March 2023
Ankwei Chen
The Temporary General License granted under the new export restrictions on certain advanced computing products and semiconductor manufacturing items (“New Restrictions”) in the US Export Administration Regulations (EAR) will be expiring shortly on April 7, 2023. Following the expiration of the Temporary General License, companies throughout the world will have to fully comply with the New Restrictions regarding the export, reexport, in-country transfers and exports from abroad to or within the PRC or Macau of the aforementioned products and related services, which will also likely create good opportunities to see how the BIS will interpret and enforce the New Restrictions.
The New Restrictions, as promulgated by the US Bureau of Industry and Security (BIS) on October 7, 2022, is an attempt by the US government to prevent a perceived rival in the PRC from using advanced computing technologies for the purpose of “military modernization” and “human rights abuses”, among other allegations. The approach is multi-faceted: Specific categories of semiconductor-related items, such as advanced computing ICs, as well as the equipment, software and technology used to develop them, all require a license from the BIS for export to the PRC; other export control mechanisms in the EAR, such as the Entity List, the end-use and foreign direct product restrictions, are also amended with the same aforementioned objective of depriving the PRC of access to resources relating to advanced semiconductor manufacturing, products and services. However, in recognition of the significant disruption the immediate application of the New Restrictions would cause on the global tech industry, in which many companies have supply chains that involve entities located in the PRC, as per past practice, the BIS granted a Temporary General License that would in essence allow companies to continue operating its supply chain as usual without obtaining a license as long as 1) the ultimate customer of those items are outside of the PRC, and 2) the supply chain does not involve PRC entities on the Entity List or the end-use restrictions in the EAR.
While it is expected that many tech companies have been using this grace period granted by the Temporary General License to move their supply chain operations outside of the PRC, it may not be feasible technologically or financially to do so for many others. There is thus an incentive to find potential workarounds, such as asserting or classifying the products in question as outside the scope of the New Restrictions, and the viability of such claims may then be tested in court by the BIS. For example, whether the TOPS rate for an advanced computing IC exceeds the threshold under “ECCN 3A090” is based on the manufacturer’s self-reported claims; another potential hotbed of controversy may be the foreign direct product rule regarding whether a product is truly a direct product of US-origin “technology” and “software” per the EAR.
Interested companies are therefore advised to keep a very close eye on how the BIS will apply the New Restrictions and whether it will bring some needed clarity to the relevant key provisions after the expiration of the Temporary General License period.
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