Defining Advanced Computing and Semiconductor Manufacturing Items in China

In October of 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a notice entitled Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic Of China. The notice explains that two export control rules will be implemented to restrict the People’s Republic of China (PRC) from both purchasing and manufacturing high end chips and technology that are used in surveillance and military applications. These categories of restriction may seem very broad, but the key to understanding this language is to reference the relevant new Commerce Control List entries.

Businesses that are not directly and overwhelmingly impacted by these new controls may be confused as to how advanced computing and semiconducting are defined and how to identify if a PRC entity conducts business for surveillance and military applications.

To answer these questions it is first important to acknowledge a quote from the Assistant Secretary of Commerce for Export Administration, “The PRC has poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030. It is using these capabilities to monitor, track, and surveil their own citizens, and fuel its military modernization.” The fact that over 60% of businesses and enterprises in China are state owned makes attempting to discern whether a tech company in the PRC is even tangentially connected to military modernization extremely difficult. Acknowledging this fact, BIS has focused heavily on increasing scrutiny on examining end-users and end-uses for relevant exports to the PRC.

• BIS have added new designations in the Commerce Control List and licensing requirements specifically for certain advanced and high performance computing chips and computer commodities

• 28 new entities have been added to the list of advanced license requirements for foreign produced items

• BIS have added new designations in the Commerce Control List and licensing requirements specifically for semiconductor manufacturing equipment and related items

BIS now operates with a presumption of denial for export transactions involving state owned semiconductor fabrication facilities but will examine interactions with multinational facilities on a case-by-case basis. BIS has also outlined specific thresholds for the types of chips that will automatically need licenses and will likely be restricted from export to the PRC.

In summary, the key to defining Advanced Computing and Semiconductor Manufacturing items in context of these new regulations is highly dependent on understanding and identifying the end-user, and then accurately interpreting the new categories in the Commerce Control List.

Are you unsure of how to interpret the Commerce Control List? Do you need help identifying your end-users? Are you still unsure if these new regulations effect your business? Give our office a call today, we would be happy to speak with you.

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