On April 4, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) released another Interim Final Rule (IFR) offering clarification and correcting inadvertent errors made in earlier rulemakings regarding the implementation of significant export controls on certain advanced computing items and supercomputer and semiconductor end use. This latest rule is effective April 4, 2024.
Background
On October 7, 2022, IFR titled “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification,” made critical changes to the Export Administration Regulations (15 CFR parts 730–774) (EAR) in two areas to address U.S. national security concerns. Among its numerous provisions, the Rule restricted exports to China of high-end chips and semiconductor manufacturing equipment, including foreign made items that are the product of U.S. technology. It also restricted the export of a wide range of items that would support certain supercomputing or integrated circuit production end-uses in China. For additional details, see Thompson Hine Update of October 31, 2022.
On October 25, 2023, BIS published two IFRs updating the October 7, 2022 rulemaking that notably: (1) revised export controls on semiconductor manufacturing items by removing certain Export Control Classification Numbers (ECCNs) and revising license requirements; and (2) placing additional export controls on certain advanced computing items.
April 2024 Interim Final Rule
The latest April 4, 2024 IFR corrects inadvertent errors contained in the earlier rules and continues to make additional updates and clarifications. While numerous technical corrections and clarifications are addressed in this rulemaking, the most notable updates are:
- Revisions to § 740.8 Notified Advanced Computing (NAC) and Advanced Computing Authorized (ACA) that make these separate licenses exceptions. Among other things, the NAC license exception will authorize exports and reexports of specified items to Macau and destinations in Country Group D:5 and entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located, that require a notification to BIS. The ACA license exception will authorize exports, reexports, and transfers (in-country) of specified items to destinations in Country Group D:1 or D:4 (except Macau and destinations specified in Country Group D:5) that do not require a notification to BIS. License Exception ACA will also authorize transfers (in-country) to Macau and destinations in Country Group D:5, and entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, that do not require a notification to BIS.
- Revisions to § 744.6. Restrictions on specific activities of “U.S. persons” in which BIS’ license review standards have been clarified and modified.
- Restoring controls for ECCNs that contain .z paragraphs. The IFR restores controls in the license requirement table of ECCNs 3A001, 3D001, 3E001, 4A003, 4A004, 4A005, 4D001, 4E001, 5A002, 5A004, 5D002, and 5E002, by removing the exceptions for .z paragraphs from the national security (NS), missile technology, nuclear proliferation, and/or crime control license requirement paragraphs. BIS notes that it is making these changes “to ensure the .z paragraphs will not be used to circumvent regime controls under the respective .z ECCNs (for instance, by inserting a chip to make the item a .z item and thereby eligible for License Exceptions NAC or ACA, provided the export, reexport, or transfer (in-country) also otherwise meet the applicable terms and conditions of License Exceptions NAC or ACA).”
- Revisions to 3A001. This rule adds four new .z paragraphs to ECCN 3A001 to make a distinction of those paragraphs controlled for NS:1, RS:1, MT:1, and NP:1 reasons.
- Numerous revisions to various ECCNs, including ECCN 3B001, 3B991, 3D001, 3E001, 4E001, 5D002, 5D992, 5E002 and 5E992.
- Revision of § 744.23(a)(4). Adding a new paragraph (4)(ii) to distinguish between direct exports, reexports, and transfers (in-country) in (a)(4)(i) and indirect exports, reexports, transfers (in-country) in (a)(4)(ii) for the “development” or “production,” by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5. BIS notes that this revision is being done “to address concerns about continued support for indigenous ‘development’ and ‘production’ of front-end integrated circuit ‘production’ equipment in Macau and destinations in Country Group D:5 countries – and by companies headquartered in those countries.”
Finally, the April 2024 IFR provides clarification to BIS responses to certain public comment topics it addressed in the October 2023 semiconductor manufacturing items IFR.
BIS continues to invite public comments for revisions, corrections, and clarifications in this most recent rule. Comments must be received by BIS no later than April 29, 2024 and should be filed using the Federal rulemaking portal (www.regulations.gov). The Docket ID No. for this interim final rule is BIS-2023-0016; commenters should also reference RIN 0694-AJ23 in all comments.
These interim final rules are technical, lengthy, and complex, and Thompson Hine’s Updates provide only an overview of the major provisions of the revised export controls targeting semiconductor manufacturing equipment, software, and technology and access to advanced computing. Companies impacted by these rules must continue to review their scope and potential impact not only on U.S. production but also how the increased scope impacts foreign-produced items that are direct products of U.S.-origin software or technology.