U.S. Export Controls: October 7th Rule on "Advanced Computing to China"
- Arne Mielken
- Oct 26, 2023
- 11 min read
Discover the latest update on U.S. Export Controls and how they impact advanced computing items being exported to China.
On October 17, 2023, BIS updated the controls on exporting advanced computing items to China. We explore what the change means.
Background
In 2022, the Department of Commerce's Bureau of Industry and Security (BIS) implemented new export controls on advanced computing to the People's Republic of China (PRC). The controls restrict the PRC's ability to purchase and manufacture high-end chips used in military applications, including weapons of mass destruction in supercomputers. AS such, BIS had issued a rule addressing U.S. national security and foreign policy concerns in advanced computing manufacturing. The rule imposes restrictive export controls on specific chips, transactions for supercomputer end-uses, and transactions involving certain entities on the Entity List.
What has changed with this update?
The " Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections Interim Final Rule (AC/S IFR)" maintains the licensing requirements for China (including Hong Kong and Macau) that were established in the October 7, 2022 rule. The updated version of the rule includes the following changes:
The parameters that determine whether an advanced computing chip requires a license have been adjusted;
New measures have been introduced to address the risks of circumventing the controls, including expanding the controls to additional countries.
Parameter Changes:
The AC/S IFR rule has been updated to include removing "interconnect bandwidth" as a parameter for identifying restricted chips.
The updated rule now restricts the export of chips that exceed either the performance threshold set in the October 7 rule or a new "performance density threshold" designed to prevent future workarounds.
The rule now allows for exporting, re exporting, and transferring lower-performance chips without prior notification, but only if shipped to countries not subject to a U.S. arms embargo.
For exports and reexports to Macau and destinations identified as subject to a U.S. arms embargo (including China), a new License Exception Notified Advanced Computing (NAC) has been created.
The U.S. government will determine within 25 days whether the transaction may proceed under the license exception or instead require a license.
Circumvention Prevention:
To prevent companies from countries of concern from obtaining controlled chips through their foreign subsidiaries and branches, several measures have been established:
Any company headquartered in Macau or a destination subject to the U.S. arms embargo, or whose ultimate parent company is headquartered in these countries, must obtain a worldwide license.
Additional red flags and due diligence requirements have been added under the U.S. persons controls, making it easier for foundries to identify attempts by foreign parties to circumvent the controls.
Exports to over 40 countries with a higher risk for diversion to China now require additional licenses. This will help prevent potential transhipment by non-PRC companies purchasing chips for resale to China and provide greater visibility into procurement networks and customers of these chips.
The notification process for exports and reexports to Macau and destinations subject to U.S. arms embargo has been improved by collecting information on the export of less advanced chips.
Public opinion has been requested on various topics, including infrastructure as a service (IaaS) providers, compliance guidance for foundries receiving chip designs, the application of controls on deemed exports and deemed reexports, and defining headquartered companies.
Detailed Analysis of changes
Discover the latest updates on the EAR changes to Advanced Computing/Supercomputing and Semiconductor Manufacturing Equipment, along with Entity List Additions changes.
On October 17, 2023, the Commerce Department's Bureau of Industry and Security (BIS) released three rules that updated the Export Administration rules (EAR). Many more parties are added to the Entity List under these regulations, which significantly extend the October 7, 2022 semiconductor restrictions—also called the "October 7 Rule." These rules consist of:
(1) Advanced Computing/Supercomputing Interim Final Rule, or AC/S IFR;
(2) Semiconductor Manufacturing Equipment Interim Final Rule (SM IFR); and
(3) the Entity List Additions Final Rule (EL FR).
"To address, among other concerns, the [People's Republic of China's] efforts to obtain semiconductor manufacturing equipment essential to producing advanced integrated circuits needed for the next generation of advanced weapon systems, as well as high-end advanced computing semiconductors necessary to enable the development and production of technologies such as artificial intelligence (AI) used in military applications," according to the press release issued with the regulations. "To increase [the] effectiveness of our controls and further shut off pathways to evade our restrictions," the press release states. It is.
The AC/S IFR and SM IFR substantially impact the October 7 Rule. Both regulations may yet be changed in the future since they are published as interim final rules. BIS is allowing the industry to provide recommendations for any future changes to the rules by accepting comments on each one until December 18, 2023
BIS is specifically seeking clarity on the process for establishing whether a company is "headquartered" in Macau, the PRC, or any other country that is subject to an arms embargo (D:5 countries). Regarding the application of the new legislation, this is an important issue. In addition, BIS is seeking input on how to manage the following: implementing controls on deemed exports and reexports; creating technical parameter solutions to further reduce the number of advanced computing products falling under Export Classification Commodity Number (ECCN) 3A090; creating policies that foundries that receive chip designs could adhere to; and creating technical parameter solutions to further reduce the number of advanced computing products that require control. It is.
The recently enacted rules are intricate and novel. Therefore, little changes, varying BIS interpretations of the new controls, and/or the use of alternative fact patterns might result in very different conclusions. A high-level summary of the three rules is provided below.
The Final Guidelines for Supercomputing and Advanced Computing
The first regulation substantially amends the October 7 regulation about advanced computer items. These adjustments consist of:
The number of countries subject to restrictions on advanced computer products will rise if the scope of Regional Stability regulations is expanded to include more states.
Improving the technical standards of ECCN 3A090. ECCN 3A090 was created under the October 7 Rule and was limited to advanced computing integrated circuits (ICs) with a minimum bidirectional transfer rate of 600 gigabytes. The AC/S IFR eliminates the transfer rate threshold and all of paragraph (a) of the ECCN. It increases the number of products that are forbidden by one paragraph (a). ICs with one or more DPUs with a "total processing performance" of 1600 or more, or a "performance density" of 5.92 or higher, are included.
Acknowledging ECCNs that are subject to constraints on regional stability positively. Through the affirmative identification of such items in new.z paragraphs of different ECCNs, the AC/S IFR eliminates the need from the October 7 Rule that applied the Regional Stability limits to "any other item on CCL that meet or exceed the performance parameters of 3A090 or 4A090." This list expressly includes ECCNs 3A001.z, 3A090, 4A003.z, 4A004.z, 4A005.z, 4A090, 5A002.z, 5A004.z, 5A992.z, 5D002.z, and 5D992.z.
Designating as new Licence Exception Notified Advanced Computing (NAC) instances less advanced GPUs and advanced GPUs not used in a data centre. Under this licence exception, exports, reexports, and transfers (within the nation) of integrated circuits (ICs) controlled by or meeting the performance parameters of ECCN 3A090 (excluding products intended or marketed for use in a datacenter and meeting the parameters of 3A090.a) and other ECCNs subject to the aforementioned advanced computing Regional Stability controls are allowed, subject to certain restrictions. This licence exemption may be helpful to exporters of less sensitive GPUs and consumer items integrated with these GPUs bound for D:1, D:4, and D:5 countries
Tightening controls on what Americans may do with "advanced node" and "facilities." In reference to goods that will be used at a Country Group D:5/Macau "facility" in the "development" or "production" of ICs The national scope of the U.S. person activities governed by EAR Section 744.6(c)(2) is expanded by the AC/S IFR to include entities where "production" of "advanced-node integrated circuits" takes place. By further codifying earlier guidance from BIS in response to the October 7 Rule, the AC/S IFR clarifies the following points: (i) the range of activities that fall under these rules; (ii) the need to conduct due diligence to determine whether controls on activities involving U.S. persons may apply; (iii) the exclusion of administrative and clerical activities; and (iv) the exclusion of software and information that are not covered by the EAR because they are published.
Adding to the present end-use controls for supercomputing. The AC/S IFR reorganises the supercomputing rule under EAR Section 744.23(a)(1) by extending the destination/end-use scope to places covered by Country Group D:5, in addition to Macau and China.
Under § 744.23, two new end-use laws are established to cover PRC advanced computing operations outside China. Furthermore, the AC/S IFR adds two additional end-use restrictions to advanced computing items under new EAR Section 744.23(a)(3).
As a result An advanced computing item must first get a licence to travel to any destination outside of a Country Group D Territory if it is known that the item will be travelling there. This applies to the following ECCNs that are subject to the advanced computing Regional Stability restrictions, or goods controlled by ECCN 3A090:5/Organization Macau...
Subsequently, technology listed in ECCN 3E001 (for items controlled under ECCN 3A090) may be:
developed by a Macau-based entity;
subject to the EAR under the Advanced Computing Foreign Direct Product (FDP) rule (EAR Section 734.9(h));
reexported from or transferred (in-country) within Macau or a D:5 country to any worldwide destination; or
used for the "production" of products or software listed in ECCN 3A090 or the ECCNs subject to the advanced computing Regional Stability controls. This addition could make it more difficult for D:5 countries to advance their GPU design expertise.
Designating as qualified for Consumer Communications Devices (CCD) with Licence Exception Numbers (ECCN) 3A991.p and 4A994.l. Products classified under ECCNs 3A991.p or 4A994.l are added to the Licence Exception CCD by the AC/S IFR.
Broadening the countrywide application of the Advanced Computing FDP regulation. The AC/S IFR extends the nationwide application of the Advanced Computing FDP regulation to Macau and other Country Group D Territories. Notably, the law has been expanded even further to include any commodities destined for an Entity within Country Group D:5 (or Macau), under the EAR, regardless of the location of the entity. The FDP regulation is relevant in situations when any of these companies are engaged in the sale of products made abroad, for example, as the "purchaser," "intermediate consignee," "ultimate consignee," or "end-user," as specified in the notice of the rule.
Clearly stating that the model certificate published in the October 7 rule may be used in accordance with all FDP requirements. A model certification that may be used to any of the FDP regulations under EAR Section 734.9 was issued with the October 7 Rule for the Advanced Computing FDP Rule. This is made evident by the AC/S IFR. The purpose of the model certificate is to help exporters with their due diligence throughout their supply chains.
Identifying five more red flags to aid with adherence. The AC/S IFR has added five red flags to Supplement No. 3 of EAR Part 732 to aid in compliance with the October 7 Rule and the AC/S IFR, including the Advanced Computing and Supercomputing FDP standards.
Creation of a new Temporary General Licence (TGL). This TGL authorises the integration, assembly (mounting), inspection, testing, quality assurance, and distribution of specific advanced computing items if:
the recipient is based in a Country Group D Territory but is not a Country Group D:5/Macau Entity (e.g., a Chinese subsidiary of a European company); and
the items are intended for ultimate end-use outside of Country Group D Territories by end-users who are not Country Group D:5/Macau Entities.
TGL will not be operational until December 31, 2025.
Frequently Asked Questions (FAQs)
BIS’s first round of FAQs, published on October 28, 2022 are available here:
FAQs for October 7 Advanced Computing and Semiconductor Manufacturing Equipment Rule (Updated 1/25/2023) here
More information & links
BIS’s October 7, 2022 press release on the rule is available online here.
The written presentation of Assistant Secretary Thea D. Rozman Kendler for BIS’s October 13, 2022 Public Briefing on the rule is available online here
A webcast of Under Secretary Alan F. Estevez’s October 27, 2022 fireside chat at the Center for a New American Security (CNAS) discussing the rule is available online here.
The written presentation of Assistant Secretary Thea D. Rozman Kendler to an Open Session of BIS’s Information Systems Technical Advisory Committee on November 2, 2022.here.
Rule Text and Public Comment Information:
The text of the published rule on the Federal Register’s website is available here. To submit a public comment on the rule via Regulations.gov please follow this link.
Read Press Release
Legal Text
Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections
On October 7, 2022, the Bureau of Industry and Security (BIS) released the interim final rule (IFR), “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification” (October 7 IFR) (87 FR 62186), which amended the Export Administration Regulations (EAR) to implement controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items, and to make other EAR changes to implement appropriate related controls, including on certain “U.S. person” activities. Today’s Advanced Computing/Supercomputing IFR (AC/S IFR) addresses comments received in response to only the part of the October 7 IFR that controls advanced computing ICs and computer commodities that contain such ICs. This rule also makes other changes to make the controls more effective and less burdensome, including by correcting and clarifying the controls to more effectively achieve the policy objectives identified in the October 7 IFR. Today’s AC/S IFR is released concurrently with a second BIS IFR, “Export Controls on Semiconductor Manufacturing Items,” which addresses public comments received in response to other portions of the October 7 IFR. Together, these IFRs revise the October 7 IFR controls to achieve BIS’s focused national security policy objectives more effectively. These revisions protect U.S. national security interests by further restricting China’s ability to obtain critical technologies to modernize its military capabilities in ways that threaten the national security interests of the United States and its allies.
Download Official Statements by BIS
1) Alan F. Estevez - Under Secretary of Commerce for Industry and Security, Before the House Foreign Affairs Committee, Hearing Entitled, “Combatting the Generational Challenge of CCP Aggression”
2) Statement of Thea D. Rozman Kendler, Assistant Secretary of Commerce for
Export Administration, Before the Senate Banking, Housing, and Urban Affairs Committee
Hearing Entitled, “Countering China: Advancing U.S. National Security, Economic Security,
and Foreign Policy”
3) Statement of Matthew S. Axelrod Assistant Secretary of Commerce for Export Enforcement Before the Senate Banking, Housing, and Urban Affairs Committee Hearing Entitled, “Countering China: Advancing U.S. National Security, Economic Security, and Foreign Policy
4) Assistant Secretary for Export Administration Kendler’s testimony before the Select
Committee on the Strategic Competition between the United States and the Chinese
Communist Party on July 20, 2023.
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