Commerce Issues Corrections Rule for October 17 Advanced Semiconductor and Semiconductor Manufacturing Equipment Rules

On March 29, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) released an interim final rule (Corrections IFR) to update, correct and clarify the “Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections” (AC/S IFR) and the “Export Controls on Semiconductor Manufacturing Items” (SME IFR) that BIS released on October 17, 2023. The AC/S IFR and SME IFR introduced new and revised restrictions on exports of advanced semiconductors and semiconductor manufacturing equipment to China. Our summary of the AC/S IFR and SME IFR is available here.

The Corrections IFR became effective on April 4, 2024, and makes a number of substantive and clarifying changes to the Export Administration Regulations (EAR). Among other changes, the Corrections IFR does the following:

• Revises License Exception Notified Advanced Computing (NAC) to clarify its scope and creates new License Exception Advanced Computing Authorized (ACA) to apply to less sensitive transactions.
• Changes the licensing policies and changes the license exceptions available under the end use controls at § 744.23 of the EAR, with respect to both advanced computing items and semiconductor manufacturing equipment.
• Changes the licensing policy and expands the items subject to controls on U.S. person activities at § 744.6 of the EAR.
• Makes numerous technical adjustments to the advanced computing Export Control Classification Numbers (ECCNs) and other provisions of the EAR.

Nevertheless, the Corrections IFR does not address certain significant questions raised in the AC/S IFR and SME IFR. For example, the Corrections IFR does not provide guidance about how to determine whether an entity is headquartered in, or has an ultimate parent headquartered in, Macau or Country Group D:5 for purposes of the advanced computing end user controls at § 744.23 and other provisions. The Corrections IFR also does not provide additional clarification about what it means to be “designed or marketed for use in a datacenter” for purposes of applying the criteria in License Exception NAC. The Corrections IFR additionally does not discuss whether further controls may be imposed to address access to the computing services of an infrastructure as a service (IaaS) provider by customers to develop, or with the intent to develop, large dual-use artificial intelligence (AI) foundation models with potential capabilities of concern, as identified by BIS. We anticipate BIS will continue to build on the Corrections IFR and provide clarifying guidance through, e.g., Frequently Asked Questions (FAQs) and other guidance documents, as well as additional regulatory corrections and other rulemaking.

Comments on the Corrections IFR are due by April 29, 2024. The Correction IFR includes a savings clause that exempted 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 Corrections IFR 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 or within a foreign destination.

Corrections to the AC/S IFR are addressed below in Section I, followed by corrections to the SME IFR in Section II.

1. Corrections for “Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections”

The Corrections IFR updates and corrects the AC/S IFR, which introduced new restrictions with respect to advanced computing items. These changes include:

• Revising § 740.8 by modifying License Exception NAC and introducing New License Exception ACA, to clarify the scope and submission guidelines. BIS split License Exception NAC into two separate license exceptions—NAC and ACA—that will both reside in § 740.8:
  • Notified Advanced Computing (NAC) is being revised to clarify that License Exception NAC authorizes exports and reexports of certain specified advanced computing items (other than those designed or marketed for use in a datacenter and meeting the parameters of ECCN 3A090.a) both: (1) to Macau and Country Group D:5 destinations; and (2) to entities located in a jurisdiction outside of Macau or a Country D:5 destination, but which are headquartered in, or have an ultimate parent company headquartered in, Macau or Country Group D:5.
    
    BIS also clarifies that parties may submit one NAC notification that will cover multiple exports or reexports if the exports or reexports are to the same end user, for the same item(s), and so long as the total dollar value and quantity of the shipments do not exceed the amounts stated on the notification. BIS clarifies that for notifications covering multiple shipments, this means the dollar value and quantity contained in the notification may be estimates of future sales and that they do not need to match the dollar value and quantity on the purchase order submitted to BIS. BIS does, however, clarify that you must have a purchase order for every shipment made against the NAC notification prior to exporting or reexporting the covered items.
    
    The Corrections IFR also clarifies that the NAC notification submitted in Simplified Network Application Process Redesign (SNAP-R) must include certain technical specs for performance capacity, such as Total Processing Performance (TPP), performance density, as well as a data sheet or other documentation showing the intended design goal and how it is marketed, to allow BIS to determine whether the item is eligible for License Exception NAC.
    
    The Corrections IFR also corrects and clarifies the NAC notification process. Previously, the AC/S IFR merely stated that BIS would notify parties if they may use NAC. Now, the Corrections IFR clarifies that after the notification has been registered in SNAP-R and within 25 calendar days, BIS will inform the exporter if a license is required. If BIS has not made contact, then STELA (BIS’s System for Tracking Export License Applications) will, on the 25th calendar day following the date the NAC request is registered via SNAP-R, provide either (i) confirmation that License Exception NAC can be used and a NAC confirmation number to be submitted in AES, or (ii) confirmation that License Exception NAC cannot be used and direct the exporter to apply for a license. The Corrections IFR also includes new language explaining three events that would delay the processing of a NAC notification, therefore suspending the 25 day clock. The three events named in the Corrections IFR are a lapse in appropriations funding, a catastrophic event that impacts government services (such as an extreme weather event), or a multi-day processing system failure.
  • Advanced Computing Authorized (ACA) is the new license exception that the Corrections IFR introduced that pairs up with License Exception NAC by providing authorization for those transactions previously covered by NAC, but which did not require notification to BIS. Accordingly, the regulatory text in the Corrections IFR states that License Exception ACA will authorize exports, reexports and transfers (in-country) of the same specified advanced computing items that are eligible for License Exception NAC (note: License Exception ACA also excludes items designed or marketed for use in a datacenter and meeting the parameters of ECCN 3A090.a) to or within destinations in Country Group D:1 or D:4 (except Macau, a destination in Country Group D:5, or an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located) that do not require a notification to BIS. License Exception ACA will also authorize transfers (in-country) within Macau and destinations in Country Group D:5.
    
    There is, however, some apparent discrepancy between the eligibility requirements for License Exception ACA that are described in the preamble to the Corrections IFR and the above-described eligibility requirements contained the Corrections IFR’s regulatory text. Specifically, the eligibility requirements described in the preamble state that ACA is available for exports, reexports or transfers (in-country) of ACA eligible items to destinations in Country Group D:1 and D:4, except for Macau and destinations specified in Country Group D:5. Unlike the Corrections IFR’s regulatory text, the preamble eligibility requirements do not exempt entities headquartered in, or that have an ultimate parent headquartered in, Macau or a D:5 destination. Moreover, the eligibility requirements in the preamble state that License Exception ACA is available for transfers (in-country) within 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. This bolded language is not included in the ACA eligibility requirements in the regulatory text for transfers (in-country). Accordingly, the revised regulatory text does not include language providing for the use of NAC or ACA to authorize transfers (in-country) to entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5. Language in the preamble, however, appears to indicate that it was likely the intent to cover such transfers under ACA, and forthcoming guidance from BIS may clarify the absence of related regulatory text.
  • License Exception NAC and ACA compliance requirements are clarified in the Corrections IFR and require that all exports, reexports or transfers (in-country) made pursuant to License Exceptions NAC or ACA have a written purchase order unless specifically exempted and that, while exports or reexports of commercial samples are not subject to the purchase order requirement, such transactions may be obligated to comply with paragraph (a)(2) (e.g., they may require notification to BIS). The Corrections IFR also removed the phrase “are obligated to comply” because not all commercial sample shipments will require notification to BIS. Further, the Corrections IFR clarifies in new paragraph (a)(3) that for ECCNs 5A002.z, 5A004.z or 5D002.z, all License Exception Encryption Commodities, Software and Technology (ENC) requirements under § 740.17 of the EAR must be met for eligibility under License Exceptions NAC or ACA.
  • Changing the license review policies and amending available license exceptions under § 744.23 (“Supercomputer,” “advanced-node integrated circuits,” and semiconductor manufacturing equipment end use controls). The Corrections IFR changes the license review policies in § 744.23(d), grouping the license review policies into situations when there is (i) a presumption of denial, (ii) a presumption of approval and (iii) a case-by-case review. The changes to § 744.23(d) also change the licensing policy for items controlled for regional stability (RS) reasons because under § 742.6(b)(10)(i) (i.e., destination-based RS controls), license applications “will be reviewed consistent with license review policies in § 744.23(d) of the EAR.” The review policies in § 744.23(d) apply as follows:
    • There is a presumption of denial for license applications for Macau and destinations specified in Country Group D:5 and any entity worldwide headquartered in, or with an ultimate parent headquartered in, Macau or Country Group D:5, unless the case-by-case review policy applies. Prior to the Corrections IFR, the license review policy did not include a presumption of denial for entities headquartered in, or with an ultimate parent headquartered in, Macau or Country Group D:5. This presumption of denial review policy applies to all items subject to § 744.23 license requirements, unless the conditions for presumption of approval or case-by-case policies, described below, are met.
    • There is a presumption of approval for license applications for end users headquartered in the United States or Country Groups A:5 or A:6 that are not majority-owned by an entity headquartered in Macau or Country Group D:5. This review policy is the same as prior to the Corrections Rule and applies for any item subject to the license requirement under § 744.23(a) that satisfies the conditions described in § 744.23(d)(2) (i.e., regardless of whether the item is designed for data center use and meets the parameters of ECCN 3A090.a).
    • There is a case-by-case review for license applications that are not captured by the presumption of denial or presumption of approval set forth above, or in two additional discrete situations:
      • First, the Corrections IFR adds a case-by-case review policy for license applications for specified advanced computing items that are not designed or marketed for use in a datacenter. BIS states in the preamble to the Corrections IFR that these are “less sensitive integrated circuits and computers that do not warrant a presumption of denial license review policy.” The specified advanced computing items are those meeting the parameters of the following ECCNs: 3A090, 4A090, 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, 5A992.z, 5D002.z and 5D992.z. Again, items designed or marketed for use in a data center and meeting the parameters of ECCN 3A090.a are subject to presumption of denial.
      • Second, the Corrections IFR changes the license review policy from a presumption of approval to a case-by-case standard where there is a foreign-made item that performs the same function as an item subject to the license requirement at issue.

In addition, the Corrections IFR revises the license exceptions provision under § 744.23(c), which previously stated that no license exceptions could overcome the prohibitions in § 744.23, to confirm that the license exceptions identified in § 740.2(a)(9)(i) and (ii) of the EAR may overcome the license requirements imposed by § 744.23(a)(4) and (a)(3)(i), respectively.

BIS made certain other amendments to § 744.23(a)(4) pertaining to semiconductor manufacturing equipment, which are discussed in Section II below.

• Changing the license review policies under § 744.6 (Restrictions on specific activities of “U.S. persons”). BIS changed the license review policies under § 744.6 to remove any presumption of approval for license applications submitted pursuant to § 744.6 and adding a case-by-case review policy for “less sensitive integrated circuits and computers.” Updated § 744.6(e) now includes two new exceptions to the presumption of denial review policy that applies to all activities subject to the license requirement in § 744.6. These changes are set forth below:
  • First, the Corrections IFR adds a case-by-case review policy for license applications for specified advanced computing items, except those that are designed or marketed for use in a datacenter and that meet the parameters of ECCN 3A090.a. BIS stated in the preamble to the Corrections IFR that these are “less sensitive integrated circuits and computers that do not warrant a presumption of denial license review policy.”
  • Second, the Corrections IFR changes the license review policy for items subject to the license requirements of paragraph (c)(2) (including, e.g., U.S. person support activities that involve items used for the development or production of advanced nodes and semiconductor manufacturing equipment) where there is an item that performs the same function as an item meeting the license requirements of paragraph (c)(2). Previously, the license review policy included an exception for “activities involving a foreign-made item that is not subject to the EAR and performs the same function as an item subject to the EAR,” mirroring the one in § 744.23(d), and such license applications were reviewed under a presumption of approval. Now, license applications for activities involving an item not subject to the licensing requirements of paragraph (c)(2) that perform the same function as items that do require a license are reviewed under a case-by-case review policy.
  • There is a case-by-case review policy for all other applications not specified in § 744.6(e)(3)(i) or (ii).

The Corrections IFR also adds extreme ultraviolet lithography (EUV) masks (ECCN 3B001.j) and associated software and technology to the control in paragraph § 744.6 (c)(2)(iii) for SME, because EUV masks were unintentionally excluded from the control.

• Other Technical Changes
  • Technical revisions to § 740.2 (Restrictions on All License Exceptions). BIS revised the introductory text to § 740.2(a)(9)(ii) to correct references from § 740.10(a)(3)(v) to § 740.10(a)(2)(iv) and to reference License Exception ACA. BIS also clarified that exports, reexports or transfers (in-country) of the items specified in § 740.2(a)(9)(ii)(A) or (B) to entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located, may only be made through the license exceptions specified therein, including License Exception NAC/ACA.
  • Correction to Model Certification in supplement no. 1 to part 734. BIS corrected the model criteria in Supplement No. 1 to Part 734 – Model Certification for Purposes of the Foreign-Produced Direct Product (FDP) Rule to refer to both the PRC and Macau as the country scope for consistency with the “Supercomputer” FDP Rule under § 734.9(i)(2).
  • Correction to § 742.15(a) (Encryption items). BIS revised the license requirements for encryption items, under § 742.15(a)(1), by adding an inadvertently removed sentence in the AC/S IFR that stated: “Most encryption items may be exported under the provisions of License Exception ENC set forth in § 740.17 of the EAR.” BIS also removed the last sentence of that paragraph, which repeats the sentence before.
  • Removing references to Note 4 to ECCN 3A090. BIS amended Note 3 to ECCN 3A090 to remove a reference to Note 4 to ECCN 3A090 because that note does not exist. For the same reason, BIS also amended the Related Controls paragraph in the following ten ECCNs to remove references to Note 4 to ECCN 3A090: 3A001, 4A003, 4A004, 4A005, 4A090, 5A002, 5A992, 5A004, 5D002 and 5D992.
  • Restoring controls for ECCNs that contain .z paragraphs. BIS amended the license requirement table 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/or crime control license requirement paragraphs to restore the other reasons for control for items that meet the specifications in .z paragraphs of these ECCNs.
  • Maintaining the status quo for license exception eligibility for certain destinations. As a conforming change to the restoration of controls for .z paragraphs and to retain the status quo for EAR license exception eligibility, BIS added a new note to the License Exception section of each of the ECCNs that have or impose controls on .z items, specifically: 3A001, 3D001, 3E001, 4A003, 4A004, 4A005, 4D001, 4E001, 5A002, 5A992, 5A004, 5D002, 5D992, 5E002, and 5E992. The new note refers to § 740.2(a)(9)(ii) of the EAR for the license exception restrictions applicable to exports, reexports, or transfers (in-country) of .z ECCNs.
  • License Exception STA Eligibility. License Exception STA is also restored for .z ECCNs by removing restrictions under STA paragraphs for .z ECCNs. The Corrections IFR notes, however, that License Exception STA cannot overcome license exception restrictions of § 740.2(a)(9)(ii)—e.g., to destinations in Country Groups D:1, D:4, and D:5 or entities worldwide headquartered in, or with an ultimate parent headquartered in, Country Group D:5 or Macau.
  • Revision to supplement no. 6 to part 774 (Sensitive List). The phrase “and equipment described under 3A002.g.2 that are controlled under 3A002.z” in paragraphs 3(iv) and (v) is removed because BIS decided against adding a .z paragraph to ECCN 3A002.
• ECCN Revisions
  • Addition of .z paragraphs to ECCN 3A001. BIS added four new .z paragraphs to ECCN 3A001 to make a distinction between those items controlled for NS:1, RS:1, MT:1 and NP:1 reasons. The new .z paragraphs cover certain specified Monolithic Microwave Integrated Circuit (MMIC) amplifiers, radiation hardened integrated circuits when usable in missiles, pulse discharge capacitors and superconducting solenoidal electromagnets, and a catchall for all other commodities specified in ECCN 3A001 that meet or exceed the parameters of ECCN 3A090.
  • Restoration of NS controls for ECCN 3D001. BIS corrected the NS license requirement paragraph in ECCN 3D001 to restore NS:1 license requirements to software for commodities controlled by ECCN 3A001.z.
  • Revision to ECCN 3E001 license requirements and reasons for control. BIS revised the reasons for control for ECCN 3A001.z by adding RS as a reason for control and removing the exception clauses from NS:1, MT:1 and NP:1.
  • Addition of missing paragraph ECCN 4A090.b and clarifying the term “computers” in ECCN 4A090. Paragraph .b is added to ECCN 4A090 to control computers, “electronic assemblies” and “components” containing integrated circuits, any of which meets or exceeds the limits in ECCN 3A090.b and the technical note in ECCN 4A090 is amended to clarify the use of the term “computers.”
  • Revisions to ECCN 4E001. The incorrect phrase “or ‘software’ controlled under 4D001 (for 4A090)” is removed because software for ECCN 4A090 is controlled in ECCN 4D090, not ECCN 4D001.
  • Revisions to ECCNs 5D002 and 5D992. The Related Control paragraphs of ECCNs 5D002 and 5D992 are corrected by replacing the references to non-existent paragraphs ECCNs 3D001.z and 4D001.z with correct references.
  • Corrections to controls for ECCNs 5E992 and 5E002. Corrects the Reason for Control paragraph in the License Requirement section of ECCNs 5E992 and 5E002 by adding “RS” to indicate the regional stability license requirements in the License Requirements table.

2. Corrections for “Export Controls on Semiconductor Manufacturing Items”

The Corrections IFR also updates and corrects the SME IFR, which introduced new restrictions with respect to semiconductor manufacturing equipment, including:

• Revisions to § 744.23(a)(4) to cover direct and indirect exports, reexports and transfers (in-country) of items for the “development” or “production” of semiconductor manufacturing equipment “components,” “assemblies” and “accessories.” The Corrections IFR overhauls § 744.23(a)(4) to distinguish between direct and indirect exports, reexports, and transfers (in-country) for the “development” or “production” of “front-end integrated circuit ‘production’ equipment” by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5. According to BIS, this distinction is meant to address concerns about continued support for indigenous “development” and “production” of such equipment in Macau and destinations in Country Group D:5 countries, and by companies headquartered in those countries.

The direct exports, reexports and transfers (in-country) provision at new § 744.23(a)(4)(i) expands the scope of former § 744.23(a)(4) in two different ways. Specifically, BIS states that former (a)(4) unintentionally excepted masks classified as ECCN 3B001.j and equipment classified as ECCN 3B991.b.2.e through .h; as such, the exceptions in (a)(4)(i) are now more limited than former (a)(4) because they only except masks classified as ECCN 3B001.g and .h or ECCN 3B991.b.2.a through .b. The Corrections IFR also expands upon former (a)(4) to now also cover any category 3D or 3E “software” and “technology” for the “front-end integrated circuit ‘production’ equipment” and “components,” “assemblies” and “accessories” specified in the category 3B ECCNs in (a)(4)(i), in addition to the commodities themselves.

The indirect exports, reexports and transfers (in-country) provision at new § 744.23(a)(4)(ii) covers specific scenarios in which the exporter is not necessarily sending the item in question to Macau or a Country Group D:5 destination, but knows or has reason to know that the item will ultimately be involved in the “development” or “production” of semiconductor manufacturing equipment by an entity headquartered in Macau or a Country Group D:5 destination. A license is required under this provision if all of the following apply:

• The item in question is for the “development” or “production” of a foreign-made item, whether or not subject to the EAR, that is specified in ECCN 3B001 (except 3B001.g and .h), 3B002, 3B611, 3B991 (except 3B991.b.2.a through .b), 3B992 or is associated “software” and “technology” in 3D or 3E of the Commerce Control List (CCL);
• That foreign-made item is itself for the “development” or “production” of any initial or subsequent foreign-made item, whether or not subject to the EAR, that is also specified in ECCNs 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; and
• The “development” or “production” activity is performed by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a Country Group D:5 destination.

Note 1 to paragraph (a)(4) remains the same as before, but the Corrections IFR adds a new Note 2 to remind exporters that—at least until December 31, 2025—the Temporary General License (TGL) at General Order No. 4 in Supp. No. 1 to Part 736 is available to the extent the item in question is for the “development” or “production” of ‘front-end integrated circuit “production” equipment’ produced at the direction of entities headquartered in the United States or Country Group A:5 or A:6 destinations, and provided the other requirements of the TGL are satisfied.

BIS also provided further commentary and guidance on § 744.23(a)(2) and (a)(4) controls in its updated responses to commenter questions in topics 45, 46, 47 and 49 of the SME IFR. For example, BIS clarified that a license is required in the scenario in which the exporter, reexporter or transferor has “knowledge” that an item identified in current § 744.23(a)(2)(ii) (i.e., Category 3B/3C/3D/3E items), will be used in the “development” or “production” of integrated circuits in Macau or a destination specified in Country Group D:5, but does not know whether such integrated circuits are or will be “advanced-node integrated circuits.” (See Topic 47).

• Corrections to ECCNs 3B001 and 3B991. The Correction IFR amends ECCN 3B001 by correcting the scientific units in paragraphs d.4.d.2, d.5, f.1.b.2.b, o.2 and correcting the scope of items subject to § 742.4(a)(4) (national security controls) and § 742.6(a)(6)(i) (regional stability controls) by adding ECCN 3B001.j, which applies to “Mask ‘substrate blanks’ with multilayer reflector structure consisting of molybdenum and silicon …” and being “‘Specially designed’ for ‘Extreme Ultraviolet’ (EUV) lithography” and compliant with SEMI Standard P37. Separately, BIS corrected the heading of ECCN 3B991 to remove the reference to ECCN 3B090, which was removed from the CCL by the SME IFR.