed exports or reexports.  The BIS FAQs remind companies that all of the relevant new ECCNs and associated technology/software controls are also controlled for anti-terrorism (“AT”) reasons, such that deemed export/reexport considerations still apply where AT controls are implicated (e.g., for deemed exports to nationals of Cuba, Iran, North Korea, and Syria.)  

BIS reiterated its position that a foreign person who lawfully received newly controlled technology or software source code prior to the effective date of the Rule does not require a new license or authorization.  However, subsequent authorization is required for that foreign person when receiving controlled technology or software source code different than the material received lawfully by that foreign person, even if classified under the same ECCN.

US Person Activities

With respect to the new “is informed” controls on US person activities in § 744.6(c)(2) of the EAR, BIS clarified that such controls do not extend to all US person activities.  BIS advised that these restrictions do not apply to US persons conducting administrative or clerical activities (e.g., arranging for shipment or preparing financial documents) or otherwise implementing a decision to approve a restricted shipment, transmittal, or in-country transfer, or “development” or “production” activities that are not directly related to the provision or servicing of specified items for advanced fabrication facilities in China, absent evidence of knowledge of a violation by those persons.

Licensing and License Review Policy

BIS clarified that licenses previously issued for items now captured under one of the new ECCNs will remain valid until their expiration dates, absent any license-specific BIS action to suspend, revoke, or impose additional conditions on the previously issued licenses.  Companies that have been granted BIS authorization to continue their operations in China for a limited period should provide a copy of any such authorization to suppliers and customers to jointly determine if their potential transaction would meet the terms and conditions of the authorization.

Implications for End Items with Encryption Functionality

Under the new Rule, ECCNs 5A992 and 5D992 items that meet or exceed the parameters of ECCN 3A090 or 4A090 are subject to the license requirement and review policy for ECCNs 3A090 and 4A090 under § 742.6(a)(9) of the EAR.  These items are also subject to the restrictions and requirements of Category 5 Part 2 of the Commerce Control List in Supplement No. 1 to Part 774 of the EAR.  Additionally, License Exception ENC is not available for computers, integrated circuits, “electronic assemblies,” or “components” not specified in § 740.2.(a)(9)(i) of the EAR that meet or exceed the parameters of ECCN 3A090 or 4A090.

The authors thank Rob O’Brien for contributing to this blog post.

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