On October 7, 2022, the United States Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an Interim Advanced Computing Rule (“IACR”) targeting exports related to advanced computing integrated circuits and related commodities to the People’s Republic of China (“China”). The IACR also contains additional restrictions on semiconductor manufacturing and interactions with semiconductor manufacturing by U.S. persons.
On October 28, 2022, BIS released a document containing a series of FAQs that cover common questions related to the IACR. The FAQs are intended to help companies and other entities properly comply with the IACR’s requirements and will be updated periodically as the BIS receives more questions from the general public.
The FAQs provide general information about the IACR, including the following highlights:
I.Q1: Are the new restrictions on exports and reexports to China also applicable to Hong Kong and Macau?
Answer: Although exports and reexports to Hong Kong are subject to the requirements of the advanced computing rule (“ACR”), exports and reexports to Macau are not.
BIS notes in the FAQs that exports are reexports to Hong Kong are subject to the ACR because Hong Kong has the same license requirements as China. Exports and reexports destined for Macau are not subject to the ACR, however, because BIS considers Macau to be a distinct territory from China. Companies and other entities should still conduct due diligence regarding the final destination of any exports or reexports when shipping to Macau to ensure that the final destination is not prohibited by the IACR or other export control regulations.
II.Q1-Q2: How is the term “facility” defined, and does it include different production lines in the same building, or lines in different buildings on the same company campus?
Answer: The term “facility” applies to the building or outdoor area where the production or alteration of the restricted technology occurs, but does not apply to subsequent facilities that engage in assembly, testing, or packaging occurs.
The definition of the term “facility” for purposes of the ACR can be found in Section 772.1 of the Export Administration Regulations (“EAR”). The FAQs also note that each building is considered to be a separate “facility,” but a single building that houses the production or alteration of both restricted and unrestricted technology is subject to the ACR. If a line occurs in multiple buildings throughout a company campus, parties must make sure that their item is only being used for unrestricted fabrication.
III.Q1: How does the IACR affect deemed exports and reexports?
Answer: Even though regional stability controls do not apply to deemed exports and reexports per the EAR, deemed exports and reexports are not exempt from any anti-terrorism licensing requirements.
All Export Control Classification Numbers (“ECCNs”) and any associated technology or software contained in the ACR are also controlled under anti-terrorism legislation. As deemed exports and reexports are not exempt from these anti-terrorism controls, companies and other entities should make sure that any deemed exports or reexports comply with the licensing required for persons from anti-terrorism countries.
A country is subject to anti-terrorism controls when the United States Secretary of State has designed that country as “a country whose government has repeatedly provided support for acts of international terrorism.” If a company or entity would like to export restricted ECCNs to a country subject to anti-terrorism controls, that company must adhere to specific anti-terrorism licensing requirements. There are no current anti-terrorism controls for China; these controls are in place for Iran, North Korea, and Syria.
IV.Q1: Who is a “U.S. Person” subject to the license requirements in Section 744.6(c) of the EAR?
Answer: The definition of the term “U.S. Person” for purposes of the ACR is broader than it is for other existing export controls.
For purposes of the ACR, the term “U.S. Person” under Section 772.1 of the EAR includes any individual who is a citizen or permanent resident of the United States, or otherwise considered to be a protected individual under 8 U.S.C. § 1324b(a)(3); any juridical person organized under United States law (including companies); and, any person in the United States.
IV.Q2-Q3: What activities of U.S. Persons require a license under Section 744.6(c)(2) of the EAR, and how can companies obtain these licenses?
Answer: U.S. Persons interacting with items that are not explicitly covered by the EAR will still require a license if these items are being used in the production of integrated circuits destined for China.
Even when items are not explicitly subject to the EAR, the ACR requires the licensing of U.S. persons interacting with these items during the production or development of integrated circuits that will be sent to certain fabrication facilities in China. U.S. Persons that require licensing include U.S. Persons who authorize shipments of, conduct the delivery of shipments of, and/or service items not subject to the EAR that are used in the “development” or “production” of integrated circuits to a fabrication “facility” in China that fabricates covered integrated circuits. “Servicing” includes the maintenance, repair, overhaul, or refurbishment of these items.
Companies and other entities engaging in any of the above conduct should conduct due diligence to determine whether the fabrication facilities in China with which they engage are meets the criteria set forth in Section 744.6(c)(2)(i)(A)-(C). According to BIS, “appropriate due diligence” includes (i) “review of publicly available information,” (ii) review of the “capability of items to be provided or serviced,” (iii) review of “proprietary market data,” (iv) and a review of end-use statements. BIS directs US persons to follow the “Know Your Customer” guidance in Supplement No. 3 to Part 732 and/or submit an Advisory Opinion request to BIS.
Notably, BIS has clarified that the requirements of Section 744.6(c)(2) apply even in the absence of any “knowledge” on the part of the U.S. person that the activity in question is for a facility that is covered by the new requirements. However, the restrictions do not apply to U.S. persons “conducting administrative or clerical activities.”
If the facility is covered, the company or entity should make sure that all required licenses are procured. Licenses can be procured using the SNAP-R form.
V:Q1-Q2: Do previously issued EAR licenses for items that now fall under the IACR remain valid, and will BIS continue to issue authorizations to allow continued operations?
Answer: Yes, licenses that were previously issued for the export, reexport, or transfer of items that now fall within the scope of the IACR are valid until their expiration date, unless BIS takes a license-specific action to suspend, revoke, or impose additional conditions on a previously issued license. BIS has also issued authorizations to multilateral companies operating in China to continue these operations for a term of one year under limited circumstances.
VI.Q1: If an end item has encryption functionality, such as 5A992.c, but also meets or exceeds the parameters in ECCNs 3A090 or 4A090, are these items still subject to the license requirements for 3A090 and 4A090 items?
Answer: Yes. These items would be subject to both the license requirement and review policy for 3A090 and 4A090 items and to any restrictions or requirements in place for Catgegory 5 Pat 2 items. Further, certain technology that is not specified in § 740.2(a)(9)(i) is also subject to license exception restrictions if it meets or exceeds the parameters of 3A090 or 4A090.
More information about the IACR’s sweeping new export controls can be found here.
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