U.S. Expands October 7, 2022 Export Controls Restrictions on Advanced Computing and Semiconductor Manufacturing Items

U.S. Expands October 7, 2022 Export Controls Restrictions on Advanced Computing and Semiconductor Manufacturing Items

October 19, 2023, Covington Alert

On October 17, 2023, the U.S. Commerce Department, Bureau of Industry and Security (“BIS”) announced two new rules that will update and expand the Export Administration Regulations (“EAR”) controls aimed at restricting China’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors, which were first introduced on October 7, 2022 in the Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification Interim Final Rule (the “October 7, 2022 Rule”) as summarized in our previous client alert. The new rules will take effect on November 17, 2023. BIS is seeking public comments on both rules, as well as several related issues, until December 18, 2023. Also on October 17, 2023, BIS designated two advanced computing entities in China to the Entity List, along with several of their subsidiaries, in the Entity List Additions Final Rule.

The Export Controls on Semiconductor Manufacturing Items Interim Final Rule (the “Semiconductor Manufacturing Items Rule”) includes additional types of semiconductor manufacturing equipment to those previously described under Export Control Classification Number (“ECCN”) 3B090, and will control all such items under ECCNs 3B001 and 3B002 in the Commerce Control List (“CCL”) of the EAR; expands the scope of the destination controls applicable to the ECCNs that describe these types of semiconductor manufacturing equipment; creates a 0% de minimis rule for certain lithography equipment; introduces a new Temporary General License (“TGL”) for U.S.-headquartered companies and companies headquartered in countries specified in Country Group A:5 or A:6; refines the controls imposed under the October 7, 2022 Rule that restricted the ability of U.S. persons to support the development or production of integrated circuits (“ICs”) at certain semiconductor fabrication facilities (“fabs”) in China; and reorganizes and revises “supercomputer” and semiconductor manufacturing end-use controls, including by narrowing the product and end-use scopes of § 744.23(a)(4) semiconductor manufacturing equipment end-use controls.

The Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections Interim Final Rule (the “2023 Advanced Computing Rule”) expands and clarifies the types of ICs controlled under ECCN 3A090; adds new “.z” paragraphs to existing ECCNs to identify the types of items that meet or exceed certain advanced computing parameters specified in ECCNs 3A090 and 4A090; expands the scope of the destination controls applicable to the advanced computing ECCNs; establishes License Exception Notified Advanced Computing (“NAC”) and updates eligibility for certain other license exceptions; clarifies the scope of certain U.S. person and end-use controls; introduces two additional advanced computing end-use controls; broadens the country scope of the Advanced Computing Foreign Direct Product (“FDP”) Rule; provides additional “red flag” guidance to assist with compliance; and establishes one TGL to allow for the establishment of new supply chains. Notably, the rule does not impose restrictions on infrastructure as a service (“IaaS”) providers, though the rule does request comments on potential IaaS regulations, as well as on several other topics.

Sections One through Six of this alert focus on changes resulting from the Semiconductor Manufacturing Items Rule and the 2023 Advanced Computing Rule. In Section One, we first discuss changes to the CCL. Section Two addresses the expansion of U.S. export controls jurisdiction to certain items manufactured outside the United States. Section Three summarizes the changes to the EAR’s destination controls. Section Four describes changes to the EAR’s end-use controls. Section Five summarizes changes to the restrictions on U.S. person activities. Section Six describes changes to EAR license exceptions and describes the new TGLs. Finally, Section Seven provides a list of topics for which BIS is requesting comments.

Semiconductor Manufacturing Items

The Semiconductor Manufacturing Items Rule relocates items described in ECCN 3B090 to ECCNs 3B001 and 3B002 and adds additional types of semiconductor manufacturing equipment to those entries (e.g., certain equipment designed for silicon, carbon doped silicon, silicon germanium (SiGe), or carbon doped SiGe epitaxial growth; advanced fabrication equipment designed for metal deposition of the barrier layer, liner layer, seed layer, or cap layer of metal interconnects; and equipment designed for ion beam deposition or physical vapor deposition of multi-layer reflector for extreme ultraviolet masks). Further, BIS revises software ECCNs 3D001, 3D002, and 3D003, as well as technology ECCN 3E001, to make harmonizing changes to reflect the newly added semiconductor manufacturing items under ECCNs 3B001 and 3B002. The newly added items under ECCNs 3B001 and 3B002, as well as their associated software and technology under ECCNs 3D001 and 3E001, respectively, will be controlled for national security (“NS”) and regional stability (“RS”) reasons, as explained below in Section Three. BIS notes that with limited exceptions, the newly added items under ECCNs 3B001 and 3B002, and their associated software and technology, are only used for fabricating logic ICs with non-planar transistor architecture or with a “production” ‘technology node’ of 16/14 nanometers or less.

Advanced Chips, Commodities Containing Those Chips, and Related Controls

The 2023 Advanced Computing Rule expands and restructures ECCN 3A090 to control a broader scope of advanced ICs and create a distinction between what BIS describes as the “most powerful data-center ICs” (including those controlled under revised ECCN 3A090.a) and less powerful advanced ICs that could be used to train large-scale AI systems (those items controlled under new paragraph ECCN 3A090.b, as well as certain items described in ECCN 3A090.a that are not for data centers). The rule adds new “performance density” parameters that are intended to prevent workarounds from the prior thresholds, and provides carve outs for certain types of ICs that are not controlled by ECCN 3A090.

Additionally, the new rule creates a positive list of items that “meet or exceed the performance parameters of ECCNs 3A090 and 4A090” by adding new “.z” item-level paragraphs to seven commodity ECCNs and two software ECCNs: 3A001, 4A003, 4A004, 4A005, 5A002, 5A004, 5A992, 5D002, and 5D992.

In parallel, the rule establishes new export clearance requirements for the above ECCNs at EAR §§ 758.1 and 758.6. Effective November 17, 2023, items controlled under the new “.z” paragraphs must be identified by the item-level paragraph classification (e.g., 3A001.z rather than 3A001) in Electronic Export Information (“EEI”) filings in the Automated Export System (“AES”). Additionally, ECCN 3A090 and 4A090 items, as well as “.z” commodities (but not “.z” software), will need to be identified by classification on commercial invoices. For ECCN 3A090 items, the commercial invoice will need to specify the sub-paragraph under which the item is controlled.  

New 0% De Minimis Threshold for Certain Lithography Equipment

The Semiconductor Manufacturing Items Rule revises the de minimis provisions at EAR § 734.4(a)(3) to add a 0% de minimis rule for specified lithography equipment described in new ECCN 3B001.f.1.b.2.b when destined for use in the development or production of “advanced-node integrated circuits,” except when the country from which the non-U.S.-made item was originally exported or reexported has the item listed on its export control list (i.e., currently Japan). BIS is adding a footnote with information concerning any countries that maintain an equivalent export control.

As part of the rule, BIS also revises Section 772.1 to add the defined term “advanced-node integrated circuit,” which includes ICs that meet any of the following criteria:

• Logic ICs using a non-planar transistor architecture or with a “production” ‘technology node’ of 16/14 nanometers or less;
• NOT AND (NAND) memory ICs with 128 layers or more; or
• Dynamic random-access memory (DRAM) ICs using a “production” ‘technology node’ of 18 nanometer half-pitch or less.

Advanced Computing FDP Rule Revisions

The 2023 Advanced Computing Rule broadens the country scope of the Advanced Computing FDP rule, Section 734.9(h). The original Advanced Computing FDP rule controlled certain items described in the advanced computing ECCNs if destined to China (including Hong Kong) or Macau, or for incorporation into non-EAR99 items destined for China or Macau. The new rule expands the country scope to Country Groups D:1, D:4, or D:5 (which includes China), as well as Macau, excluding any destination also specified in Country Groups A:5 or A:6. In addition to China and Macau, this country group scope currently includes Bahrain, Egypt, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, among others. Moreover, the country scope extends “worldwide” if the foreign-produced item is destined to an entity headquartered in (or whose ultimate parent company is headquartered in) either Macau or a destination specified in Country Group D:5 (e.g. China). A Note clarifies that this worldwide end-use prong of the rule applies when companies headquartered in those locations are a party to the transaction involving the foreign-produced item, e.g., as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user.” 

The 2023 Advanced Computing Rule also changes the product scope headings of several FDP rules at paragraphs (b)(1)(ii), (c)(1)(ii), (d)(1)(ii), (f)(1)(ii), and (g)(1)(ii) by removing the heading ““Direct product” of a complete plant or ‘major component’ of a plant” and adding in its place the heading “Product of a complete plant or ‘major component’ of a plant that is a “direct product”.” BIS states that this change is made to conform these paragraph headings to the headings used in the Advanced Computing Rule for paragraphs (e)(1)(i)(B), (e)(2)(i)(B), (h)(1)(ii), and (i)(1)(i)(B) of § 734.9. However, the change from “direct product” to “product” creates some uncertainty, as the regulatory text of certain of these paragraphs continues to refer to foreign-produced items that are the “direct product” of specified complete plants or equipment, rather than to items that are merely the “product” of such plants or equipment. See Sections 734.9(b), (c), (d) (the National Security FDP, the Satellites FDP, and the 600 Series FDP). Based on past BIS practice and guidance, the regulatory text is likely controlling rather than the heading.

III. Changes to EAR Destination Controls

National Security (NS) Controls

The Semiconductor Manufacturing Items Rule adds NS controls to the semiconductor manufacturing items added to ECCNs 3B001 and 3B002 (i.e., 3B001.a.4, c, d, f.1.b, k to p, and 3B002.b and c), and their associated software and technology, and revises the NS controls by adding a new paragraph § 742.4(a)(4) for exports, reexports, and transfers (in-country) to or within either Macau or a destination specified in Country Group D:5.

The rule also adds an introductory sentence to § 742.4(b) to explain that if a license application meets the criteria of more than one of the paragraphs in § 742.4(b), then the most restrictive license policy will be applied. The rule also adds that license applications for the above-specified items, when destined to either Macau or a destination specified in Country Group D:5, will be reviewed consistent with license review policies in § 744.23(d) of the EAR, except applications will be reviewed on a case-by-case basis if no license would be required under Part 744 of the EAR.

Regional Stability (RS) Controls

The new rules broaden the CCL-based RS controls introduced in the October 7, 2022 Rule by:

• Extending the license requirement at 742.6(a)(6)(i) that was previously applicable to exports, reexports, and transfers to or within China and Macau of certain semiconductor manufacturing equipment now specified in ECCNs 3B001 and 3B002, as well as associated software and technology identified in ECCNs 3D001, 3D002, and 3E001, to also apply to exports, reexports, and transfers of those items to or within Macau or a destination specified in Supp. No. 1 to Part 740’s Country Group D:5 (which, in addition to China, includes other countries subject to a U.S. arms embargo).
• Expanding the license requirement at 742.6(a)(6)(ii) that was previously applicable to exports from China or Macau to any destination of certain ECCN 3E001 technology (for 3A090 items) to apply to exports from Macau or a destination specified in Country Group D:5 (excluding jurisdictions also specified in Country Groups A:5 or A:6) to any destination of ECCN 3E001 technology (for 3A090 items) developed by an entity headquartered in (or whose parent company is headquartered in) Macau or a Country Group D:5 jurisdiction that is the direct product of software subject to the EAR and is for the production of commodities identified in ECCNs 3A090, 4A090, 3A001.z, 4A003.z, 4A004.z, 5A002.z, 5A004.z, or 5A992.z, consistent with the scope of the Advanced Computing FDP rule discussed above.
• Introducing a license requirement at 742.6(a)(6)(iii) for exports, reexports, and transfers to or within Country Groups D:1, D:4, and D:5 (excluding destinations also specified in Country Groups A:5 or A:6) of items controlled under ECCNs 3A090, 4A090, the new .z paragraphs, and associated software and technology ECCNs.

Consistent with the scope of the October 7, 2022 Rule, the above license requirements do not apply to deemed exports or deemed reexports. License applications for items specified in paragraphs (a)(6)(i) and (ii) are subject to a case-by-case review policy, unless they are also subject to a license requirement under Part 744 of the EAR, in which case the license review policies of Part 744 apply. License applications for the export, reexport, or transfer of the advanced computing items specified in paragraph (a)(6)(iii) to destinations other than Country Group D:5 or Macau are subject to a presumption of approval, unless the export, reexport, or transfer is to an entity headquartered in (or whose ultimate parent company is headquartered in) either Macau or a Country Group D:5 jurisdiction. License applications to export, reexport, or transfer those items to Macau, Country Group D:5, or to an entity headquartered in (or whose ultimate parent is headquartered in) Macau or Country Group D:5, will be reviewed under a presumption of denial.

IV. End-Use Control Changes

The two rules amend the end-use controls at EAR Section 744.23, as follows:

• Updates the destination and end-use scopes of the supercomputer end-use controls at paragraph (a)(1)(ii) to extend those controls to:
  • The development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of a supercomputer located in or destined to Macau or a Country Group D:5 jurisdiction (not just China and Macau, as under the existing controls); or
  • The incorporation into, or the development or production of, any component or equipment that will be used in a supercomputer located in or destined to Macau or a Country Group D:5 jurisdiction (not just China and Macau, as under the existing controls);
• Expands the scope of the “advanced-node IC” controls at paragraph (a)(2) to apply to facilities located in Macau or a Country Group D:5 jurisdiction and replaces the term “fabrication” with “where production . . . occurs” to better capture facilities where important late-stage product engineering or early-stage manufacturing steps may occur, which “aligns with BIS’s intended focus.” BIS also adds that this textual revision appropriately takes into consideration development and product engineering activities at R&D fabs that may not engage in volume manufacturing of ICs;
• Adds under paragraph (a)(3)(i) a new advanced computing end-use control applicable to exports, reexports, and transfers of items controlled under ECCNs 3A090, 4A090, or the new .z entries to or within any destination not specified in Country Groups D:1, D:4, or D:5 (excluding any destination also specified in Country Groups A:5 or A:6) where the exporter, reexporter, or transferor has knowledge that the item is destined for any entity that is headquartered in (or whose ultimate parent company is headquartered in) Macau or a Country Group D:5 jurisdiction;
• Adds under paragraph (a)(3)(ii) an additional end-use control applicable to ECCN 3E001 technology (for 3A090) that is:
  • Developed by an entity headquartered in (or whose ultimate parent company is headquartered in) Macau or a Country Group D:5 jurisdiction;
  • Subject to the EAR pursuant to the Advanced Computing FDP rule;
  • For reexport or transfer from or within a Country Group D:1, D:4, or D:5 jurisdiction (excluding jurisdictions also listed in Country Groups A:5 or A:6) to any destination worldwide; and
  • For the production of commodities or software specified in ECCNs 3A001.z, 3A090, 4A003.z, 4A004.z, 4A005.z, 4A090, 5A002.z, 5A004.z, or 5A992.z;
• Narrows the product scope of § 744.23(a)(4) semiconductor manufacturing equipment end-use controls by limiting it to any item subject to the EAR and specified on the CCL, expands its country scope from “China and Macau” to “Macau or a destination specified in Country Group D:5,” and narrows its end-use scope to the “development” or “production” of “front-end integrated circuit ‘production’ equipment” and other items specified in 3B001 (except 3B001.g, .h, and .j), 3B002, 3B611, 3B991 (except 3B991.b.2), or 3B992; and
• Adds an exclusion in § 744.23(a)(5) for “back-end” production steps for purposes of § 744.23(a)(2) “advanced-node IC” controls, to limit the scope of “production” steps captured by paragraphs 744.23(a)(2)(i) and (a)(2)(ii) to exclude back-end production steps.

License applications will be reviewed with a presumption of denial for Macau and destinations specified in Country Group D:5. However, there is a presumption of approval for license applications when there is a foreign-made item available that is not subject to the EAR and performs the same function as the item subject to the EAR, and for end users headquartered in the United States or a Country Group A:5 or A:6 jurisdiction, that are not majority-owned by an entity headquartered in either Macau or a Country Group D:5 jurisdiction. For all other applications, there is a case-by-case license review policy.

V. Restrictions on “U.S. Person” Activities

Together, the two new rules update the U.S. person activities subject to license requirements and clarify that if you know your export, reexport, or transfer is described by the following list, then a license is required for shipping, transmitting, or transferring (in-country); facilitating the shipment, transmission, or transfer (in-country); or servicing (including installation) activities associated with any item, end use, or end user described in any of the following paragraphs:

• Any item not subject to the EAR that you know will be used in the development or production of ICs at a facility of an entity headquartered in (or whose ultimate parent company is headquartered in) either Macau or a destination specified in Country Group D:5 where production of “advanced-node ICs” occurs, or the development or production of advanced-node ICs, when to or within Macau or a Country Group D:5 destination;
• Any item not subject to the EAR and meeting the parameters of any ECCN in Product Groups B, C, D, or E in Category 3 of the CCL that is going to or is within Macau or a destination specified in Country Group D:5, that you know will be used in the development or production of ICs at a facility of an entity headquartered in (or whose ultimate parent company is headquartered in) either Macau or a Country Group D:5 jurisdiction where production of ICs occurs, but you do not know whether production of “advanced-node ICs” occurs at such facility; or
• Any item not subject to the EAR and meeting the parameters of ECCNs 3B001.a.4, c, d, f.1.b, k to p; 3B002.b and c; 3D001 (for 3B001.a.4, c, d, f.1.b, k to p, 3B002.b and c); 3D002 (for 3B001 a.4, c, d, f.1.b, k to p, 3B002.b and c); or 3E001 (for 3B001.a.4, c, d, f.1.b, k to p, 3B002.b and c) to or within either Macau or a Country Group D:5 jurisdiction, regardless of end use or end user.

Additionally, the 2023 Advanced Computing Rule clarifies that that the above U.S. person controls apply to persons who authorize the shipment, transmittal, or transfer; conduct the delivery; or service—including maintaining, repairing, overhauling, or refurbishing—the relevant items. These controls do not extend to U.S. persons conducting administrative or clerical activities or otherwise implementing a decision to approve a restricted shipment, transmittal, or in-country transfer. They also do not apply to activities of U.S. persons that are not directly related to the provision or servicing of specific items to the development or production of advanced-node ICs. Additionally, the controls do not apply to information excluded from the scope of the EAR’s jurisdiction under EAR Part 734, including published information and technology or software that arises from fundamental research.

The 2023 Advanced Computing Rule additionally provides due diligence guidance for the U.S. person controls and updates the guidance at Supp. No. 2 to Part 748 regarding unique license applications and submission requirements to specify how to prepare license applications seeking authorization for U.S. person activities restricted under this section.

Temporary General Licenses

Effective November 17, 2023, the Semiconductor Manufacturing Items Rule replaces the expired TGL included in the October 7, 2022 Rule with a new TGL that authorizes from November 17, 2023 through December 31, 2025 companies headquartered in the United States or a destination specified in Country Group A:5 or A:6 to send certain less-sensitive CCL items to manufacturing facilities in a Country Group D:5 country or Macau for the development or production of parts, components, or equipment of certain Category 3B ECCNs specified in § 744.23(a)(4). Specifically, the TGL overcomes the license requirements described in § 744.23(a)(4) when (1) the items exported, reexported, or transferred are subject to the EAR, specified on the CCL, and controlled only for AT reasons, and (2) the items are exported, reexported, or transferred to a recipient that is developing or producing parts, components, or equipment specified in § 744.23(a)(4) at the direction of a company that is headquartered in the United States or a destination specified in Country Groups A:5, A:6, and not majority-owned by a company headquartered in either Macau or a destination specified in Country Group D:5.

Importantly, the TGL does not overcome the license requirements applicable to prohibited end uses or users (other than as specified in § 744.23(a)(4)). BIS states that the purpose of the TGL is to provide semiconductor manufacturing equipment producers in the United States and Country Groups A:5 and A:6 countries “additional time to identify alternative sources of supply outside of arms-embargoed countries, or to acquire individually validated licenses to continue manufacturing ‘front-end integrated circuit production equipment’ and related parts and components in such countries.”

Also effective November 17, 2023, the 2023 Advanced Computing Rule establishes a TGL authorizing through December 31, 2025 the export, reexport, or transfer of items specified in ECCNs 3A090, 4A090, the new “.z” entries, and software and technology in associated CCL entries to or within Country Groups D:1, D:4, or D:5, when the recipient is neither headquartered in nor has an ultimate parent company that is headquartered in Macau or a Country Group D:5 jurisdiction, to continue or engage in integration, assembly (mounting), inspection, testing, quality assurance, and distribution of items specified in the TGL for ultimate end use outside of Country Group D:1, D:4, or D:5 jurisdictions (not specified in Country Groups A:5 or A:6) by entities that are not headquartered or whose ultimate parent company is not headquartered in Macau or a Country Group D:5 jurisdiction, where such export, reexport, or transfer is subject to a license requirement under EAR § 742.6(a)(6)(iii). This TGL is valid until December 31, 2025. Notably, the TGL does not overcome the EAR’s end-use or end-user restrictions and cannot be used for the indigenous development or production of any item specified in the TGL that is developed or produced at the direction of an entity that is headquartered in, or whose ultimate parent company is headquartered in, either Macau or a jurisdiction specified in Country Group D:5.

License Exception Notified Advanced Computing (“NAC”)

The 2023 Advanced Computing Rule provides that items classified in ECCNs 3A090, 4A090, and the new “.z” entries, except for items designed or marketed for use in a datacenter and meeting the parameters of ECCN 3A090.a, are eligible for new License Exception NAC, which (i) authorizes certain exports, reexports, or transfers of those items to or within Country Groups D:1 or D:4, and transfers within Macau or any jurisdiction specified in Country Group D:5, without prior notification to BIS; and (ii) establishes a prior notification process for exports and reexports of those items to Macau and Country Group D:5 jurisdictions, which must be completed in BIS’s System for Tracking Export License Applications (“STELA”) at least 25 calendar days prior to export. On the 25^th calendar day, STELA is expected to provide either a confirmation that the exporter may rely upon License Exception NAC and a confirmation number to be included in any required AES filing, or a determination that License Exception NAC may not be relied upon for the particular export. Notably, License Exception NAC does not authorize exports, reexports, or transfers to military end users, for military end uses, or that are subject to one or more end-use or end-user license requirements under EAR Parts 744 or 746, except for the license requirement at EAR § 744.23(a)(3) for exports or reexports to destinations other than those specified in Country Groups D:1, D:4, or D:5 (excluding destinations also specified in Country Groups A:5 or A:6) for an entity that is headquartered in, or whose ultimate parent is headquartered in, either Macau or a destination specified in Country Group D:5.

Changes to License Eligibility

The 2023 Advanced Computing Rule adds provisions to the restrictions on all License Exceptions at EAR Section 740.2 that limit the license exceptions available for ICs, electronic assemblies, components, and related software or technology specified in ECCNs 3A090, 4A090, the new .z paragraphs, and related software and technology entries to:

• License Exception Temporary Imports, Exports, Reexports, and Transfers (In-Country) (TMP), restricted to the provisions under Section 740.9(a)(6) relating to inspection, test, calibration, and repair;
• License Exception NAC (the new License Exception discussed above);
• License Exception Servicing and Replacement of Spare Parts (RPL);
• License Exception Governments, International Organizations, International Inspections Under the Chemical Weapons Convention, and the International Space Station (GOV), restricted to the provisions of Section 740.11(b), relating to the U.S. Government; or
• License Exception Technology and Software—Unrestricted (TSU), under the provisions of Section 740.13(a) and (c), relating to operation technology and software, along with software updates.

Additionally, the 2023 Advanced Computing Rule adds ECCNs 3A991.p and 4A991.l, which were introduced in the October 7, 2022 Rule to the list of ECCNs eligible for License Exception Consumer Communication Devices (CCD), which authorizes exports, reexports, and transfers of specified commodities and software to Cuba, Russia, and Belarus, consistent with the end-user restrictions and other requirements specified in the license exception.

Additionally, several clarifying and conforming edits were made to other license exceptions, including License Exceptions Computers (APP), Additional Permissive Reexports (APR), and Encryption Commodities, Software, and Technology (ENC) to account for the new .z paragraphs of existing entries on the CCL.

VII. Request for Comment

BIS is requesting comments, which can be submitted through December 18, 2023, on the following topics, in addition to the controls imposed through the Semiconductor Manufacturing Items Rule and the 2023 Advanced Computing Rule:

• Use of IaaS providers to develop large dual-use AI foundation models, including what additional regulations may be warranted, the feasibility of IaaS providers complying with additional regulations and how they could identify whether a customer is developing or producing a dual-use AI foundation model, and actions needed to address the national security concern while minimizing business process changes required for compliance;
• Potential technical solutions that limit items specified in ECCNs 3A090 and 4A090 from being used in conjunction with large numbers of other items in ways that enable training large dual-use AI foundation models with capabilities of concern;
• Additional ways to assist fabs in identifying items subject to FDP rules;
• The potential impact to companies’ businesses and operations if the license requirements at Section 742.6(a)(6)(i)-(iii) were to apply to deemed exports and reexports;
• Ways to refine the control parameters at ECCN 3A090;
• The definition of companies headquartered in Macau or a Country Group D:5 jurisdiction and the ability of companies to access information to assess the status of a foreign party; and
• The definition of supercomputer, including whether it may increasingly result in commercial datacenters meeting the definition.

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We are closely monitoring developments and would be happy to address any questions you may have.

Covington’s International Trade Controls team—which includes lawyers in the firm’s offices in the United States, London, Brussels, and Frankfurt—regularly advises clients across business sectors, and would be well-placed to provide support in connection with these new and expanded export controls.

Our trade controls lawyers also work closely with Covington's Global Public Policy team which consists of over 120 former diplomats and policymakers in the United States, Europe, the Middle East, Latin America, Africa, and Asia. Many of the members of the Public Policy team have had substantial government experience in sanctions and export controls matters, and regularly advise our clients on emerging trade controls policy matters and related engagements with government stakeholders.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Trade Controls practice group.