U.S. Announces Stricter Semiconductor Export Control Regulations to Address National Security Concerns

In recent developments, U.S. regulators have taken measures to expand export restrictions on advanced AI chips, which could impact leading semiconductor manufacturers such as Nvidia, Intel and others. These regulations aim to prevent the involvement of U.S. organizations in supporting the military and surveillance goals of nations of concern, including the People's Republic of China (PRC).

Key Takeaways

• U.S. regulators have tightened export control rules for advanced AI chips. (See also our analysis about current global moves to reshore semiconductor supply chains).
• The changes target national security concerns, including China's military modernization efforts.
• Major semiconductor producers, including Nvidia and Intel, could be impacted.
• Businesses, in general, should remain vigilant about staying up to date with evolving export control regulations. (See also recent MEU rules, as an example of evolving regulations).
• Implementing a set of 12 crucial steps can protect your organization from potential risks.

These updated restrictions could disrupt the plans of major semiconductor manufacturers like Nvidia, which had recently developed GPUs adhering to last year's export rules. This development is significant for Chinese companies that intended to purchase billions of dollars' worth of chips and also for vendors like Intel and AMD, who had their own plans to create new units in response to previous U.S. export controls.

The driving force behind these updates is the national security concerns associated with China's military modernization efforts. China's attempt to acquire cutting-edge semiconductor manufacturing equipment and advanced computing chips for military purposes is a growing concern. That’s because artificial intelligence (AI) technologies can bolster military decision-making and be applied in various military and surveillance contexts, including electronic warfare and facial recognition.

1. Advanced Computing Chips Rule (AC/S IFR): This rule establishes parameters for restricting the export of advanced computing chips, introducing new measures to prevent circumvention of controls. It notably removes "interconnect bandwidth" as a parameter, adjusts performance thresholds, and introduces notification requirements for some chip exports.
2. Expansion of Export Controls on Semiconductor Manufacturing Items Interim Final Rule (SME IFR): This rule broadens controls on various types of semiconductor manufacturing equipment, refines restrictions on U.S. entities to prevent support for PRC semiconductor manufacturing in the military sense, and extends export license requirements to countries beyond the PRC and Macau.
3. Additions to the Entity List: This rule includes PRC entities and their subsidiaries in the Entity List, subjecting them to restrictions on items made using U.S. technology. Foundries producing chips for these entities must obtain a BIS license before exporting such chips.

These export controls remain concentrated on military applications and aim to counter the threats to national security posed by the PRC Government's military-civil fusion strategy. Secretary of Commerce Gina M. Raimondo, in a BIS press release, emphasized the necessity of implementing these restrictions while safeguarding national security and minimizing unintended disruptions to trade.

Under Secretary of Commerce for Industry and Security Alan F. Estevez stressed the Bureau of Industry and Security's commitment to assessing the security environment and technology landscape, promising prompt action when necessary. And Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler added the importance of imposing stringent license requirements to prevent the misuse of advanced chips and chip manufacturing equipment for undermining U.S. national security.

It's vital for companies, in general, to closely monitor evolving export control trends, even if they don't directly deal in semiconductors or related technology. That’s because international trade regulations apply universally, necessitating a proven process for compliance while facilitating growth. Establishing robust due diligence and product classification procedures is therefore essential to shield your organization from risks.

1. Classify products and technologies using the Export Control Classification Number (ECCN) or the U.S. Munitions List (USML).
2. Determine if your shipment requires an export license.
3. Screen all trade chain parties against denied parties lists.
4. Implement a system to detect red flags like unusual customers, shipping instructions, or payment methods.
5. Train external facing employees companywide to be aware of export compliance requirements and their responsibilities.
6. Maintain accurate records of all shipping documents.
7. Invest in proven export compliance software solutions.
8. Conduct regular compliance audits.
9. Create a process for reporting breaches in export control.
10. Monitor changes to export control regulations on a continuous basis.
11. Consult with legal experts when dealing with complex export compliance issues.
12. Develop working relationships with key government agencies such as the Bureau of Industry and Security (BIS) and the Directorate of Defense Trade Controls (DDTC).

How Descartes can Help

Ongoing awareness of ever-changing export compliance regulations is essential, as governments worldwide continue to implement stricter export controls. Effective export control compliance involves in-depth knowledge of the products being exported, the customers, the destination markets, and the intended end use.

To manage export compliance risk more effectively, solutions for restricted party screening, export classification, license determination and management, and sanctioned party ownership screening are available. Implementing thorough export compliance processes can keep organizations compliant and prevent potential legal issues, financial penalties, and damage to their reputation.

For more information on how we can help you, see our Descartes Export Compliance section, or visit Descartes Visual Compliance.

See also what our customers are saying about our range of denied party screening solutions on G2, a third-party business software review website.