US Toughens Export Controls on Semiconductors to China Amid Military Concerns

The US Department of Commerce’s Bureau of Industry and Security (BIS) unveiled tightened export controls on advanced computing semiconductors, semiconductor manufacturing equipment, and supercomputing items to nations deemed as "countries of concern", including the People's Republic of China (PRC) on October 17, 2023. This move aims to thwart the military modernization efforts pursued by the PRC, in a bid to shield national security interests. The latest raft of rules builds upon the initial restrictions enacted on October 7, 2022.

The BIS's updated rules, effective November 16, 2023, augment the previously established controls by modifying the parameters that define a restricted advanced computing chip. Under the new guidelines, a chip will face export restrictions if it exceeds either of two delineated parameters: the performance threshold specified in the previous rule or a new "performance density threshold" introduced to preempt potential circumventions.

Additionally, the US government will assess certain chip exports falling just below the restricted threshold, following a mandatory notification by the exporters. This new framework also carves out an exemption, permitting the export of chips aimed at consumer applications.

A global licensing requirement for exporting controlled chips to any firm headquartered in a US arms embargoed country or Macau has been established to curb circumvention of the controls through foreign subsidiaries and branches. The updates also introduce new red flags and due diligence mandates for foundries to identify restricted chip designs emanating from countries of concern.

The licensing requisites extend to 22 nations under a US arms embargo and Macau, with a presumption of denial for advanced chips and a presumption of approval for other chips, bolstering the visibility for compliance monitoring and enforcement.

Parallelly, the BIS has expanded controls on different types of semiconductor manufacturing equipment and refined US persons restrictions to ensure US entities do not aid advanced PRC semiconductor manufacturing endeavors. The licensing requirements now encompass 21 other countries apart from the PRC and Macau.

On the same day, two PRC entities and their 13 subsidiaries, identified as being involved in the development of advanced computing chips detrimental to US national security and foreign policy interests, were added to the Entity List. Foundries manufacturing chips for these listed entities now require a BIS license.

Notably, the amplified restrictions will impact global semiconductor behemoths like Nvidia and AMD, whose certain chip models previously exempt, will now fall under the embargo. This is particularly significant given China's position as a major market for these firms.

The rules are open for public commentary for 60 days post-publication, inviting insights on several facets including risks associated with Infrastructure as a Service (IaaS) providers, and additional compliance guidance for foundries.

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