United States Imposes New Restrictions on Exports of Advanced Computing Chips and Semiconductor Manufacturing Items to China

The Biden Administration took another step in its efforts to thwart Chinese advances in high tech by implementing new restrictions on China’s access to U.S. semiconductor technologies. The U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) has imposed a series of new controls on the export of advanced computing and semiconductor manufacturing items to China as well as transactions related to supercomputer end-uses in China. Aimed at addressing U.S. national security and foreign policy concerns related to China’s strategic and military goals, according to BIS, the new controls will restrict China’s “ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.” 

The new export controls come amidst a number of U.S. Government initiatives, including the enactment of the CHIPS Act, to build domestic industrial technological capacity, protect U.S. supply chains, and limit China’s access to advanced technologies. The controls build on other U.S. national security measures targeting China dating back to the Trump Administration. See our prior alerts: The Biden Administration Ends the Year with Several National Security-Driven Measures Targeting China, Unfinished Business and Potential New Directions: The Biden Administration Faces Many Decisions in Addressing Trump Administration Measures Targeting China and other National Security Threats, Trump Administration Takes Further Actions Targeting China as Term Nears End, and United States Expands Export Controls Targeting Huawei’s Access to US Technology. 

The new export controls emerged from the Biden Administration’s ongoing review of the U.S. export control policy toward China. China is likely to face additional controls on foundational and emerging technologies that can be used for military applications, the facilitation of advanced intelligence collection and analysis, surveillance, and human rights abuses.

Details of New Export Controls

The newly announced restrictions impose the following controls:

• New Items Added to the Commerce Control List (“CCL”): BIS added various advanced computing and semiconductor manufacturing items to the CCL, including: (1) advanced and high-performing computing chips; (2) computer products containing such chips; and (3) certain semiconductor manufacturing equipment and related software and technology.
• New License Requirements: BIS added new license requirements on exports and re-exports to China of the following:
  • Items located in or destined for a supercomputer or semiconductor development or production end-use in China.
  • Items to develop or produce semiconductor manufacturing equipment and related items.
  • Items destined for a semiconductor fabrication facility in China that fabricates the following integrated circuits (the “ICs”):
    • Logic chips with non-planar transistor architectures (i.e., FinFET or GAAFET) of 16nm or 14nm, or below;
    • DRAM memory chips of 18nm half-pitch or less; and
    • NAND flash memory chips with 128 layers or more.
  • U.S. persons supporting the development or production of integrated circuits with specified weapons of mass destruction or military-intelligence-related end-uses or end-users. 
• Expansion of Foreign Direct Product Rule. BIS also amended the so-called “Foreign-Direct Product” rules by expanding the scope of foreign-produced items that are subject to the Export Administration Regulations to include advanced computing items and items destined for supercomputer end-uses in China if they are produced from U.S. technology. 

The new rules are effective at different points in October 2022. The restrictions on semiconductor manufacturing items became effective on October 7. The restrictions on U.S. persons’ ability to support the development, production, or use of the ICs at semiconductor fabrication facilities in China will become effective on October 12. The advanced computing and supercomputing restrictions as well as the other changes will become effective on October 21. BIS also issued a Temporary General License to minimize the short-term impact of the new restrictions on the semiconductor supply chain that authorizes limited manufacturing activities in China for products destined for use outside of China.

Implications

The new controls on advanced computing items, supercomputing end-uses, and semiconductor manufacturing equipment were foreshadowed by National Security Advisor Jake Sullivan in a September speech in which he signaled that the United States aims to “maintain as large of a lead as possible” in foundational technologies such as advanced logic and memory chips. We expect the Biden Administration to implement further controls in the future on China’s ability to access technologies necessary to develop its own integrated domestic semiconductor industry.

U.S. export control policy is just one of several areas in which the United States is pursuing its ongoing economic and strategic competition with China. Through the recently passed CHIPS Act, the United States is incentivizing domestic production of semiconductors and conditioning the receipt of federal funding on restricting operations in China. The Federal Communications Commission is poised to issue rules in November that could broadly restrict U.S. operating licenses for Huawei and ZTE telecommunications technology and security cameras produced by certain Chinese manufacturers. The Commerce Department is also expected to issue rules implementing the telecommunications supply chain restrictions established in Executive Orders 13873 and 14017, which could restrict the use in the United States of foreign telecommunications technology that raises national security concerns. Taken together, these actions demonstrate that the United States is aggressively pursuing a concerted strategy to decrease U.S. dependence on China, hinder China’s development of critical technologies, and maintain U.S. leadership in various advanced technologies. 

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 Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, John Dermody, an O'Melveny counsel licensed to practice in California and the District of Columbia, David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, and Youjin Kwon, an O’Melveny associate licensed to practice law in the District of Columbia, 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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