Table of Contents
March was a busy month for the Department of Commerce Bureau of Industry and Security (BIS). In addition to the annual “BIS Update” conference where dozens of BIS officials commented on the current state of U.S. export control policy, past enforcement trends, and forthcoming initiatives, BIS released several new rules.
Updated Advanced Computing & Semiconductor Manufacturing Equipment Rules
On March 29, 2024, BIS issued an interim final rule revising and clarifying its October 17, 2023 rules that imposed additional controls on semiconductor manufacturing equipment, advanced computing items, and supercomputer end uses. In a press release, Under Secretary of Commerce for Industry and Security Alan Estevez stated, “It is imperative that we continually assess and update our regulations so that we can better protect U.S. national security and foreign policy interests.” See our previous advisories here and here summarizing both the October 17, 2023 and October 7, 2022 rules that established the foundation for this latest rulemaking.
In this latest rule, BIS is amending Export Administration Regulations (EAR) Parts 732, 734, 736, 740, 742, 744, 746, 748, 758, 770, 772, and 774.
CCL revisions
The March 29 rule makes several revisions and corrections to the Commerce Control List (CCL), including changes to ECCNs 3B001, 3B991, 3D001, 3E001, 4E001, 5D002, 5D992, 5E002, and 5E992. BIS updated the license requirement tables of ECCNs 3A001, 3D001, 3E001, 4A003, 4A004, 4A005, 4D001, 4E001, 5A002, 5A004, 5D002, and 5E002 by removing the exceptions for “.z” paragraphs from the national security (NS), missile technology, nuclear proliferation, and crime control license requirement paragraphs. BIS acknowledges in its commentary that these changes are being made to ensure the .z paragraphs will not be used to circumvent regime controls under the .z ECCNs. BIS also adds four new .z paragraphs to ECCN 3A001 to make a distinction of those paragraphs controlled for NS:1, RS:1, MT:1, and NP:1 reasons.
BIS also adds a new paragraph “.b” to ECCN 4A090 to “control computers, ‘electronic assemblies,’ and ‘components’ containing integrated circuits, any of which meets or exceeds the limits in 3A090.b.” BIS noted that it inadvertently omitted this entry in its earlier rulemaking.
Revisions to 744.23
BIS makes several revisions and corrections to Section 744.23 in the March 29 rule.
First, BIS is amending Section 744.23(d) to better identify various license review policies for easier readability for items subject to the license requirements of Section 744.23. These changes include:
- New paragraph (d)(1) indicates a presumption of denial for Macau and destinations in Country Group D:5 and any entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, unless either paragraph (d)(2) or (3) applies.
- New paragraph (d)(2) indicates a presumption of approval for end users headquartered in the United States or a destination specified in Country Group A:5 or A:6, that are not majority-owned by an entity headquartered in either Macau or a destination specified in Country Group D:5.
- New paragraph (d)(3)(i) provides a case-by-case policy for items specified in ECCN 3A090, 4A090, 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, 5A992.z, 5D002.z, or 5D992.z, except for items designed or marketed for use in a datacenter and meeting the parameters of 3A090.a. These items are less sensitive integrated circuits and computers that do not warrant a presumption of denial license review policy.
- New paragraph (d)(3)(ii) now indicates a case-by-case review policy for [semiconductor manufacturing items (SME)] subject to the license requirements of Section 744.23 when there is SME not subject to the license requirements of Section 744.23 that performs the same function as the SME that is subject to the license requirements of Section 744.23. Case-by-case policy is appropriate for such items because denying the license may not further national security when there is an option for SME that is not subject to the license requirement and performs the same function.
- Lastly, there is a case-by-case policy in paragraph (d)(3)(iii) for items not specified in paragraph (d)(1) or (2) or (d)(3)(i) or (ii).
Second, BIS is amending Section 744.23(a)(4) to revise the scope of exceptions available for masks in Section 744.23(a)(4)(i). BIS acknowledged that it “unintentionally excepted EUV masks in 3B001.j, as well as equipment in 3B991.b.2.”
BIS is also adding a new paragraph to Section 744.23(a)(4)(ii) “to distinguish the license requirements applicable to direct exports, reexports, and transfers (in-country) in (a)(4)(i) and indirect exports, reexports, and transfers (in-country) in (a)(4)(ii) for the ‘development’ or ‘production’ by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5.” BIS explained that this change was made in response to commenters seeking clarification on the application of Section 744.23(a)(4) to the incorporation of CCL-listed items into foreign-made items that are themselves destined for the “development” or “production” of specified SME in Macau or a destination specified in Country Group D:5, because other paragraphs in Section 744.23 included incorporation provisions. Now those commenters have clarity and an expanded control attaching several steps removed from the development activities of concern.
- Direct exports, reexports, and transfers (in-country) directly destined to Macau and Country Group D:5: Any item subject to the EAR and specified on the CCL when destined to or within either Macau or a destination specified in Country Group D:5 for the “development” or “production” of “front-end integrated circuit ‘production’ equipment” and “components,” “assemblies,” and “accessories” therefor specified in ECCN 3B001 (except 3B001.g and .h), 3B002, 3B611, 3B991 (except 3B991.b.2.a through .b), 3B992, or associated “software” and “technology” in 3D or 3E of the CCL.
- Indirect exports, reexports, or transfers (in-country): Any item subject to the EAR and specified on the CCL for export, reexport, or transfer (in-country), if all of the following apply:
- The item is for “development” or “production” of a foreign-made item, whether subject to the EAR or not, that is specified in ECCN 3B001 (except 3B001.g and .h), 3B002, 3B611, 3B991 (except 3B991.b.2.a through .b), 3B992, or associated “software” and “technology” in 3D or 3E of the CCL.
- When the foreign-made item is for “development” or “production” of any initial or subsequent foreign-made item, whether subject to the EAR or not, specified in an ECCN listed in ECCN 3B001 (except 3B001.g and .h), 3B002, 3B611, 3B991 (except 3B991.b.2.a through .b), 3B992, or associated “software” and “technology” in 3D or 3E of the CCL.
- The “development” or “production” is by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5.
The new rule came with no meaningful guidance on how companies can reasonably tailor their risk-based end-use screening procedures to address these attenuated controls.
Revisions to 744.6 (U.S. Person Controls)
BIS is adding EUV masks, as identified in ECCN 3B001.j, and associated software and technology to the control in Section 744.6(c)(2)(iii) because it was “unintentionally excluded from controls.” BIS is also adding a new exception from the presumption of denial license review policy that is added by this rule in Section 744.6(e)(3)(ii)(A), which is a case-by-case policy for items specified in ECCN 3A090, 4A090, 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, 5A992.z, 5D002.z, or 5D992.z, except for “items designed or marketed for use in a datacenter and meeting the parameters of 3A090.a.” BIS notes that “these items are less sensitive integrated circuits and computers that do not warrant a presumption of denial license review policy.”
BIS is also adding new exception from the presumption of denial policy in Section 744.6(e)(3)(ii)(B) that “sets forth a case-by-case review policy for activities involving an item subject to the license requirements” of Section 744.6(c)(2) when there is an item not subject to the license requirements of paragraph (c)(2) “that performs the same function as an item meeting the license requirements of paragraph (c)(2).”
Revisions to license exception NAC; new license exception ACA
BIS has also “separated existing License Exception NAC into two separate license exceptions that will reside in the same section of the EAR [Section] 740.8: Notified Advanced Computing (NAC) will authorize exports and reexports of specified items to Macau and destinations in Country Group D:5 and entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located, that require a notification to BIS, while Advanced Computing Authorized (ACA), which will authorize exports, reexports, and transfers (in-country) of specified items to destinations in Country Group D:1 or D:4 (except Macau and destinations specified in Country Group D:5) that do not require a notification to BIS.” BIS notes that “License Exception ACA will also authorize transfers (in-country) to Macau and destinations in Country Group D:5, and entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, that do not require a notification to BIS.”
Request for comments; savings clause
The March 29 rule became effective April 4, 2024. BIS is allowing the public to submit comments on these corrections and requires that any comments be submitted no later than April 29, 2024.
BIS also notes that “shipments of items removed from license exception eligibility or eligibility for export, reexport, or transfer (in-country) without a license as a result of [the March 29 rule] that were on dock for loading, on lighter, laden aboard an exporting carrier, or en route aboard a carrier to a port of export, on April 4, 2024, pursuant to actual orders for exports, reexports and transfers (in-country) to a foreign destination, may proceed to that destination under the previous license exception eligibility or without a license so long as they have been exported, reexported or transferred (in-country) before May 6, 2024.”
New Part 744 Restrictions on SDNs
On March 20, 2024, BIS issued a rule imposing additional EAR restrictions on transactions involving persons identified under 14 sanctions programs and listed on the Specially Designated Nationals and Blocked Persons (SDN) List. The EAR expansion directly relates to these specific sanctions programs:
- Seven Executive Orders related to Russia’s harmful foreign activities and the undermining of democratic processes or institutions in Belarus (EOs 13405, 13660, 13661, 13662, 13685, 14024, and 14038).
- Two programs related to terrorism (Foreign Terrorist Organizations Sanctions Regulations and Global Terrorism Sanctions Regulations).
- The Weapons of Mass Destruction Proliferators Sanctions Regulations.
- Four programs related to narcotics trafficking and other criminal networks (EOs 13581 and 14059, the Narcotics Trafficking Sanctions Regulations, and the Foreign Narcotics Kingpin Sanctions Regulations).
BIS notes that these revised “EAR license requirements for exports, reexports, and transfers (in-country) of items allows for the EAR to act as a backstop for activities over which [the Office of Foreign Assets Control (OFAC)] does not exercise jurisdiction, including deemed exports and deemed reexports, and for reexports and transfers (in-country) that [do] not involve U.S. persons.”
These new license requirements, which will be consolidated at Section 744.8, apply to the export, reexport, or transfer (in-country) of any item “subject to the EAR ” when a person who is designated on OFAC’s SDN List under any of the above-listed programs is a party to the transaction as described in Section 748.5(c) through (f), unless the export, reexport, or transfer (in-country) is authorized under an OFAC specific or general license or exempted under OFAC ’s regulations.
While many global companies outside the United States already incorporate broad sanctions screening protocols and may have policies against dealings with SDNs, these new rules challenge non-U.S. companies that do not have such policies to engage in the often very technical and fact-intensive process of evaluating whether items are subject to the EAR.
List of Antiboycott Requestors Published
On March 28, 2024, BIS published a list of entities that have been identified as making a boycott-related request in reports that have been received by BIS over the last several years. Assistant Secretary for Export Enforcement Matthew Axelrod noted that “by publishing this list, we aim to raise awareness of the sources of past boycott requests, facilitate fulfillment of the antiboycott reporting requirements, and deter foreign parties from imposing – and U.S. parties from acquiescing to – boycott-related requests and conditions.”
U.S. persons are encouraged to review the list and assess if they have entered into any agreements with the listed parties and to assess if any boycott-related language is included that may have not been previously reported, in accordance with the requirements set forth at Section 760.
Estevez, speaking at the annual BIS Update Conference, said that BIS “will continue to address the rapidly evolving pace of technological development and the threats posed by malign actors. Russia, China, North Korea, and Iran – as well as others – are desperately trying to obtain or produce advanced technologies for activities that present national security and foreign policy concerns.” These latest amendments to the EAR continue to highlight the U.S. government’s intent to curtail China’s access to technologies needed for the development and production of advanced semiconductors, as well as certain other foreign parties’ access to EAR-controlled items.
In light of the complexities of many of these rules – as evidenced by the need to issue 30 pages of corrections in the Federal Register for the AC/SME rules issued last October – interested parties are encouraged to review the rules in detail and incorporate any additional updates to internal compliance programs. As the pace of technological advancement continues to accelerate, we expect additional revisions to the EAR to be published over the coming months. We also anticipate rulemaking pertaining to end-use and end-user controls involving military and intelligence entities, the AUKUS trilateral security partnership with the UK and Australia, and firearms license requirements.
You can subscribe to future advisories and other Alston & Bird publications by completing our publications subscription form. If you have any questions, or would like additional information, please contact one of the attorneys on our International Trade & Regulatory Team.