United States: BRI publishes FAQ on Chinese high-tech and semiconductor sectors

United States: BRI publishes FAQ on Chinese high-tech and semiconductor sectors

On October 28, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) released a first set of FAQs regarding Advanced Computing and Semiconductor Manufacturing Interim Final Rule, posted October 13, 2022 ( 87 Fed. Reg. 62.186) (the “Rule”) and amending the Export Administration Regulations (“EAR”). The FAQ is available here and the Rule is available here. Our rule-related blog post can be found here.

The FAQs address certain issues regarding: (i) the geographic scope of the Rule; (ii) the definition of “facility” under the Rule; (iii) the alleged export and re-export implications of the Rule; (iv) the definition and controlled activities of US Persons under Section 744.6(c) as it relates to the Rule; (v) the licensing and licensing review policy for the Rule; and (vi) the implications of the rule for end products with encryption functionality classified under new ECCNs 3A090 and 4A090.

Geographic scope

The FAQs clarify that the new restrictions on exports and re-exports to China also apply to Hong Kong. The new restrictions, however, do not apply to Macau, as the BRI considers Macau a separate destination from China. Therefore, Macau is not subject to the same licensing requirements that are unique to China. Nonetheless, BIS encourages exporters and re-exporters to exercise due diligence and be aware of red flags when shipping to Macau.

Meaning of “installation”

The FAQ indicates that exporters and re-exporters can rely on the definition of “facilities” in § 772.1 of the EAR: “a building or outdoor space in which people use an item that is constructed, installed, produced or developed for a particular purpose. Thus, a semiconductor manufacturing “facility” is a building where production at the restricted technological level occurs. However, the rule does not cover later stages in installations (for exampleassembly, testing and/or packaging) that does not not change technology levels.

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

Consequences of deemed export and re-export

New Regional Security Controls (“RS”) applicable to China for Advanced Computer Components and Semiconductor Manufacturing (see EAR § 742.6) do not apply to deemed exports or re-exports. The BIS FAQ reminds businesses that all relevant new ECCNs and associated technology/software controls are also Anti-Terrorism (“AT”) controlled, so deemed export/re-export considerations still apply where AT controls are involved (for example, for deemed exports to nationals of Cuba, Iran, North Korea and Syria.)

The BIS reiterated its position that a foreign person who lawfully received newly controlled technology or software source code before the rule’s effective date does not need a new license or authorization. However, further authorization is required for that foreign person when they receive controlled technology or software source code that is different from the material lawfully received by that foreign person, even if it is classified under the same ECCN.

Activities of American Persons

With respect to the new “is informed” controls over the activities of US Persons in § 744.6(c)(2) of the EAR, the BIS clarified that these controls do not extend to all activities of US Persons. . BIS has indicated that these restrictions do not apply to U.S. persons engaged in administrative or clerical activities (for examplearrange shipment or prepare financial documentation) or otherwise implement a decision to approve a shipment, transmission, or transfer into the Restricted Country, or “development” or “production” activities that are not directly related to the supply or servicing of specified items for advanced manufacturing facilities in China, absent evidence of such person’s knowledge of a violation.

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 date, absent any specific action by BIS to suspend, revoke or impose restrictions. additional conditions to previously issued licenses. Companies that have obtained BIS authorization to continue operations in China for a limited period must provide a copy of this authorization to suppliers and customers to jointly determine whether their potential transaction complies with the terms and conditions of the authorization.

Implications for end products with encryption functionality

Under the new rule, ECCN 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 ECCN 3A090 and 4A090 under the § 742.6(a)(9) of the EAR. These items are also subject to the restrictions and requirements of Category 5 Part 2 of the Trade Control List in Supplement No. 1 to Part 774 of the EAR. Additionally, the ENC license exception 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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