China’s Semiconductor and Advanced Computer Industries Targeted by Commerce Ministry’s New Export Restrictions | Robinson+Cole Blog on Manufacturing Law
This week we are pleased to have a guest post from Edward Heath and Kevin Daly. Lawyers Heath and Daly are members of The Robinson+Cole Manufacturing Team and regularly advises clients on trade compliance, anti-corruption compliance and other corporate compliance matters.
On October 7, 2022, the U.S. Department of Commerce announced a series of new export controls aimed at restricting China’s access to certain advanced semiconductor chips and technologies, integrated circuits, and advanced computer technologies. The new regulations continue a trend of export controls aimed at restricting certain sectors of the Chinese economy that affect military and national security interests. Exporters from virtually any industry that exports to China may be affected, which reinforces the importance of know-your-customer due diligence for China transactions.
There are four takeaways:
- Firstcertain semiconductor equipment, advanced computer chips, computers containing such equipment and related manufacturing equipment have been added to the trade control list and now require a license for export to China.
- Seconda new licensing requirement has been imposed for exports of all items subject to EAR, Export Administration regulations (even items classified as “EAR99”, which often do not require a license for export to China) regarding supercomputers, semiconductors and integrated systems uses of the circuit in China.
- Thirdnew rule expands EAR’s “direct foreign product” rules to encompass more advanced computer and semiconductor items, increasing EAR’s scope to regulate transactions that involve certain products that are not manufactured and never shipped from the United States, but are the product of American manufacturing and technology.
- Fourththe new rule prohibits US persons (US citizens and green card holders) from facilitating the development of certain integrated circuits in China.
The most significant immediate impact of these new restrictions is on the computer chip and semiconductor industries. The banning of American people from facilitating the development of chip technology in China has had a significant effect. Some chipmakers have already announced they will suspend relations with China by US personnel and business operations in light of the new regulations. Although foreign corporations and foreign subsidiaries of US corporations are not considered US corporations, their US personnel and US parent companies would be subject to the facilitation ban.
The new regulations are likely to affect a wide range of industries as they impose a licensing requirement for exports of all items for end uses of supercomputers, semiconductors and integrated circuits in China, even those classified as EAR99 which often do not require an export license. for export to China. Therefore, know-your-customer diligence is essential in the new regulatory environment. Companies exporting to China cannot determine their licensing obligations solely on the basis of the nature of the product to be exported. The US government expects exporters to identify the end user, end use, and country of final destination for all export transactions. It starts with obtaining this information from the other party or parties to the transaction. (The BIS-711 “Ultimate Consignee and Buyer Declaration” form is one method of collecting this information). Additionally, the US government expects companies to track and resolve any “red flags” it encounters in the information provided before proceeding with a transaction. For example, discrepancies in the information provided (such as a mismatch between the end user’s provided name and the name of the business actually located at the delivery address) could indicate that the facts of the transaction are different. of what was depicted. Since licensing requirements for exports to China are increasingly determined by the end use and end user and not just the nature of the item to be exported, such due diligence of knowledge of the customer takes on increased importance.