Biden Administration Issues More Restrictions on Advanced Chips and AI Models

As the Biden Administration prepares to leave office, it has issued new export controls on advanced computing chips and certain closed artificial intelligence (“AI”) model weights in an effort to further prevent China, Russia, and other adversaries from accessing advanced AI technology.

The new rules reflect the ongoing tension between protecting U.S. national security and allowing U.S. technology companies to fully participate in the international market. This tension is particularly acute in the semiconductor sector, where U.S.-based companies are leaders in developing cutting edge technology and there is a strong U.S. interest in maintaining such leadership. With the slow but steady degradation of the U.S.-China geopolitical relationship, the tension between national security and business will likely persist and continue to be addressed by further regulatory measures by the incoming Trump Administration.

New Advanced Chips Controls

Over the last several years, the Biden Administration has expanded export controls on advanced computing integrated circuits, commodities containing such chips and certain semiconductor manufacturing equipment needed to produce the chips. See our prior alerts (United States Further Expands Restrictions on Exports of Advanced Computing Chips and Semiconductor Manufacturing Items to China; United States Imposes New Restrictions on Exports of Advanced Computing Chips and Semiconductor Manufacturing Items to China). The new rules revamp the way these controls work by creating three tiers of licensing requirements for advanced chips and associated software and technology: 

• Tier 1: Countries subject to U.S. Arms Embargoes – Exports of advanced chips to countries located in a country subject to a U.S. arms embargo or an entity headquartered in such country (including Belarus, China, Russia and Venezuela) will require a license, applications for which will be reviewed with a presumption of denial.
• Tier 2: Close allies – Exports of advanced chips to entities in certain allied countries will be eligible for a license exception, unless the entity or its ultimate parent is headquartered outside of one of the allied countries (other than the United States). The allied countries are: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, Taiwan, and the United Kingdom.
• Tier 3: All other countries – Exports of advanced chips will require a license for which applications will be reviewed under a presumption of approval until a total quantity of controlled chips meet a specified amount. After the amount is met, export license applications will be reviewed under a policy of denial.

Consistent with these control variances, BIS has created new license exceptions that will allow limited exports of advanced chips to Tier 3 countries for the purpose of development, production, or storage of the chips.

BIS also amended its validated end user (“VEU”) program for data centers that provides U.S. entities and entities headquartered in, or whose ultimate parent is headquartered in, Tier 2 countries the opportunity to obtain a single authorization to build data centers in Tier 2 and 3 countries (a “universal VEU”), and entities headquartered in Tier 3 countries the opportunity to obtain an authorization to build data centers in specified locations in Tier 2 and 3 countries without additional authorization (a “national VEU”). Those who are eligible for this streamlined approach to licensing will need to carefully monitor their shipment volumes: Taking advantage of this program will require authorized UVEUs to keep at least 75% of their controlled advanced chips within the United States and Tier 2 countries, and will be prohibited from installing more than 7% of their controlled chips in any other country. U.S.-headquartered UVEUs will be required to keep at least 50% of their controlled advanced chips in the United States.

New AI Controls

BIS has also implemented new controls on advanced closed-weight AI models trained with 10^26 computational operations or more. Model weights are numerical parameters within an AI model that assist with the determination of the model’s outputs in response to inputs. A closed-weight model is one with weights that are not published. The new export controls generally impose a licensing requirement on the export of such closed-weight AI models to all countries. The new rules also include a new “foreign direct product” control (which establishes restrictions on items made outside the United States with specified U.S. technology) for covered AI model weights.

As with the new chip controls, BIS has also implemented a license exception for end users headquartered in the United States or Tier 2 countries, who will be able to export to any destination other than Tier 1 countries. Open-weight models, and closed-weight models that are less powerful than the most powerful open-weight models, will not be subject to these controls.

Implications

For companies that design, develop, produce, or use advanced chips or closed-weight AI models, the new rules present a new hurdle to cross-border commerce. While the Biden Administration has attempted to balance national security interests with commercial considerations – most notably by imposing fewer requirements on exports of sensitive technology to certain entities in allied countries – many end users in countries outside the scope of those exceptions will need export licenses going forward. As with prior expansions of EAR controls on semiconductors and AI, the rules are exceedingly complex, and any company seeking to ascertain whether they can continue to export without specific licenses will need to exercise great care.

As technology continues to advance, the tension between protecting U.S. national security and enabling U.S. companies to maintain their leading position in the international market will be an ongoing issue for the Trump Administration.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta L. Nightingale, an O’Melveny partner licensed to practice law in the District of Columbia; and David J. Ribner, an O’Melveny partner licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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