On December 2, 2024, the Bureau of Industry and Security (BIS) issued a final rule expanding and refining the scope of the Entity List (the “Entity List FR”), as well as an interim final rule building upon the China chip controls first introduced in Fall 2022 and further refined in Fall 2023 and earlier this fall (this newest December 2024 rule, the “Advanced Computing IFR”). Certain of the changes implemented by each of these rules have already come into effect, while the more significant aspects of the Advanced Computing IFR will take effect on December 31, 2024.
BIS introduced the new package of rules as reflecting its latest measures to “slow[] the PRC’s (People’s Republic of China’s) development of advanced AI that has the potential to change the future of warfare” and “impair[] the PRC’s development of an indigenous semiconductor ecosystem … built at the expense of U.S. and allied national security,” which includes “the capability to produce advanced-node semiconductors that can be used in the next generation of advanced weapon systems and in artificial intelligence,” among other capabilities.1
The Entity List FR, which is now in effect, adds 140 new entities to the Entity List (predominantly PRC entities, but also entities from Japan, South Korea, and Singapore); modifies 14 existing PRC entity entries; designates a number of specific entities as “Footnote 5” entities; and removes three entities from the Validated End-User Program.
The Advanced Computing IFR imposes the following changes, which are also currently in effect:
- Clarifies that Section 734.19 of the Export Administration Regulations (EAR), governing the transfer of access information, includes the provision of software keys (or software license keys) as subject to the corresponding controls of the software or hardware to which they provide access; and
- Enumerates eight additional “red flags” to assist exporters in identifying issues while performing diligence on their export recipients.
Further, and more significantly, the Advanced Computing IFR will implement the following changes as of December 31, 2024:
- Adding and revising a number of Category 3 Export Control Classification Numbers (ECCNs) and imposing additional license requirements on items including:
- Various semiconductor manufacturing equipment, such as etch, deposition, lithography, ion implantation, annealing, metrology, inspection, removal, and cleaning tools;
- Software tools that aid in the development or production of semiconductors, including productivity and capability enhancing software; and
- High-bandwidth memory equipment deemed to be critical to AI training and inference at scale.
- Creating new Foreign Direct Product Rules (FDPRs), including a Footnote 5 FDPR and a Semiconductor Manufacturing Equipment FDPR;
- Introducing new license exceptions, including License Exception Restricted Fabrication Facility (License Exception RFF), with defined notification and reporting requirements, and License Exception High Bandwidth Memory (License Exception HBM) with defined reporting requirements; and
- Providing temporary general licenses (TGL General Order No. 4) designed to minimize impacts on certain less restricted semiconductor manufacturing equipment items and advanced computing items.
For additional information on these licensing and reporting obligations, please continue reading below or contact a member of the Wilson Sonsini export controls and economic sanctions team.
New ECCNs
The new interim final rule adds eight new ECCNs and revises eight existing ECCNs, focusing on semiconductor manufacturing equipment and high-bandwidth memory. These include:
- Advanced semiconductor manufacturing equipment, featuring the tools and machines crucial for producing advanced semiconductor devices (ECCNs 3B001, 3B002, 3B991, 3B992, 3B993, and 3B994), with emphasis on items moved to new ECCN 3B993 exclusively or designed specially for enabling “advanced-node IC production” and new ECCN 3B994 for items that can support “advanced-node IC production,” but which have legitimate non-advanced node production uses and are subject to lesser controls than 3B993 items;
- Software and technology related to such advanced semiconductor manufacturing equipment (ECCNs 3D002, 3D992, 3D993, 3D994, 3E992, 3E993, and 3E994), with emphasis on items controlled under new ECCNs 3D992 and 3E992 (software and technology for the development or production of certain 3B001 and 3B002 commodities, including electronic computer-aided design (ECAD) software for advanced semiconductor packaging involving multiple chips or chiplets co-packaged in a single device) and 3D993 and 3E993 (software and technology for the development or production of 3B993 commodities, also including ECAD software designed or modified for the development or production of integrated circuits using multipatterning, computational lithography software, and DUV photolithography equipment); and
- Changes to ECCNs 3A090, 3D001 (related to 3A090.c and 3B commodities), and 3E001 (related to 3A090.c and 3B commodities), including new controls on high-bandwidth memory having a “memory bandwidth density” greater than 2 gigabytes per second per square millimeter.
We are happy to assist in assessing whether your technologies are covered by the new ECCNs.
New Foreign Direct Product Rules
The Footnote 5 FDPR and SME FDPR extend the reach of BIS’s controls on certain advanced node IC production and development inputs to items produced by entities abroad directly produced with U.S. technology or which contain critical components produced with U.S. technology.
The Footnote 5 FDPR reaches equipment which exporters know (or have reason to know) is destined to certain Entity List entities due to specific national security concerns (e.g., affiliation or involvement with PRC military modernization efforts), as designated in the Entity List FR. Covered products include foreign-produced items classified under ECCNs 3B001 (except 3B001.a.4, c, d, f.1, f.5, g, h, k to n, p.2, p.4, r), 3B002 (except 3B002.c), 3B903, 3B991 (except 3B991.b.2.a through 3B991.b.2.b), 3B992, 3B993, or 3B994 items that (i) are the “direct product” of, (ii) are produced by a plant or major component of a plant built of, or (iii) contain a commodity produced by a complete plant or major component of a plant that is the direct product of (for any of (i)-(iii)) a U.S. origin item or items classified in: ECCNs 3D001 (for 3B commodities), 3D901, 3D991 (for 3B991 and 3B992), 3D993, 3D994, 3E001 (for 3B commodities), 3E901 (for 3B903), 3E991 (for 3B991 and 3B992), 3E993, or 3E994.
The SME FDPR reaches equipment which exporters know (or have reason to know) is destined to Macau or a Country Group D:5 country. Covered products include foreign-produced items classified under ECCNs 3B001.a.4, c, d, f.1, f.5, k to n, p.2, p.4, r, or 3B002.c that (i) are the “direct product” of items classified under ECCNs 3D992 or 3E992 and subject to the EAR; (ii) are produced by a plant or major component of a plant built of; or (iii) contain a commodity produced by a complete plant or major component of a plant that is the direct product of a U.S.-origin item or itemsclassified in (for either of (ii) or (iii)): ECCNs 3D001 (for 3B commodities), 3D901, 3D991 (for 3B991 and 3B992), 3D993, 3D994, 3E001 (for 3B commodities), 3E901 (for 3B903), 3E991 (for 3B991 and 3B992), 3E993, or 3E994.
New Red Flag Guidance
The Advanced Computing IFR adds eight new red flags to guide exporters in their completion of due diligence on recipients to avoid exports to prohibited end uses, end users, and/or destinations. The inclusion of these additional red flags in the regulations takes effect immediately, and exporters are advised to familiarize themselves with these additional red flags in light of BIS’s expectation that exporters will have notice of these potential pitfalls and will act with reasonable and appropriate inquiry to satisfy the applicable knowledge standards of the above rules.
Specifically, these red flags include:
- Instances of a non-advanced facility seeking to order equipment designed for a facility beyond its capabilities;
- A request to ship equipment to a distributor lacking a manufacturing operation, for which the ultimate owner or beneficiary is unknown;
- A scenario where the exporter lacks adequate knowledge of the license history for an item which would require a license from BIS or another jurisdiction;
- A request to service, install, upgrade, or maintain an item that was altered to service a more advanced end use which would have required a license to the destination;
- A new customer sharing senior management and/or technical leadership with an entity on the Entity List (especially if that Entity List entity was a customer prior to designation);
- Indicia that a foreign-produced item described in a Footnote 5 FDPR or SME FDPR Category 3B ECCN contains at least one IC serves as a flag that the item may meet the product scope of the Entity List FDP rule; and
- A facility where advanced-node IC production does not occur, but which is physically connected to a facility where advanced-node IC production occurs, should be assumed subject to EAR § 744.23 controls until guidance from BIS issued through an Advisory Opinion resolves that such facility need not be controlled in such a manner.
These additions complement the existing examples noted in BIS’s “Know Your Customer” Guidance and Red Flags page, available here.
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Although parts of the Advanced Computing IFR are effective immediately and the balance take effect as of December 31, 2024, BIS is seeking public comments on the Advanced Computing IFR until January 31, 2025.
[1]BIS, “Commerce Strengthens Export Controls to Restrict China’s Capability to Produce Advanced Semiconductors for Military Applications,” (December 2, 2024) available at https://www.bis.gov/press-release/commerce-strengthens-export-controls-restrict-chinas-capability-produce-advanced.
