Rule2023-23055
Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 25, 2023
Effective
November 17, 2023
Issuing agencies
Commerce DepartmentIndustry and Security Bureau
Abstract
On October 7, 2022, the Bureau of Industry and Security (BIS) released the interim final rule (IFR), "Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification" (October 7 IFR), which amended the Export Administration Regulations (EAR) to implement controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items, and to make other EAR changes to implement appropriate related controls, including on certain "U.S. person" activities. This Advanced Computing/ Supercomputing IFR (AC/S IFR) addresses comments received in response to only the part of the October 7 IFR that controls advanced computing ICs and computer commodities that contain such ICs. This rule also makes other changes to make the controls more effective and less burdensome, including by correcting and clarifying the controls to more effectively achieve the policy objectives identified in the October 7 IFR. This AC/S IFR is published concurrently with a second BIS IFR, "Export Controls on Semiconductor Manufacturing Items," which addresses public comments received in response to other portions of the October 7 IFR. Together, these IFRs revise the October 7 IFR controls to more effectively achieve BIS's focused national security policy objectives. These revisions protect U.S. national security interests by further restricting China's ability to obtain critical technologies to modernize its military capabilities in ways that threaten the national security interests of the United States and its allies.
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 205 (Wednesday, October 25, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 205 (Wednesday, October 25, 2023)]
[Rules and Regulations]
[Pages 73458-73517]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23055]
[[Page 73457]]
Vol. 88
Wednesday,
No. 205
October 25, 2023
Part III
Department of Commerce
-----------------------------------------------------------------------
Bureau of Industry and Security
-----------------------------------------------------------------------
15 CFR Parts 732, 734, 736, et al.
Implementation of Additional Export Controls: Certain Advanced
Computing Items; Supercomputer and Semiconductor End Use; Updates and
Corrections; Interim Final Rule
Federal Register / Vol. 88, No. 205 / Wednesday, October 25, 2023 /
Rules and Regulations
[[Page 73458]]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Parts 732, 734, 736, 740, 742, 744, 746, 748, 758, 770, 772,
and 774
[Docket No. 231013-0248]
RIN 0694-AI94
Implementation of Additional Export Controls: Certain Advanced
Computing Items; Supercomputer and Semiconductor End Use; Updates and
Corrections
AGENCY: Bureau of Industry and Security, Department of Commerce.
ACTION: Interim final rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: On October 7, 2022, the Bureau of Industry and Security (BIS)
released the interim final rule (IFR), ``Implementation of Additional
Export Controls: Certain Advanced Computing and Semiconductor
Manufacturing Items; Supercomputer and Semiconductor End Use; Entity
List Modification'' (October 7 IFR), which amended the Export
Administration Regulations (EAR) to implement controls on advanced
computing integrated circuits (ICs), computer commodities that contain
such ICs, and certain semiconductor manufacturing items, and to make
other EAR changes to implement appropriate related controls, including
on certain ``U.S. person'' activities. This Advanced Computing/
Supercomputing IFR (AC/S IFR) addresses comments received in response
to only the part of the October 7 IFR that controls advanced computing
ICs and computer commodities that contain such ICs. This rule also
makes other changes to make the controls more effective and less
burdensome, including by correcting and clarifying the controls to more
effectively achieve the policy objectives identified in the October 7
IFR. This AC/S IFR is published concurrently with a second BIS IFR,
``Export Controls on Semiconductor Manufacturing Items,'' which
addresses public comments received in response to other portions of the
October 7 IFR. Together, these IFRs revise the October 7 IFR controls
to more effectively achieve BIS's focused national security policy
objectives. These revisions protect U.S. national security interests by
further restricting China's ability to obtain critical technologies to
modernize its military capabilities in ways that threaten the national
security interests of the United States and its allies.
DATES: This rule is effective November 17, 2023, except for amendatory
instruction 11 amending supplement no. 1 to part 736 of the EAR, which
is effective from November 17, 2023, to January 1, 2026.
Comments must be received by BIS no later than December 18, 2023.
ADDRESSES: Comments on this rule may be submitted to the Federal
rulemaking portal (<a href="http://www.regulations.gov">www.regulations.gov</a>). The <a href="http://regulations.gov">regulations.gov</a> ID for
this rule is: BIS-2022-0025. Please refer to RIN 0694-AI94 in all
comments.
All filers using the portal should use the name of the person or
entity submitting the comments as the name of their files, in
accordance with the instructions below. Anyone submitting business
confidential information should clearly identify the business
confidential portion at the time of submission, file a statement
justifying nondisclosure and referring to the specific legal authority
claimed, and provide a non-confidential version of the submission.
For comments submitted electronically containing business
confidential information, the file name of the business confidential
version should begin with the characters ``BC.'' Any page containing
business confidential information must be clearly marked ``BUSINESS
CONFIDENTIAL'' on the top of that page. The corresponding non-
confidential version of those comments must be clearly marked
``PUBLIC.'' The file name of the non-confidential version should begin
with the character ``P.'' Any submissions with file names that do not
begin with either a ``BC'' or a ``P'' will be assumed to be public and
will be made publicly available through <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Commenters submitting business confidential information are encouraged
to scan a hard copy of the non-confidential version to create an image
of the file, rather than submitting a digital copy with redactions
applied, to avoid inadvertent redaction errors which could enable the
public to read business confidential information.
FOR FURTHER INFORMATION CONTACT: For questions on the license
requirements in the October 7 IFR or the revisions included in this AC/
S IFR, contact Aaron Amundson, Director, Information Technology
Controls Division, Bureau of Industry and Security, Department of
Commerce, Phone: (202) 482-5299, Email: <a href="/cdn-cgi/l/email-protection#d6a4a6b2e496b4bfa5f8b2b9b5f8b1b9a0"><span class="__cf_email__" data-cfemail="7e0c0e1a4c3e1c170d501a111d50191108">[email protected]</span></a>. For emails,
include ``Advanced computing controls'' in the subject line.
SUPPLEMENTARY INFORMATION:
Background
A. Introduction
On October 7, 2022, BIS released the interim final rule (IFR),
``Implementation of Additional Export Controls: Certain Advanced
Computing and Semiconductor Manufacturing Items; Supercomputer and
Semiconductor End Use; Entity List Modification,'' which made critical
changes to the Export Administration Regulations (15 CFR parts 730-774)
(EAR) in two areas to address U.S. national security concerns and
requested public comments on the newly imposed measures. This IFR was
published in the Federal Register on October 13, 2022 (October 7 IFR)
(87 FR 62186). BIS imposed these new controls to protect U.S. national
security interests by restricting certain exports to China that would
advance China's military modernization and surveillance efforts. With a
calibrated approach, focused on key, cutting-edge technologies, BIS
also sought not to undercut U.S. technology leadership or unduly
interfere with commercial trade. As noted in the Export Control Reform
Act of 2018 (50 U.S.C. 4801-4852, ECRA), the national security of the
United States requires that the United States maintain its leadership
in the science, technology, engineering, and manufacturing sectors,
including technology that is essential to innovation.
The advanced computing ICs and supercomputing capacity controlled
through the October 7 IFR are critical for preventing or limiting the
further development of weapons of mass destruction, advanced weapons
systems, and high-tech surveillance applications that create national
security concerns, including through their use in exascale
supercomputing, and artificial intelligence (AI) capabilities. Advanced
AI models, trained on advanced computing ICs, can be used to improve
the design and use of the items listed above. The PRC seeks to use
advanced computing ICs and supercomputing capacity in the development
and deployment of these AI models to further its goal of surpassing the
military capabilities of the United States and its allies.
The October 7 IFR imposed controls on two sets of items and
activities. First, the rule established new Export Control
Classification Numbers (ECCNs) and end-use controls on certain advanced
computing ICs, computer commodities that contain such ICs, and
supercomputers. Second, it established a new ECCN for certain
semiconductor manufacturing equipment (SME) and
[[Page 73459]]
end-use controls related to the ``development'' and ``production'' of
three types of ``advanced-node ICs,'' as well as end-use controls on
the ``development'' and ``production'' of SME.
Today, BIS addresses these two issues separately through
publication of this AC/S IFR and a second BIS IFR, ``Export Controls on
Semiconductor Manufacturing Items'' (SME IFR). Together, these IFRs
further advance the U.S. national security objectives identified above
and further discussed in section C of this rule. This AC/S IFR focuses
on the advanced computing controls and related end use provisions of
the October 7 IFR and amends the EAR to expand the scope of the October
7 IFR while responding to comments from stakeholders about the advanced
computing controls and related end use controls adopted in the October
7 IFR. This AC/S IFR: (1) revises ECCN 3A090 to remove paragraph a,
including paragraphs a.1 through a.4, and adds in its place simplified
control paragraphs .a and .b, along with a conforming change to ECCN
3A991.p; (2) replaces the criterion ``any other item on CCL that meet
or exceed the performance parameters of 3A090 or 4A090'' by positively
identifying those ECCNs in new .z paragraphs in nine ECCNs, along with
various conforming changes related to the new .z paragraphs in other
parts of the EAR; (3) clarifies the scope of ``U.S. person'' and end-
use controls related to supercomputers and advanced computing items;
(4) makes ECCNs 3A991.p and 4A994.l eligible for License Exception
Consumer Communication Devices (CCD, 15 CFR 740.19); (5) expands the
Regional Stability (RS) license requirements and amends the RS
licensing policy to adopt an additional case-by-case license review
policy for certain RS items and adopts a presumption of approval for
license applications for destinations other than Macau and Country
Group D:5, except for items 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 and with licenses for items
destined to Macau and Country Group D:5 being reviewed under a
presumption of denial license review policy; (6) broadens the country
scope for these controls, with respect to the items controlled for RS
reasons as well as the advanced computing Foreign Direct Product (FDP)
rule and advanced computing provisions in Sec. 744.23, to destinations
specified in Country Groups D:1, D:4, and D:5 in supplement no. 1 to
part 740 that are not also specified in Country Groups A:5 or A:6, and
with respect to the supercomputer and advanced-node integrated circuit
Sec. 744.23 provisions, broadens the country scope from China and
Macau to Macau and destinations in Country Group D:5; (7) clarifies
that the model certificate published in the October 7 IFR may be used
for all FDP rules; (8) adds five new red flags to assist with
compliance, including for recognizing ``direct products'' under the FDP
rules; (9) adds one new Temporary General License (TGL); (10) creates a
new license exception for Notified Advanced Computing (NAC); and (11)
makes other corrections and clarifications.
B. Public Comments and BIS's Responses
BIS received 43 responsive public comments, covering 78 specific
topics, in response to the October 7 IFR. This rule summarizes and
addresses comments on the advanced computing provisions, as well as
general comments applicable to all aspects of the October 7 IFR that
are not otherwise addressed in this SME IFR. BIS appreciates the many
public comments it received, and encourages continued engagement and
feedback, including comments on the SME and AC/S IFRs which allow for a
60-day comment period and, for most provisions, a 30-day delayed
effective date.
Complexity and Compliance Burden
Topic 1: A commenter noted that the October 7 IFR is so complex
that only a small group of people with significant expertise in the EAR
and semiconductors can fully understand the rulemaking. This commenter
noted that many small and medium enterprises, or even large foreign
multinationals, not highly versed in these details will either not know
if they are following the rule, or out of an abundance of caution,
``over-comply'' by restricting legitimate exports and trade not
otherwise subject to these rules. Another commenter noted that ensuring
compliance will result in dramatic increases in compliance-related
costs and associated burdens. This commenter noted that the number of
specific components, other commodities, software, and technology
affected by the new rules is in the tens of millions, and each item
requires marking, analysis, or other handling to ensure compliance.
Another commenter noted that this complexity may result in
misunderstandings and non-compliance, so simpler controls are more
effective in furthering BIS's objectives.
BIS response: BIS does not agree that the rules are so complex that
only a handful of people with expertise will be able to understand the
controls. Nevertheless, BIS is revising the October 7 IFR to facilitate
the public's understanding of the IFR and to simplify the provisions,
e.g., changing the text of ECCN 3A090 to simplify the calculations
required. BIS has taken into account the commenters' concerns over
increases in compliance-related controls and associated burdens and
made changes in this AC/S IFR to make the controls more focused, which
should help reduce these burdens and compliance costs where possible.
In addition, Section C.10 discusses changes to enhance compliance,
including the addition of five new red flags to assist with compliance.
BIS has conducted a robust outreach program and posted FAQs on the
October 7 IFR to assist public understanding. Reducing complexity and
improving clarity are also two key objectives of this AC/S IFR and the
SME IFR.
Topic 2: A member of Congress noted that they had been told by one
of their constituents that the October 7 IFR is overly broad in its
current form and will damage and disrupt both American industry and
global semiconductor supply chains by excluding basic U.S. products
that are not subject to specific export controls. This commenter has
also been assured by their constituent that the resulting vacuum will
be filled by foreign-produced products, including those made in China.
This member of Congress shares BIS's stated goal of protecting
``critical U.S. national security and foreign policy interests.''
However, this member of Congress believes that we must ensure these
regulations are focused and do not extend beyond their intended
national security objectives.
BIS response: BIS shares concerns about imposing unilateral
controls that create an unlevel playing field for U.S. products and
companies. BIS intends the controls to be as focused as possible, while
at the same time achieving U.S. national security and foreign policy
objectives. One example is adding .z paragraphs to nine ECCNs in order
to replace the broad regional stability control for all items that
contain ``advanced-node ICs,'' see discussion in Section C.3.A. BIS is
adopting additional changes to better achieve these objectives in this
AC/S IFR and in the SME IFR.
[[Page 73460]]
Dialogue With Industry for the October 7 IFR, Taking Into Account
Potential Burden to Industry, Unintended Consequences, and Economic
Impacts
Topic 3: Some commenters noted that taking time to have meaningful
engagement with industry will help head off unintended consequences.
These commenters noted that while there will be emergencies that
require swift action without time for industry consultation, the U.S.
government, and particularly BIS, should endeavor to conduct meaningful
engagement with industry and relevant Technical Advisory Committees
(TACs) whenever possible. These commenters emphasized it is critical
that BIS prioritize and meaningfully leverage this engagement when a
rule of this breadth and complexity is under consideration, including
prior to publishing a final rule for the October 7 IFR. These
commenters noted that given the complexity of the October 7 IFR and the
global supply chain, BIS should conduct in-depth consultations with
industry experts--both in semiconductor companies and more broadly in
industries that incorporate semiconductors--in advance of releasing a
final rule. Another commenter noted that the economic analysis that
needs to be done for the impact of this October 7 IFR and similar rules
requires industry input.
BIS response: BIS agrees that having meaningful engagement with
industry through the BIS TACs and soliciting public comments prior to
implementing controls is beneficial for the agency as well as the
private sector and can reduce unintended consequences. BIS also agrees
that it is important to obtain input on the economic impact of export
controls. BIS's primary objective is protecting U.S. national security
and foreign policy interests, so at times the agency must act quickly
and decisively to ensure those national security and foreign policy
interests are protected. For the October 7 IFR, BIS did consult with
its TACs, but the national security and foreign policy concerns at
stake required that controls be put in place expeditiously. Because BIS
was aware that there may be some unintended impacts from the October 7
IFR, BIS published the October 7 IFR as an interim final rule with a
request for comments, which allowed for BIS in this AC/S IFR and SME
IFR to make additional changes to the control structure and address
some of those unintended consequences. Since the rule was published,
BIS has engaged extensively with its TACs to revise the control
parameters of ECCN 3A090.
Topic 4: A commenter noted that longer delayed effective dates
would ease company confusion and help improve compliance. This
commenter suggested that BIS consider implementing such rules in the
future with a delayed implementation period to allow for industry to
study the rules and implement effective compliance programs. This
approach would have significantly avoided the unintended confusion that
this new complex rule created. One commenter noted that BIS would have
benefitted from having more time to consider the October 7 IFR prior to
publication and noted that based on this commenter's interactions with
BIS shortly after the October 7 IFR was published, BIS did not seem
ready to advise the public on its own rule.
BIS response: In this AC/S IFR and SME IFR, BIS is adopting a 30-
day delayed effective date, except as noted in the AC/S IFR and SME IFR
where a sooner effective date is warranted. BIS agrees that longer
delayed effective dates can ease confusion by companies and help
improve compliance, but BIS also needs to account for the national
security and foreign policy concerns it is addressing. An extended
delayed effective date can undermine those national security and
foreign policy concerns. For example, a six-month delayed effective
date for the October 7 IFR would have provided additional time for
outreach and for companies to adjust to the controls, but that six
month delay would have also allowed end users in China substantial time
to acquire key pieces of SME needed to help them achieve advanced nodes
of semiconductor fabrication and to stockpile various ``parts'' and
``components'' needed for future development of supercomputers. BIS
acted expeditiously in imposing controls because of national security
and foreign policy concerns. In addition, to better enable compliance
and understanding of the rule, the agency provided FAQs to the public
(which were updated as needed), conducted a public hour-long briefing
on the rule by BIS leadership the day of publication, and extended the
public comment period for the October 7 IFR to enable industry to raise
concerns for the agency's consideration. To ensure BIS was providing
fulsome public guidance, the agency also held internal training for
staff responsible for primary public interactions. BIS takes this type
of deliberative approach to ensure, as much as possible, that there is
consistency and accuracy in the responses being given to the public.
Topic 5: A commenter noted that in the past, BIS had sought
industry input prior to publishing rules and should return to that
practice. This commenter noted that until recent years, it had been the
long-standing practice for BIS to obtain technical and other inputs
from both the public and the TACs before publishing rules (other than
those implementing new controls agreed to with the multilateral
regimes) given that there is much about commercial supply chains,
technologies, and economics that the U.S. Government does not fully
understand.
BIS response: This commenter may be referring to agency practice
during Export Control Reform (ECR), during which the Departments of
Commerce and State generally published related rules on a proposed
basis. At that time, the items that were being proposed to be moved to
the EAR were already controlled under the ITAR, so there was not the
same urgent national security imperative as was present with the
October 7 IFR. Before that time, the vast majority of BIS's rules were
published as direct final or interim final rules. Accordingly, the
commenter is not correct that recently BIS has deviated from past
precedent. Since ECR, BIS has continued to publish notices and proposed
rules, such as with the Section 1758 rules (other than those
implementing multilateral agreements). When BIS has needed to quickly
implement controls for national security or foreign policy reasons, BIS
has published interim final rules with requests for public comment to
gain public input while simultaneously allowing the agency to impose
needed controls, and if necessary, amend those controls in response to
public comment, as BIS is doing in this AC/S IFR. The imposition of
controls without first issuing a proposed rule is consistent with BIS's
statutory authority in ECRA, enacted in 2018, and is thus another
distinction from rules promulgated before 2018.
Other Ways That BIS Can Consult With Industry To Better Improve the
Effectiveness of Policies in This Area
Topic 6: A commenter requested that BIS should publish, or at least
make available for TAC review, the policy justifications for current
Category 3 and 4 controls. BIS is increasingly asking industry for
input on significant new controls related to semiconductors and
associated technology in Categories 3 and 4 and to provide effective
feedback and assessment, and it would be helpful to understand the
specific policy rationale for new and existing control classifications.
Another commenter requested if required by Congress or other parties to
publicly release
[[Page 73461]]
licensing data surrounding the October 7 IFR, that BIS should strive to
provide the most complete data possible, while still protecting
confidential business information. This commenter requested that the
data should include statistics on licenses that (i) are still pending
review, (ii) received an ``intent to deny'' response, (iii) were
``returned without action,'' and (iv) issued with restrictive
conditions. The data on approvals and denials should also be connected
to what the licensing policy is for such items and when those licensing
policies were created.
BIS response: This comment is somewhat outside the scope of the
October 7 IFR, but BIS is addressing it given its relevance to overall
controls. BIS understands the commenter's intent by asking for this
type of engagement with the TACs. BIS does attempt to share background
information on how controls developed over the years as well as the
basis and policy goals of those controls with the BIS TACs,
particularly during closed TAC sessions. BIS subject matter experts and
its TACs are also encouraged to take a fresh look at the controls on a
regular basis regardless of what the original rationale may have been
for imposing controls. Similarly, whether in response to a proposed
rule or IFR, the agency seeks the public's input on controls so that
the public can help assess whether policy goals are being met. BIS has
made every effort to share open source information related to its
policy objectives for this rule and the SME IFR as part of this
rulemaking.
In response to the comment that the agency should release specific
information to the public or Congress, BIS notes that, with limited
exceptions related to requests from Congressional committees of
appropriate jurisdiction, the agency is required by statute to withhold
from disclosure certain categories of information absent a
determination that the release is in the U.S. national interest. That
statutory restriction on release is intended to protect the business
confidential information noted by the commenter. BIS agrees that when
such licensing data is released, it will provide an accurate account of
the relevant licensing information.
Topic 7: A commenter noted that ECRA section 1765 (50 U.S.C. 4824)
requires BIS to submit to Congress by the end of the year a report on
the implementation of ECRA during the previous year. Subsection (a)(2)
requires that the annual report include a description of ``the impact
of [all that year's] controls on the scientific and technological
leadership of the United States.'' In addition, ECRA section 1752(1)
(50 U.S.C. 4811(1)) states that the United States should ``use export
controls only after full consideration of the impact on the economy of
the United States.'' Similarly, ECRA section 1752(3) states that the
impact of the implementation of new controls on U.S. leadership and
competitiveness ``must be evaluated on an ongoing basis and applied in
imposing controls . . . to avoid negatively affecting such
leadership.'' This commenter believes that it is important for BIS to
obtain formal industry input on this specific topic so that its report
to Congress is accurate and complete.
BIS response: BIS agrees that it may be beneficial to allow for
public input to assist BIS in preparing this annual report. BIS intends
in the next annual cycle for this report to publish a notice to solicit
comments in the area. BIS will then evaluate the amount and type of
public input provided to the agency to determine if continuing to
publish this type of notice is worthwhile in the future.
Free Trade, Addressing U.S. Relationship With China, and Benefits From
Trade With China
Topic 8: A commenter requested that especially at a time when U.S.-
China relations are fraught, we should aim to strengthen ties and
increase cooperation to reduce the risk of military conflict and to
allow the United States and the whole world to benefit from the fruits
of our shared innovations.
BIS response: The U.S. Government works with China in multiple ways
to reduce tensions and find areas in which the two governments can work
together. Where the policies of the Chinese Communist Party (CCP) run
counter to U.S. national security and foreign policy interests, the
U.S. Government takes appropriate actions to address its concerns,
including by ensuring that items subject to the EAR are not used to
assist CCP military advancement.
Topic 9: A commenter noted that trade with China brings many
important benefits to the U.S. economy and American workers. This
commenter noted that advanced U.S. manufacturers of all sizes and their
American business partners and consumers have benefitted from globally
integrated supply chains that have improved efficiency and lowered
production costs for U.S. firms. Revenues generated in China are often
reinvested in global and U.S. research and development (R&D)
activities, which in turn allows U.S. companies to maintain their
competitive edge over PRC and foreign competition. Another commenter
noted a belief that the October 7 IFR is counter to U.S. free trade
advocacy and could boomerang negatively on the United States if China
retaliates with similar trade restrictions.
BIS response: BIS agrees with the importance of continued trade
with China. China's military-civil fusion policy has made it much more
challenging for the U.S. Government, as well as exporters, reexporters,
and transferors, to be able to clearly identify items and transactions
that will be only for civil end uses. BIS has tried to address this
circumstance by imposing focused controls. Focused controls can be more
complex than the imposition of broad controls (such as on an entire
country), but BIS has adopted focused controls to restrict trade as
necessary for national security or foreign policy reasons while not
impairing trade for civil applications.
Regarding the comment that the October 7 IFR is counter to U.S.
free trade advocacy and could lead to the imposition of trade controls
by China, BIS notes the national security and foreign policy reasons
described in that rule as the reasons for the imposition of those
controls. See 87 FR 62186-88 (noting, among other things, China's use
of advanced computers for its military modernization efforts, military
decision making, planning, and logistics, cognitive electronic warfare,
radar, signals intelligence, and jamming, as well as China's use of
supercomputers to improve calculations in weapons design and testing
including for WMD such as nuclear weapons and hypersonics and other
advanced missile systems). These controls were not implemented as
protective trade measures, but rather were imposed to protect U.S.
national security. BIS is aware of and takes into account concerns
about the implications of imposing controls, but those concerns cannot
deter BIS from taking actions to protect U.S. national security and
foreign policy interests.
Importance of Regular Review of These Controls To Achieve the National
Security and Foreign Policy Objectives Outlined in the October 7 IFR,
and for Consistency With ECRA
Topic 10: A commenter noted that ECRA requires that any controls
imposed under section 4812, which include end-use controls, ``must be
evaluated on an ongoing basis . . . to avoid negatively affecting U.S.
leadership in the science, technology, engineering, and manufacturing
sectors, including foundational technology that is essential to
innovation.'' ECRA section 4811(3). The commenter noted that the
October 7 IFR needs to be
[[Page 73462]]
reviewed regularly. Another commenter noted that the October 7 IFR
demonstrates a significant U.S. policy shift, as articulated by U.S.
National Security Advisor Jake Sullivan, that the previous U.S.
``sliding scale approach . . . to stay only a couple of generations
ahead . . . is not the strategic environment we are in today.'' Yet,
the United States will struggle to maintain ``as large a lead as
possible'' if the government pursues a unilateral approach that
alienates allies and trading partners and restricts companies from
selling consumer technologies worldwide.
BIS response: BIS intends, consistent with all export controls
administered under the EAR, to review the controls from the October 7
IFR on a regular basis to determine if any updates are needed to make
those controls more effective. Since the October 7 IFR was announced,
BIS has been reviewing these controls, not just in response to the
public comments received, but also based on BIS's experience in
administering and enforcing the controls, as well as discussions with
allies. These considerations have resulted in the changes made to the
October 7 IFR included in this AC/S IFR and SME IFR. BIS will continue
to review these controls on an ongoing basis and make changes as
warranted, including to controls that use specified control parameters
that over time may need to be reevaluated. BIS notes that National
Security Advisor Sullivan's remarks provide an example of the
Administration previewing policy and related controls and are
responsive to other comments requesting this type of guidance.
Consistent with the policy described by National Security Adviser
Sullivan, the October 7 IFR controls resulted from the speed of the
technological advancements that could be leveraged for the most
sensitive national security activities, as well as furthering human
rights violations. The controls established in the October 7 IFR and
these rules are needed to address the current national security threats
presented by China.
Agrees With the National Security and Foreign Policy Concerns
Identified in the October 7 IFR for Why These Changes Were Needed
Topic 11: A commenter noted that monitoring the production of more
supercomputers and AI will benefit the world at large. The commenter
sees the October 7 IFR as the best option for national security and
regional stability purposes because it addresses the military use of
these computers. If these AI and supercomputers are left unmonitored,
they may fall into the wrong hands and become a threat to the world at
large.
BIS response: BIS agrees.
Topic 12: A commenter noted that given the likely importance of AI
capabilities to national security and economic prosperity, the
commenter expects significant pressure for China to stay at the
frontier of AI. The commenter noted that all viable paths for doing so
may be explored. This pressure will mount over time, as the importance
of AI technology grows and as the AI-relevant ICs produced outside of
China outpace the technology to which AI-developers in China, including
the People's Liberation Army (PLA), have access. Another commenter
noted that the October 7 IFR chip controls were implemented to prevent
human rights abuses and protect international security interests by
making it more difficult for the government of China to attain advanced
AI capabilities. This commenter noted that the use of these
supercomputers to monitor the activities of PRC citizens is
inappropriate and this is why the October 7 IFR is the best option.
BIS response: BIS acknowledges both comments and takes PRC human
rights abuses seriously. China has been transparent about its military-
civil fusion (MCF) strategy and the importance it places on advanced AI
as part of MCF. China has already demonstrated on numerous occasions
how it has been leveraging advanced technologies against its own
people. See, e.g., 84 FR 54002 (Oct. 2, 2019) (adding Xinjiang Uighur
Autonomous Region (XUAR) People's Government Public Security Bureau,
eighteen of its subordinate municipal and county bureaus, and several
other entities in China to the Entity List because they were implicated
in human rights violations and abuses in the implementation of China's
campaign of repression, mass arbitrary detention, and high-technology
surveillance against Uighurs, Kazakhs, and other members of Muslim
minority groups in the XUAR).
U.S. CHIPS Act and Sufficiency of Existing Company Compliance Programs
Topic 13: A commenter noted that the U.S. CHIPS Act will help keep
the United States in the lead for semiconductors. The U.S. CHIPS Act,
which appropriated over $52 billion to shore up the semiconductor
ecosystem in the United States, will enable continued U.S. leadership
in leading-edge semiconductors and SME, and help preserve the large
technological differential vis-[agrave]-vis China.
BIS response: The October 7 IFR was designed to address the U.S.
national security and foreign policy concerns with China over acquiring
these capabilities and their use in WMD-related applications. BIS
agrees that the U.S. CHIPS Act is important for helping to promote U.S.
to maintain its leadership in semiconductors. The most comprehensive
and effective policy both restricts key technologies from China where
needed to address national security and foreign policy concerns and
promotes U.S. and allied country technology leadership.
Topic 14: A commenter noted that companies' sophisticated export
compliance programs should mitigate the need for additional controls.
This commenter noted that many U.S. companies--as well as multinational
companies from U.S. allied countries and partners with a U.S.
presence--have longstanding, sophisticated export control compliance
programs to acquire export licenses and ensure that their products and
processes are not facilitating the technological development of items
by a sanctioned entity, military end user, or military end use.
BIS response: BIS notes that compliance programs are designed to
follow the rules as they are written. While BIS applauds efforts by
companies to conduct extensive due diligence, this does not replace the
need for regulations addressing national security and foreign policy
concerns.
China Will Obtain the Items it Needs Regardless of U.S. Controls
Topic 15: A commenter noted that research indicates that China's
military systems primarily rely on older and less sophisticated chips
made in China, on which U.S. export controls will have limited effect.
The commenter noted should China require more advanced chips for AI-
driven systems, they will likely be able to develop and produce them--
at significant cost and on a slower timeline.
BIS response: Certain PRC weapons systems may not rely on the most
advanced ICs. However, for the most advanced weapons systems such as
hypersonic missiles or for super computers that are used to make more
advanced WMD or design and produce more advanced weapons systems,
advanced ICs are critical to PRC efforts.
Topic 16: A commenter noted that restricting U.S. persons in
assisting China's advanced semiconductor manufacturing is not going to
be enough. This commenter noted that
[[Page 73463]]
some U.S. persons working in financial institutions (e.g., venture
capital and private equity) help China to invest in the semiconductor
industry and help PRC companies obtain semiconductor talent,
intellectual property, and equipment from all over the world.
BIS response: BIS shares these concerns that certain actors will
try to evade the regulations imposed through the October 7 IFR and
these rules. These concerns underpinned the October 7 IFR controls such
as the expanded ``U.S. persons'' control under Sec. 744.6, two new end
use controls under Sec. 744.23, and the two new foreign direct product
rules and expanded Entity List FDP rule under Sec. 734.9. To address
concerns around U.S. investment, the Administration issued Executive
Order 14105 that will address outbound investment from the United
States.
China and Macau Retaliation To Gain Greater Market Share for PRC
Indigenous Companies Worldwide and PRC Companies Filling the Void Left
by U.S. Companies
Topic 17: A commenter's association members expressed concern that
one unintended consequence of the October 7 IFR may be that China will
increase its production of legacy node semiconductors and flood global
markets with those products at significantly reduced prices.
BIS response: While the October 7 IFR was not intended to impact
legacy node semiconductors in China, BIS acknowledges the possibility
that these controls may generate spillover effects. The type of concern
described in the comment relate to issues to be addressed through other
authorities and forums and are outside of BIS's authorities.
Topic 18: A commenter noted that the October 7 IFR has given a
significant boost to China's own materials suppliers.
BIS response: BIS is aware that the restrictions imposed under the
October 7 IFR may give PRC indigenous providers an opportunity to try
to fill potential new voids in the market. The October 7 controls, in
particular the CCL controls, were intended to impose license
requirements on key gateway items that PRC entities would need but
which are not indigenously manufactured in China. BIS intends to
continue to monitor such developments and adjust its controls as
warranted. BIS encourages the public to provide specific information on
PRC indigenous capabilities in comments responding to this AC/S IFR and
SME IFR. See section D question 5.
ECCN 3A090
Topic 19: A commenter noted that there needs to be guidance on the
circumstances in which controls extend to components controlled under
ECCNs 4A003.b and 3A090.a. The commenter noted that ECCN 4A003.b
already controls ICs with the 4A003.b characteristics of 29 Weighted
TeraFLOPS (WT), soon to be 70 WT. In addition, 4A090 controls devices
with ICs exceeding 4800 bits x TOPS. The commenter noted that there is
no guidance as to which of these two limits is to apply to license
applications for export to China. This commenter also noted that ECCN
4A003.b (Adjusted Peak Performance (APP) exceeding 29 WT) already
covers the much higher, by an order of magnitude, 4A090.a license
requirement limit, with no guidance as to which of these limits is to
apply to license applications for export to China. The commenter notes
that these differences present inconsistencies in the EAR.
BIS response: The APP formula in ECCN 4A003 and the bits x TOPS
metric (now modified to a TPP metric) in ECCN 3A090 apply to different
commodities. ECCNs 3A090 and 4A090 control items based on the
performance of a single chip, while the APP formula in ECCN 4A003
describes aggregate performance across multiple chips. However, BIS
acknowledges that a computer or component could exceed the performance
parameters of both ECCNs 4A003.b and 4A090 or 3A090. The October 7 IFR
accounted for this possibility by applying controls to items classified
on the Commerce Control List (CCL) other than under ECCNs 4A090/3A090
that meet or exceed the 4A090/3A090 performance thresholds. This AC/S
IFR clarifies this issue by adding a .z ``items'' paragraph to ECCN
4A003 to control items that meet or exceed ECCN 4A090 specifications.
This change is intended to provide clear guidance regarding the
relationship between ECCNs 4A090 and 4A003.b and .z.
Topic 20: A commenter had a question on interpreting Technical Note
2 under ECCN 3A090. The commenter noted that the term ``bit-
manipulation operations, and/or bitwise operations'' seems susceptible
of a broad interpretation including any kind of data processing, and
questioned whether this was the intent. The commenter asked how
exporters should think about classifying a component for a router or a
switch that meets or exceeds the technical control parameters under
ECCN 3A090 but which would otherwise be classified under an ECCN in
Category 5, Part 1 or Part 2.
BIS response: The October 7 controls were not intended to apply to
telecommunications equipment or parts and components designed for
telecommunications equipment. For example, 4A090 is in Category 4,
which applies to computers. BIS would not classify a router or switch
in Category 4. Therefore, a router or switch that meets the control
parameters of 4A090 would not be subject to these controls. Category 5
Part 2 could capture some of these items, because that category also
applies to general purpose computing equipment with encryption
functionality.
Topic 21: A commenter noted that with respect to the ``aggregate
bidirectional transfer rate'' provision of 3A090, BIS should
incorporate either an additional technical note in the CCL under 3A090,
or a definition of ``aggregate bidirectional transfer rate'' with a
specific explanation of how this rate is calculated over all inputs and
outputs in part 772.
BIS response: BIS retains this parameter in the revised ECCN 3A090
included in this AC/S IFR. For greater clarity, including for providing
greater clarity on how to apply the criterion of ``aggregate
bidirectional transfer rate,'' the AC/S IFR revises the Technical Notes
to 3A090 by removing the five technical notes and replacing those with
four technical notes. Most importantly, this AC/S IFR replaces bits x
TOPS with `Total processing performance' (`TPP') values and defines
objective criteria that can be used to calculate the TPP value. See
section C.1. below for additional information on the revision to these
technical notes.
Topic 22: A commenter noted that for ECCN 3A090 and programmable
ICs, there is no inherent communications or calculations capability.
The commenter requested that BIS issue guidance on how to (1) address
this complex calculation/interpretation theoretical performance
situation, perhaps via a practical manual, and (2) leverage metrics
from other programmable device ECCNs that are already on the CCL, such
as under 3A001.a.7, 3A991.d, or others.
BIS response: The rewrite of ECCN 3A090 included in this rule
addresses this comment. BIS, in consultation with its Information
Systems Technical Advisory Committee (ISTAC), considered compiling a
practitioner's guide but ultimately decided that changing the text of
ECCN 3A090 to simplify the calculation was a better approach.
Topic 23: A commenter noted that performance parameter calculations
[[Page 73464]]
stated in ECCN 3A090 are unclear and requested further guidance, such
as a formula or additional details regarding the types of performance
parameters that need to be included in the calculations.
BIS response: BIS agrees. This AC/S IFR includes a revision to ECCN
3A090 to adopt alternative control parameters to address the concerns
identified by the commenters.
Topic 24: A commenter noted that guidance needs to be provided on
how to calculate the 3A090 TOPS Performance Metric. ECCN 3A090
introduces a new performance metric, TOPS (trillions of operations per
second). The commenter noted that undertaking a TOPS determination is
difficult because the definition of TOPS relies on the term
``operations.'' The word ``operations'' is not defined in the October 7
IFR and does not have a consistent industry definition.
BIS response: BIS agrees that there is ambiguity in the TOPS
calculation. For this reason, BIS has amended the text of ECCN 3A090.
This AC/S IFR replaces bits x TOPS with `Total processing performance'
(`TPP') values and defines objective criteria that can be used to
calculate the TPP value in ECCN 3A090. BIS worked closely with its
ISTAC in developing this updated technical note.
ECCN 4A090
Topic 25: A commenter noted that ECCN 4A090 creates a ``see
through'' rule similar to something found in the State Department's
International Traffic in Arms Regulations (ITAR) that is too broad for
a civilian end item that happens to include even a single IC classified
as 3A090. This commenter noted that consistent with Sec. 770.2(b)(1),
computers and electronic assemblies that incorporate a single IC
classified as 3A090 should be excluded from the 4A090 control if the
physical incorporation is not used to evade the requirement for a
license.
BIS response: BIS does not agree. The structure of ECCN 4A090.a is
needed to ensure that incorporation of ECCN 3A090 items into higher
level items is not conducted to circumvent the intent of the 3A090
controls. BIS also notes that this is not a ``see through'' rule
because the high level computer, ``electronic assembly'' or
``component'' is still classified under 4A090. The incorporation of the
3A090 commodity changes the technical characteristics of those
referenced items, which leads to control under 4A090 instead of other
CCL entries. This structure is not new to Category 4. To calculate the
APP value for a 4A994 computer, an exporter has to determine the APP
value of the CPU. Exporters must apply the same analysis to 4A090.
Topic 26: A commenter requested BIS should confirm that an
appliance would not be considered a ``computer'' for purposes of ECCN
4A090. BIS also should confirm that a printed circuit board specially
designed for such appliance would not be considered an ``electronic
assembly'' for purposes of ECCN 4A090.
BIS response: For control under ECCN 4A090, an item must be a
general purpose computer. For example, BIS does not classify network
security appliances or DNA sequencing appliances in Category 4. When
evaluating such systems, exporters should determine the classification
of the item without regard to whether it contains a 3A090 IC or has
encryption functionality. If the appliance would be controlled in
Category 4, then 4A090 controls would likely apply.
Topic 27: A commenter noted the ECCN 4E001 has an NS control that
is likely not intended and should be corrected. This technology in ECCN
4E001 is now subject to both RS and NS1 controls, even though the
discussion in the October 7 IFR focuses only on RS controls. The
application of NS1 controls creates new authorization requirements
(including deemed export requirements) for all countries except Canada.
The commenter requests that BIS revise ECCN 4E001 to exclude technology
for commodities controlled by 4A090 or software specified by 4D090 from
the NS1 controls.
BIS response: BIS agrees the NS control was not intended. This AC/S
IFR makes this correction.
Topic 28: A commenter requested BIS revise ECCN 4E001 to remove
control of ``use'' technology for 4A090. The commenter noted that this
appears to be over-controlled and beyond the intent of the October 7
IFR. The October 7 IFR imposes controls on the technology for the
``development,'' ``production,'' and ``use'' of 4A090 items controlled
under 4E001, but only imposes controls on the ``development'' or
``production'' of 3A090 items controlled under 3E001--but not the
``use'' technology of 3A090. This results in the technology to ``use''
a 4A090 computer part (which happens to have a 3A090 IC onboard) having
higher controls than the ``use'' technology of the 3A090 IC itself. The
commenter noted that this approach appears to be inconsistent as
applied to other, more-controlled items.
BIS response: BIS agrees. This AC/S IFR revises ECCN 4E001.a to add
an exclusion for technology for the ``use'' of a 4A003 computer.
Topic 29: A commenter requests that BIS issue a FAQ or regulatory
clarification on the classification of ECCN 4E001 technology when 3A090
or 4A090 are applicable. The commenter noted what it believes is a
growing body of ambiguity that stems from the ``see through'' nature of
3A090 items incorporated into the higher-level 4A090 items and the
impacts that has on associated technology. Exporters are in a quandary
reading 4E001, which controls the technology for the ``development,''
``production,'' or ``use'' of 4A090.
BIS response: Under ECCN 4E001 for 4A090 commodities, BIS controls
technology that is ``required'' for the computer achieving or exceeding
the 3A090 parameters. In some cases, this may occur through a
relatively unsophisticated step, such as inserting a card in a slot in
the computer, which BIS would consider to be ``development'' or
``production'' and as noted in the BIS response to Topic 28, this AC/S
IFR adds an exclusion to 4E001 for ``use'' Technology for 4A090. Other
instances may require more technical know-how that may rise to the
level of controlled 4E001 technology. The application ultimately turns
on an analysis of what is ``required'' for exceeding the control level.
BIS intends to issue a new FAQ to address this topic more broadly.
Relationship of New Controls to Category 5--Part 2, as it Relates to
``or Identified Elsewhere on the CCL That Meet or Exceed the
Performance Parameters of ECCNs 3A090 or 4A090, Consistent With Sec.
734.9(h)(1)(i)(B)(1) and (h)(2)(ii) of the EAR'' Under Sec.
742.6(a)(6)
Topic 30: Several commenters raised concerns with the October 7 IFR
under Sec. 742.6(a)(6), along with other provisions in the October 7
IFR, e.g., Sec. 734.9(h)(1)(i)(B)(1) and (h)(2)(ii), using the
criteria ``or identified elsewhere on the CCL that meet or exceed the
performance parameters of ECCNs 3A090 or 4A090.'' These commenters had
concerns that this approach was unprecedented under the EAR in several
respects and created ambiguity regarding the correct classification,
such as whether an item should be classified under 3A090 or 4A090 or
under an encryption ECCN, e.g., 5A002 or 5A992. These commenters
emphasized that company compliance systems were not set up to address
this type of dual classification complexity and that mistakes in
classification would likely occur and significant questions would be
raised for managing export clearance. These commenters requested BIS to
[[Page 73465]]
adopt an alternative approach that would be more in line with how items
are typically classified on the CCL by either creating additional ECCNs
to control these items that would otherwise meet or exceed the
performance parameters of ECCN 3A090 or 4A090 or to add under the
relevant additional ECCNs an ``items'' level paragraph to identify the
items that would meet or exceed the performance parameters of ECCN
3A090 or 4A090.
BIS response: BIS is changing this aspect of the October 7 IFR. BIS
recognizes that certain aspects of the criteria used in the October 7
IFR deviated from standard EAR practices, e.g., imposing an RS license
requirement on certain ECCNs that did not contain an RS control.
However, BIS did not intend to change underlying classifications. For
example, an ECCN 5A002 commodity that met or exceeded the control
parameters in 3A090 or 4A090, would have still been classified under
ECCN 5A002, but would require a license under Sec. 742.6(a)(6). BIS
agrees with the commenters that because of the special RS license
requirements, that effectively would mean exporters, reexporters, and
transferors would have to identify and treat that 5A002 commodity that
met or exceeded the control parameters in 3A090 or 4A090 differently.
BIS also agrees with the concerns raised by these commenters that it
would create significant burdens and possibly confusion for exporters,
reexporters, or transferors.
To address this issue, this AC/S IFR removes the criteria of
concern and instead identifies the nine ECCNs on the CCL that BIS
determined meet or exceed the control parameters in ECCNs 3A090 or
4A090. As a result, when classifying an item, review can focus on these
nine ECCNs, which addresses the commenter's concerns. In addition, BIS
agrees that creating a distinct classification for ``items'' in each of
these ECCNs under a new .z ``items'' paragraph is warranted. This AC/S
IFR also adds an RS control for these nine ECCNs, as well as adding
Related Controls to cross reference 3A090, 4A090, 3A991.p, and 4A994.l.
This rule provides additional guidance for export clearance of these .z
items, as well as 3A090 and 4A090 to make it easier for exporters and
recipients outside the United States to identify these items, and for
the U.S. Government to have greater transparency into what items are
being exported. This AC/S IFR also revises Sec. Sec.
734.9(h)(1)(i)(B)(1) and (h)(2)(ii) and 742.6(a)(6) to remove the
criterion and add in their place the .z ECCNs.
Additional discussion about the addition of the .z paragraphs can
be found in section C.3 of this rule.
Additional Changes for ECCNs in the October 7 IFR
Topic 31: A commenter requested BIS change new ECCNs from 000
series to 900 series. This commenter noted that because they are U.S.
unilateral controls, BIS should change the ECCN numbers from 3A090,
3B090, 4A090, 4D990 to 3A990, 3B990, 4A990, 4D990. This same commenter
requested deleting the term ``specially designed'' in various places as
used in the ECCNs included in the October 7 IFR and replacing the use
of the term with other technical control parameters. This commenter
referenced documents from the Coordinating Committee for Multilateral
Export Controls (COCOM), including COCOM 1951 Administrative Principle
4, in supporting their position on the removal of ``specially
designed'' from these ECCNs.
BIS response: BIS does not agree. These items will be submitted to
the Wassenaar Arrangement for adoption as multilateral controls, so it
is appropriate that they are placed in the ``000'' series. BIS also
does not agree on the removal of ``specially designed.'' The term
``specially designed'' is needed in these ECCNs to define the intended
scope of the control. In addition, BIS notes COCOM has been defunct
since March 31, 1994.
Topic 32: A commenter noted that the WTOPs parameters need further
study in ECCNs 3A991.p, 4A003, and 4A994.b and .l.
BIS response: BIS does not see an inconsistency between ECCN
4A994.b and 4A994.l. ECCN 4A994.b captures computers using 64-bit or
greater processors, and 4A994.l captures processors with lower bit
rates. BIS agrees that some items could be captured under both 4A994.b
and 4A994.l but notes that there are computers that fall under 4A994.l
but not 4A994.b.
License Exception Eligibility for New Advanced Computing and
Semiconductor Manufacturing Items Under Sec. 740.2(a)(9)
Topic 33: A commenter noted the October 7 IFR's limitations on the
use of License Exception ENC are difficult to implement. The commenter
noted that many of the items affected were already eligible for License
Exception ENC, so removing license exception eligibility will be a
challenge for items ``listed elsewhere in the CCL which meet or exceed
the performance parameters of ECCN 3A090 or 4A090.'' This commenter
requested that BIS consider amending the rule to create ECCNs 5x090 and
5x092 or additional items paragraphs in existing ECCNs for 5x002 and
5x992 items that meet or exceed the performance parameters of ECCN
3A090 or 4A090. This would allow industry to set up more manageable
rules for their electronic inventory control and shipping systems.
BIS response: BIS agrees and addressed this with the addition of .z
``items'' paragraphs in nine ECCNs on the CCL, as described under the
BIS response to Topic 30.
Topic 34: A commenter requested confirmation that License Exception
Servicing and Replacement of parts and equipment (RPL) covers transfers
(in-country), or in the alternative that Sec. 740.2(a)(9) be expanded
to authorize License Exception Temporary imports, exports, reexports,
and transfers (in-country) (TMP). This commenter noted that the
exclusion of ``transfer (in-country)'' from the scope of Sec. 740.10
suggests that License Exception RPL would not cover in-country
movements that constitute a transfer (in-country) as defined in Sec.
734.16. Alternatively, this commenter requested that BIS expand the
scope of license exceptions available for Sec. 740.2(a)(9) to include
License Exception TMP, specifically Sec. 740.9(a)(6) which authorizes
exports, reexports, and transfers (in-country) for inspection, test,
calibration, and repair.
BIS response: Section 740.1(a) already specifies that any license
exception authorizing reexports also authorizes in-country transfers,
provided the terms and conditions for reexports under that license
exception are met. This includes License Exception RPL. This SME IFR
expands the number of license exceptions available for advanced compute
items in Sec. 740.2(a)(9)(ii) by adding License Exception TMP under
Sec. 740.9(a)(6) because this authorization is intended to work with
License Exception RPL.
Level of Complexity of New FDP Rules
Topic 35: A commenter noted that the new FDP rules create
significant complexity when manufacturing products outside the United
States using U.S.-origin technology, software, tools, or equipment. The
commenter noted that with the three new FDP rules, a non-U.S.
manufacturer using U.S. technology or software must now know or have
additional information about a number of things, including whether the
item: (1) involves one of thirty-eight new ``Footnote 4'' companies on
the Entity List; (2) is or contains an advanced IC that meets ECCN
3A090 or 4A090, or is their related software or
[[Page 73466]]
technology, and is ultimately destined for Macau or a destination
specified in Country Group D:5; (3) will ultimately be used in a
``supercomputer'' in Macau or a destination specified in Country Group
D:5; or (4) will be used in the development or production of an item
that will ultimately be used in a ``supercomputer'' in Macau or a
destination specified in Country Group D:5. Another commenter noted
that because of the complexity there will likely be some non-compliance
simply because foreign companies cannot understand or do not have
enough information to make proper determinations. This commenter noted
that this complexity will make compliance with the EAR difficult for
non-U.S. manufacturers, many of whom will not comply, not out of
maliciousness, but simple ignorance or misunderstanding.
BIS response: BIS agrees that with the addition of new FDP rules to
the EAR, foreign manufacturers have increased compliance burdens. In
adding new FDP rules, including the two new FDP rules and expanded
Entity List FDP rule added in the October 7 IFR, BIS has tried to be as
focused as possible. Accordingly, each FDP rule has its own criteria
that needs to be reviewed. Each FDP rule essentially poses a series of
questions or criteria; if one of the required questions or criteria is
determined to be inapplicable, that FDP rule can be ruled out as
governing the transaction. By taking this approach, many of the FDP
rules can be ruled out fairly quickly. However, if the questions as to
whether the criteria apply are answered in the affirmative, additional
questions need to be asked based on the criteria of the respective FDP
rule being reviewed to ultimately determine whether the foreign made
direct product is subject to the EAR. BIS included a model certificate
in the October 7 IFR to assist people in applying the FDP rules
included in the October 7 IFR. In this AC/S IFR, the model certificate
is broadened for use with all the FDP rules to ease the compliance
burden on foreign manufacturers. BIS has been conducting a robust
outreach program and updating its outreach materials on the BIS website
to address these types of issues. As noted above, the basic approach to
applying the FDP rules has been in the EAR for many years and has not
changed with respect to the need to answer a series of questions. What
is new is some of the additional criteria for the new FDP rules, in
particular the end user and end use-based criteria included in some of
the FDP rules. Once these additional criteria become familiar to
foreign manufacturers and incorporated into compliance programs, these
concerns should be reduced. BIS will conduct outreach on this
rulemaking to assist exporters as they develop experience with the new
controls.
Topic 36: A commenter noted that the FDP rules capturing least
sensitive items will lead to designing out U.S.-origin content.
Expanding the U.S. export control jurisdiction to less sensitive items
also drives foreign partners away from U.S. technology, software, and
tool suppliers, as those are the basis on which BIS hangs its expanded
jurisdiction. The commenter requested that the China-focused FDP rules
be narrowed to apply only to specific products that are listed on the
CCL with a license requirement to China, and should never apply to
EAR99 items or Anti-Terrorism (AT)-only controlled items.
BIS response: BIS does not agree that the scope of these FDP rules
should be further narrowed. BIS calibrated the scope of the commodities
controlled based on the current national security and foreign policy
concerns. Because many of these lower-level items may be technology
level agnostic, it is still warranted to keep them within the product
scope of the FDP rules.
Clarify Relationship Between FDP Rules and Other EAR License
Requirements
Topic 37: A commenter requested BIS clarify whether reexports or
exports from abroad of FDP items also must consider other EAR license
requirements in parts 742, 744, and 746.
BIS response: For a foreign-made product that is located outside of
the United States to be subject to the EAR, the foreign made product
would need to meet the criteria under one or more of the FDP rules
under Sec. 734.9 or be subject to the EAR because it exceeds the
applicable de minimis threshold. If the foreign-made item is not
subject to the EAR, then none of the other EAR license requirements
would be applicable. However, if the export from abroad or reexport of
the foreign-made item was subject to the EAR, then the other EAR
license requirements would need to also be taken into account. Because
the export from abroad or reexport would already require a license, the
impact of those other license requirements would primarily be
additional license review policies that may be applicable.
Need To Continuously Monitor the FDP Rules and revise license review
Policies as Needed
Topic 38: A commenter noted that BIS needs to continuously monitor
the effectiveness of the FDP rules, which are unilateral. The commenter
noted that if BIS cannot succeed at getting allies and partners to
agree to substantively similar controls, BIS should adopt a temporary
licensing policy that would authorize the provision of such services
and exports by U.S. persons for civil applications and if not otherwise
prohibited by the EAR and readily available from non-U.S. providers, in
both quantity and quality, as substitutes.
BIS response: BIS is continuously reviewing the FDP rules and will
make any appropriate changes as warranted based on activity involving
the adoption of multilateral and/or effective plurilateral controls, as
well as trends BIS may be seeing or hearing about the designing out of
U.S.-origin content.
Topic 39: One commenter raised issues related to the legality of
the amendments made in the FDP rule provisions.
BIS response: BIS has determined that these changes are consistent
with ECRA.
Topic 40: A commenter asked if a foreign-made item not otherwise
subject to the EAR is nonetheless subject to the EAR under the Entity
List FDP rule (Sec. 734.9(e)(2)) if it is shipped by an unlisted
entity to another unlisted entity for incorporation into a commodity
when the shipper knows all other components for the commodity had been
shipped by a Footnote 4 entity, but the foreign-made item will not be
incorporated into, or used to produce or develop, any commodity
produced, purchased or ordered by a listed entity. This same commenter
asked whether the answer would change if a Footnote 4 entity is a
shareholder, or if a Footnote 4 entity is a shareholder in the third-
party assembler/seller. Another commenter asked whether a Footnote 4
entity that profits from a transaction by and among unlisted entities,
but has no other role or involvement, is a party to the transaction
under Sec. 734.9(e)(2)(ii)(B).
BIS response: The answer to these types of scenarios would be fact-
specific. While the Footnote 4 entity described in these scenarios does
not necessarily fall under one of the illustrative examples of parties
to the transaction under Sec. 734.9(e)(2)(ii)(B), additional analysis
would be needed to determine whether the Footnote 4 entity was actually
a party to the transaction. For example, if the items will ultimately
be going to the Footnote 4 entity or ultimately for the Footnote 4
entity's use or if profits were obtained by the Footnote 4 entity
acting as a purchaser, or intermediate or ultimate consignee, then the
Footnote 4 entity would be considered a party to the transaction. In
scenarios where a person is not sure
[[Page 73467]]
whether the Footnote 4 entity would be considered a party to a
transaction, they may contact BIS to request additional guidance by
identifying all of the relevant information that they have regarding
the involvement of that party in the transaction.
Topic 41: A commenter asked whether BIS will consider providing
guidance as to what other activities may constitute a Footnote 4
entity's being a ``party'' to the transaction for purposes of the
Entity List FDP rule. We understand that the phrase ``e.g., as a
`purchaser,' `intermediate consignee,' `ultimate consignee,' or `end-
user,' '' as used in Sec. 734.9(e)(2)(ii)(B), signals that the list of
referenced parties is not exhaustive. However, the use of ``e.g.''
creates significant compliance uncertainty.
BIS response: BIS confirms that this commenter is correct that the
`e.g.' signifies that what follows is merely an illustrative list of
parties to the transaction. If an exporter, reexporter, or transferor
is determining whether an additional party that does not fill the role
of one of the illustrative parties identified, but otherwise appears to
be a party to the transaction, is a party to the transaction, they may
submit an advisory opinion request to BIS in which they describe the
role of that other party. BIS will advise if that party is considered a
party to the transaction.
Advanced Computing FDP Rule--Sec. 734.9(h)
Topic 42: A commenter requested BIS clarify the relationship
between Sec. 734.9(h) and Sec. 742.6 for ECCN 5A002 and License
Exception ENC. This commenter noted that the EAR should in the Advanced
Computing FDP, reference the license requirements under Sec. 742.15
Encryption items (EI) controls because this is important for
determining which additional EAR restrictions may be applicable. For
example, Sec. 740.2 restrictions may restrict the use of License
Exception ENC.
BIS response: This AC/S IFR adds .z `items' paragraphs to nine
ECCNs, including to ECCN 5A002.z and makes conforming changes to add
these .z ECCNs, such as 5A002.z, to Sec. 734.9(h)(1)(i)(B)(2) or
(h)(1)(ii)(B)(2), which is also responsive to this comment.
Topic 43: A commenter noted that the new Sec. 734.9(h) Advanced
computing FDP rule is not needed because it is already covered by pre-
existing Sec. 734.9(b) National Security FDP rule.
BIS response: BIS does not agree. There is some cross over between
these two FDP rules, but the Advanced Computing FDP rule extends to
certain items that the National Security FDP rule does not, so the
Advanced Computing FDP rule is necessary to address the national
security and foreign policy concerns included in the October 7 IFR.
Narrow the Scope of Sec. 744.23 Fabrication Controls
Topic 44: A commenter noted that Sec. 744.23 should only apply to
the direct end use of an item. This commenter noted as an example that
networking equipment used for the enterprise network of a semiconductor
or supercomputer manufacturer is not a direct use in the
``development,'' ``production,'' ``use,'' operation, installation
(including on-site installation), maintenance (checking), repair,
overhaul, or refurbishing of a ``supercomputer'' or IC as opposed to
design software, materials, or test equipment and should be excluded
from the license requirement.
BIS response: BIS agrees that if the item is not used in the
``development,'' ``production,'' operation, installation (including on-
site installation), maintenance (checking), repair, overhaul, or
refurbishing of a ``supercomputer,'' IC, or SME, as applicable, the
item would not be within the scope of Sec. 744.23. However, the
exporter would need to analyze the relationship between the activities
involving the enterprise network and any prohibited end uses to confirm
no license is required.
Topic 45: A commenter noted that resellers of supercomputers should
not meet the definition of a company that is involved in the
``development,'' ``production,'' ``use,'' operation, installation
(including on-site installation), maintenance (checking), repair,
overhaul, or refurbishing of a ``supercomputer'' under Sec. 744.23.
BIS response: BIS agrees and confirms in this AC/S IFR that the
mere act of selling a ``supercomputer'' is not within the prohibited
scope of Sec. 744.23, but selling a ``supercomputer'' with knowledge
that a violation of Sec. 744.23 has occurred, is about to occur, or is
intended to occur in connection with an item subject to the EAR could
be a violation of Sec. 764.2(e) of the EAR.
As-a-Service (IaaS) Solutions and the October 7 Controls
Topic 46: A commenter noted that PRC ``supercomputer'' controls may
be bypassed by as-a-Service (IaaS) solutions. The commenter noted that
the October 7 IFR limits engagements towards China ``supercomputer''
activity in China and may preclude some high-performance compute
capability to China. With the availability of IaaS solutions, however,
China compute workloads can be offloaded to computers located in other
states, possibly including those in the United States. This commenter
noted that without a multilateral end use/end user control, non-U.S.
states, even Wassenaar Arrangement partners, may give China
computational access to their equivalent ``supercomputers'' via an IaaS
arrangement. The commenter noted that while Sec. 744.6 provides
controls on U.S. persons for various situations involving PRC
semiconductor fabrication, there does not appear to be a parallel U.S.
person control for supercomputing.
This comment requests that BIS clarify intent regarding
supercomputing IaaS, particularly in light of previous Advisory
Opinions on computing IaaS, including January 2009: Application of EAR
to Grid and Cloud Computing Services, and January 2011: Cloud Computing
and Deemed Exports.
BIS response: BIS is also concerned regarding the potential for
China to use IaaS solutions to undermine the effectiveness of the
October 7 IFR controls and continues to evaluate how it may approach
this through a regulatory response. See section D question 1 of this
rule.
Information Needed From Other Parties To Comply With These Controls
Topic 47: A commenter noted that the burden to detect upgrades of
PRC computers into ``supercomputers'' is difficult because it is a
fluid moving target and that a PRC computer installation that does not
meet the threshold at one point may be quietly upgraded by the operator
(using 3rd party items) to exceed the ``supercomputer'' threshold
later. Exporters, reexporters, and transferors may not be able to rely
on static End Use Statements or similar certifications, due to this
``moving target'' characteristic and this may require exporters to
obtain End Use Statements to all PRC computer installations (regardless
of size) for every transaction, which presents a high burden. The
commenter notes this is a situation in which publishing a list of known
Sec. 744.23 supercomputer targets will result in compliance that is
more effective, more consistent, and less burdensome.
BIS response: BIS intends to continue to identify ``supercomputer''
related entities on the Entity List. BIS started this process in the
October 7 IFR and will continue adding more ``supercomputer'' entities
as they are
[[Page 73468]]
identified and approved for addition by the ERC to the Entity List. BIS
emphasizes that Sec. 744.23 and the expanded Sec. 744.6 both contain
``knowledge'' provisions. The compliance expectation is that exporters,
reexporters, and transferors will evaluate the information coming to
them in the normal course of business. Obtaining end-user statements is
a good compliance practice that BIS encourages, but BIS does not expect
that exporters, reexporters, or transferors will obtain these from
every computer user in China, so exporters, reexporters, and
transferors should look at all information they have to determine when
additional due diligence may be warranted.
Topic 48: A commenter requested that BIS confirm that the due
diligence specified in BIS FAQ, IV.A2, ``Appropriate due diligence
includes review of publicly available information, capability of items
to be provided or serviced, proprietary market data, and end-use
statements'' constitutes a reasonable level of due diligence in this
context, as well.
BIS response: BIS confirms here that the same type of due diligence
specified in BIS FAQ IV.A2 that applies for Sec. 744.6 also applies to
Sec. 744.23.
Permit License Exception Eligibility
Topic 49: A commenter requested BIS revise Sec. 744.23(c) to
permit the use of license exceptions specified in Sec. 740.2(a)(9) for
items lawfully exported or reexported prior to October 7, 2022.
BIS response: BIS does not agree. Not including License Exceptions
RPL and TMP in Sec. 744.23(c) will make the controls more effective
because of the importance of parts and components to continued
operation of items, which may have been received by indigenous
companies in China without a required license prior to the October 7
IFR. Based on the national security and foreign policy concerns
identified in the October 7 IFR, BIS would no longer support the use of
these EAR items in China.
Other Requested Clarifications to Sec. 744.23
Topic 50: A commenter requested BIS confirm that standalone data
storage equipment would not be considered a ``component'' subject to
Sec. 744.23(a)(1)(ii), which has been redesignated as paragraph
(a)(1)(ii)(B) in this SME IFR. This commenter noted that the data
storage equipment is self-contained and not physically incorporated
into a computer (e.g., it consists of a storage controller and an array
of storage drives in a separate enclosure).
BIS response: BIS does not agree. BIS does not consider standalone
data storage equipment classified as ECCN 5A002 to be controlled under
Sec. 744.23(a)(1)(ii), now redesignated as (a)(1)(ii)(B), because
standalone storage equipment is not a computer or component of a
computer. Standalone data storage equipment classified as ECCN 5A002 is
considered a ``component'' for purposes of Sec. 744.23(a)(1)(ii)(B).
This SME IFR clarifies this point by adding ``the incorporation into,
or the ``development'' or ``production'' of any ``component'' or
``equipment'' that will be used in, a ``supercomputer'' '' to make it
clear that Sec. 744.23(a)(1)(ii)(B) is intended to cover
``components'' of a separate computer going into a supercomputer, e.g.,
a chip going into a server which is going into a supercomputer.
Topic 51: A commenter requested that BIS clarify how broadly
exporters may interpret the term ``used'' in determining the product
scope under Sec. 744.23(a)(1), which has been redesignated as
paragraph (a)(1)(i) in this SME IFR. This commenter seeks confirmation
that their understanding is correct that any product that does not
contribute to the ``development'' and ``production'' of the product
would fall outside the scope of these controls. For example, storage
devices and networking devices may be present in a facility, but they
are not ``used'' for the specified end use, and therefore would not be
subject to control under this provision and can be exported without a
license. Other examples include so-called Facility Monitoring and
Control Systems (e.g., HVAC, clean room temperature, and chillers,
pumps and boilers, as well as so-called voltage sag correctors, which
provide protection for electric equipment from voltage variations).
BIS response: Section 744.23(a) specifies that the license
requirements apply when the item will be used in an end use described
under paragraph (a)(2)(i) or (ii) of this section, which has been
redesignated as paragraph (a)(1)(ii)(A) and (B) in this SME IFR. The
terms ``development'' and ``production'' encompass all of the items
used in those activities, so BIS takes an expansive view of what items
would be caught under those terms.
Topic 52: A commenter asked BIS to confirm whether the scope and
reach of Sec. 744.23(a)(2)(iii), which has been redesignated as
paragraph (a)(2)(i) in this SME IFR, apply equally to application of
the controls over the shipment from outside the United States of
foreign-origin items not subject to the EAR under the requirements of
Sec. 744.6(c)(2)(i) and (ii).
BIS response: For purposes of the ``U.S. person'' prohibition under
Sec. 744.6(c)(2)(i) and (ii), BIS will attempt to maintain consistent
approaches in interpreting Sec. Sec. 744.6(c)(2) and 744.23. BIS's
response to Topic 61 on Sec. 744.23, which lays out how BIS would
interpret Sec. 744.6(c)(2) for a similar fact pattern involving the
U.S. person control.
Topic 53: A commenter requested BIS clarify whether the controls
extend to projected future activity not yet started under Sec.
744.23(a)(2)(iii) and (iv), which have been redesignated as paragraphs
(a)(2)(i) and (ii) in this SME IFR. The commenter noted that there is
confusion regarding the proper tense of the rules and asks whether the
language as written includes aspirational production and development in
the future. BIS should clarify whether ``fabricates'' applies in the
context of a fabrication facility that has plans for future advanced
node production or whether the rule applies to current advanced node
production only.
BIS response: Aspirational development or production in the future
would raise a red flag that would require additional due diligence to
determine whether a license is required under Sec. 744.23(a)(2)(iii)
and (iv), which have been redesignated as paragraphs (a)(2)(i) and (ii)
in this SME IFR. This AC/S IFR adds a new red flag to provide
additional compliance guidance on these types of scenarios.
Entity List Changes for Footnote 4 Entities
Topic 54: A commenter noted that it is not clear what specific
activities involving expanded Entity List (Footnote 4) entities may be
prohibited, assuming the product scope is met, especially if the
activity does not involve providing any products to the Footnote 4
entity and the entity is not a party to the transaction between the
parties buying and providing the foreign-made item.
BIS response: The Entity List license requirements apply to
exports, reexports, and transfers (in-country) that are subject to the
EAR when a listed entity is a party to the transaction. This is also
the scope of the license requirement for the entities on the Entity
List with a footnote 4 designation, but because of the footnote 4
designation, the license requirement specified in Sec.
744.11(a)(2)(ii) (Footnote 4 entities) is also applicable, which
specifies a license is required for reexport, export from abroad, or
transfer
[[Page 73469]]
(in-country) of any foreign-produced item subject to the EAR pursuant
to Sec. 734.9(e)(2) of the EAR when an entity designated with footnote
4 on the Entity List in supp. no. 4 to this part is a party to the
transaction, or that will be used in the ``development'' or
``production'' of any ``part,'' ``component,'' or ``equipment''
produced, purchased, or ordered by any such entity. Section
744.11(a)(2)(ii) also includes a cross reference to Sec. 744.23 for
additional license requirements that may apply to these entities, so
the Sec. 744.23 license requirements also need to be taken into
account.
Topic 55: A commenter noted that Sec. 744.11 states that a license
is required for the incorporation of a foreign-made item into any
``part,'' ``component,'' or ``equipment,'' produced by a Footnote 4
entity. However, BIS does not specify if a license is needed for a
scenario in which a third-party procures parts, components, or
equipment made by a Footnote 4 entity and incorporates a foreign made
item into Footnote 4's product, and the procedure is not done on behalf
of the Footnote 4 entity, nor will the final product be destined for a
Footnote 4 entity. The commenter requests BIS release additional
clarification on whether license requirements apply to sales to third
parties assembling a mixture of foreign-made and Footnote 4 entity
components that are not destined for a footnote 4 entity.
BIS response: The license requirement under Sec. 744.11(a)(2)(ii)
extends to items that will be used in the ``development'' or
``production'' of any ``part,'' ``component,'' or ``equipment''
produced by any such entity. Therefore, in a scenario in which a third-
party procures items produced by a Footnote 4 entity and adds to it
using a foreign-made item, the license requirements would still apply
in that scenario to that foreign-made item because even if the Footnote
4 entity is not subsequently receiving the items or receiving
compensation from the third-party that used its item, the further
processing using the foreign-made item would be part of the larger
``production'' process of the Footnote 4 entity.
Topic 56: A commenter requested BIS revise the 28 Entity List
footnote entries to address an inconsistency in the license requirement
by inserting ``for additional license requirements for Foreign-Direct
Product)'' after ``(See Sec. 734.9(e) and 744.11 of the EAR).''
BIS response: BIS does not agree that a change needs to be added to
these entities. The Footnote 4 text provides additional context on the
meaning and scope of this parenthetical phrase included in the 28
entities.
Requested Changes or Clarifications to ``Supercomputers'' Definition in
Sec. 772.1
Topic 57: A commenter requested BIS clarify what is intended by
closely coupled compute cores in Note 2 of the ``supercomputers''
definition. Specifically, the commenter asks BIS to clarify whether
``closely coupled compute cores'' refers to a system in which all
hardware and software components are linked together and dependent on
one another and whether the type of interconnect is relevant to this
analysis.
BIS response: Note 2 of the ``supercomputer'' definition is meant
to provide a general statement of scope of a typical supercomputer. It
is not intended to impose additional requirements beyond the main
definition. By using the term ``closely coupled compute cores,'' BIS
intended to note that supercomputers typically have thousands of cores
working in parallel in the same location and connected by a high-speed
interconnect such as Infiniband or Ethernet. BIS also intended to make
clear that computers that are connected together through the internet
over long distances are not the type of computer that would meet the
definition of ``supercomputer.''
Topic 58: A commenter requested that BIS identify the items of real
concern regarding the ``supercomputer'' end use. Hitting the threshold
of ``supercomputer'' is not difficult, and when triggered under the
October 7 IFR, even items included in 5A992 will be prohibited. The
commenter noted that could prohibit even a standard laptop from being
shipped if it is somehow being ``used'' in a supercomputer.
BIS response: BIS does not agree that the area of concern for
supercomputers was not adequately identified in the October 7 IFR and
the definition of ``supercomputer'' in Sec. 772.1. The definition
includes clear technical parameters for the types of supercomputers
that are of concern. Specifically, a computing ``system'' having a
collective maximum theoretical compute capacity of 100 or more double-
precision (64-bit) petaflops or 200 or more single-precision (32-bit)
petaflops within a 41,600 ft\3\ or smaller envelope. The definition
includes Note 1 and 2 to further clarify the types of computers of
concern. The preamble of the October 7 IFR identified the national
security and foreign policy concerns associated with a computer system
that can operate at these levels.
Requested Changes or Clarifications to Other Definitions
Topic 59: A commenter noted that the definition of ``transfer (in-
country)'' should not cover in-country movements to effectuate repair
services. This commenter noted that in considering whether an in-
country movement constitutes a change in end user, this commenter
believes that an entity performing repairs or otherwise servicing an
item is not an ``end user'' as defined in part 772 of the EAR.
Specifically, the repair/service company is not the party that
ultimately uses the item, but is instead taking an action on behalf of
the user and specifically for the purpose of returning the repaired
item to the user. As a service/repair company does not fall within the
scope of an end user under the EAR, temporary in-country movements to
or from repair/service companies should not constitute a change in end
user.
BIS response: This commenter's understanding of the scope of
transfer (in-country) is not correct and is inconsistent with long-
standing agency interpretation of the scope of transfer (in-country).
The person that receives the item is changing the end use of the item
by using the item for a repair or servicing of the item, or, in the
case of destruction, for destroying the item. The definition of end
user includes the phrase ``ultimately uses the item,'' but does not
specify that the item needs to be used for its intended end use.
Someone repairing or servicing an item is using the item for a
different purpose. Someone that is destroying an item is using the item
for a specific purpose--the destruction of the item. Even transferring
the item to another party for storage (a type of end use) would be
considered a change in end use and end user because that other party
would be using the item by storing it for future use by another party.
BIS notes that one exception to this would be if another party came to
service or destroy an item at the location of the authorized end user,
such as coming to repair or to destroy a machine tool that would not be
considered a transfer (in-country), provided the authorized end user
maintained possession and control of the item at their facility. For
most transfers (in-country), such as when an item is received under a
BIS license and needs to be transferred (in-country) to a repair
center, paragraph (a)(6) of License Exception TMP is used to authorize
the transfer (in-country) to a repair facility and License Exception
RPL is used to authorize the transfer (in-country) back to the original
party. However, for the part 744 end use and end user controls,
[[Page 73470]]
License Exceptions TMP and RPL are not available, so a license is
required for that activity. Lastly, BIS adds that if the item had been
received with no license requirement (i.e., No License Required (NLR))
or under authorization of a license exception that did not have terms
specific to end use or end user, such as License Exception GBS (not
applicable for China, but included as an example), then a transfer (in-
country) to a repair center would not require an authorization,
provided there were no parts 744 or 746 license requirements applicable
that applied to transfers (in-country). BIS also highlights that
because the RS license requirement under Sec. 744.6(a)(6) extends to
transfers (in-country) for the items controlled for RS in this AC/S IFR
and SME IFR that an EAR authorization is required for all transfers
(in-country) of items subject to the EAR unless the original
authorization also authorizes subsequent transfers (in-country), e.g.,
if a 3A090.a item was received under a BIS license by an ultimate
consignee listed on the license and was being transferred within China
to authorized end users on the license.
Appropriateness of the Scope of U.S. Person Control
Topic 60: A commenter noted that the October 7 IFR is overly broad,
particularly with respect to the prohibitions on U.S. person
``support'' for certain semiconductor manufacturing activities in Sec.
744.6(c)(2). In the absence of clear scoping restrictions, these broad
controls create difficulty for U.S. companies and individuals trying to
comply and make it almost impossible for them to understand what they
can and cannot do.
BIS response: This AC/S IFR has narrowed the scope of Sec. 744.6
where warranted to better focus the controls on activities of national
security concern. This rule has also clarified the scope of ``U.S.
person'' activities that are caught, which incorporates FAQs previously
published on the BIS website. Additional discussion of amendments to
Sec. 744.6 can be found in Section C.4 of this rule.
Topic 61: A commenter noted that a ``U.S. person'' should not have
to obtain a license under Sec. 744.23(a)(2)(iv) because an item could
potentially be used in an end use of concern. This commenter asked why
a U.S. person with no knowledge of a proscribed activity, but with
knowledge of a non-proscribed activity for a dual use computer or IC,
should be required to seek a license involving a non-U.S.-origin item,
simply because of a BIS theory, based on no knowledge, that the
activity ``could involve'' WMD use.
BIS response: The ``U.S. person'' would have a ``knowledge'' under
Sec. 744.6(c)(2)(iv), now redesignated as Sec. 744.6(c)(2)(ii), that
the CCL Category 3, B, C, D, or E item was for use for ``development''
or ``production'' of integrated circuits at a ``facility,'' which this
SME IFR updates to ``of an entity headquartered in either Macau or a
destination specified in Country Group D:5.'' When this SME IFR and AC/
S IFR use the term ``headquartered'' in these two rules, it includes
parent entities. China's use of ICs in WMD-related activities warrants
imposition of a higher level of affirmative duty to ``know'' in order
to not be subject to a license requirement.
``U.S. Person'' Control Due Diligence Requirements, as Well as Certain
Limitations on Foreign Companies Identifying People by Nationality
Topic 62: Some commenters noted that requiring positive knowledge
is a burden shift for an end use control. This commenter noted that the
Sec. 744.6(c)(2)(iv)-(vi) requirement represents an unprecedented
burden shift. Whereas BIS has previously required that companies not
engage in willful blindness or ignorance regarding the end use of their
exports, this component of the rule effectively mandates diligence via
a licensing requirement.
BIS response: BIS does not agree with these commenters that the
control requiring positive knowledge is unprecedented. For example,
Sec. 744.3(a)(3) (which has been in the EAR for about 19 years)
imposes a license requirement for all items subject to the EAR when the
exporter, reexporter, or transferor has ``knowledge'' that the item
subject to the EAR ``will be used in the design, ``development,''
``production,'' operation, installation (including on-site
installation), maintenance (checking), repair, overhaul, or
refurbishing of any rocket systems or unmanned aerial vehicles in or by
a country listed in Country Group D:4, but you are unable to determine
the characteristics (i.e., range capabilities) of the rocket systems or
unmanned aerial vehicles, or whether the rocket systems or unmanned
aerial vehicles, regardless of range capabilities, will be used in a
manner prohibited under paragraph (a)(2) of this section.'' A more
recent example that was added in 2014 to part 746 under Sec.
746.5(a)(1)(i) specifies that a license is required to export,
reexport, or transfer (in-country) any item subject to the EAR listed
in supplement no. 2 to this part and items specified in ECCNs 0A998,
1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999 when you ``know''
that the item will be used directly or indirectly in exploration for,
or production of, oil or gas in Russian deepwater (greater than 500
feet) or Arctic offshore locations or shale formations in Russia or
Belarus, or are unable to determine whether the item will be used in
such projects.
Topic 63: A commenter noted that for the first time, BIS has used
the EAR to inform all U.S. persons around the globe that certain
specific activities of U.S. persons are regulated because they could
support prohibited WMD activities in China. This commenter noted that
the regulated activities all involve shipping, transmitting,
transferring (in-country), or servicing, or facilitating the shipment,
transmission, or transfer (in-country), of certain items that are ``not
subject to the EAR'' to or within China.
BIS response: BIS does not agree. The regulated activities are
consistent with other regulated activities under Sec. 744.6 and the
activities are being regulated because they could support prohibited
WMD activities in China and Macau.
Topic 64: A commenter noted that many foreign employers do not
track whether persons are U.S. persons, which will make it harder to
comply with these U.S. person controls. The application of these new
controls will be complicated, as U.S. person status is not widely
maintained by non-U.S. employers. These new controls raise certain
specific practical implementation concerns.
BIS response: BIS does not agree that a ``U.S. person'' restriction
applies to a non-U.S. person entity (e.g., a foreign corporation) that
employs the U.S. person, unless the entity had knowledge of the
individual's U.S. person status and that the individual was in
violation of an applicable U.S. person control. While a corporation may
not track the U.S. person status of its personnel, a natural person
would be positioned to ``know'' whether they were a ``U.S. person.''
U.S. Person Control Impact on U.S. Persons Working Outside the U.S. and
on Innovation
Topic 65: A commenter noted that without clarification as to the
scope of what U.S. person activities constitute support for the
development of certain advanced semiconductors and associated
technologies in China, Sec. 744.6(c)(2) will have a chilling effect on
U.S. academic collaborations with universities in China as well as on
U.S. university recruitment of highly
[[Page 73471]]
qualified students and researchers from China in the semiconductor
field. This may detrimentally impact U.S. leadership and
competitiveness in the advanced semiconductor sector. Another commenter
noted that the U.S. person control may result in companies not hiring
U.S. persons. This commenter noted that despite added clarifications
from BIS regarding the scope of these restrictions, the relevant
provisions continue to be mired in uncertainty. Companies,
consequently, may choose to interpret the U.S. persons provisions
broadly, and needlessly restrict their U.S. person employees and
contractors from engaging in a number of business-critical functions,
which prevents such persons from participating fully in company
operations. In any event, U.S. person individuals can often be readily
replaced by non-U.S. person individuals without impeding the shipment
of non-EAR items to a covered fabrication facility.
BIS response: The intent of the October 7 IFR and this AC/S IFR and
SME IFR is to impose controls as focused as possible in addressing the
ongoing U.S. national security and foreign policy concerns discussed in
these rules. BIS does not intend the new controls to chill research by
U.S. universities or undercut U.S. technological leadership where such
activity does not present national security or foreign policy concerns.
With its initial FAQs on the October 7 IFR, BIS clarified the intended
scope of the ``U.S. persons'' controls. This AC/S IFR adds those
clarifications to the EAR. In addition, this AC/S IFR clarifies that
the scope of Sec. 744.6 does not include information or software that
would otherwise be excluded from the EAR based on the exclusion
criteria under part 734, e.g., under Sec. 734.7 Published and Sec.
734.8 ``Technology'' or ``software'' that arises during, or results
from, fundamental research, as well as specifying this in Sec.
744.6(d)(1)(ii). BIS does not intend for the October 7 IFR controls to
result in foreign companies not wanting to hire ``U.S. persons.'' BIS
believes the clarifications made to Sec. 744.6 in this AC/S IFR and
SME IFR should reduce these concerns. The U.S. person changes made in
this rule are discussed in Section C.4.
Topic 66: A commenter noted that the U.S. person control has broad
applicability to many people outside the U.S. and could be
discriminatory to them. It is important for BIS to take into account
that many individuals located abroad fall within the definition of
``U.S person'' even if they have never lived in the United States or
are currently permanently residing outside of the U.S. and these
individuals should not be singled out due to their citizenship, which
can lead to discrimination and other claims under the laws of certain
countries.
BIS response: The intent of the October 7 IFR was to be as focused
as possible in addressing ongoing U.S. national security and foreign
policy concerns. Being a ``U.S. person'' has many benefits, but also
certain responsibilities that go along with being a ``U.S. person,''
such as not being involved in specified activities that are of concern
for WMD reasons as specified under Sec. 744.6. The U.S. Department of
Treasury's Office of Foreign Assets Controls (OFAC) also has certain
responsibilities and restrictions that go along with being a U.S.
person, so BIS also directs commenters in this area to review the
applicable OFAC controls on U.S. persons that may be applicable.
Whether To Use Export, Reexport, and Transfer (In-Country) Controls or
a U.S. Person Control To Address This National Security Issue
Topic 67: A commenter requested that the new restrictions on
semiconductor manufacturing be implemented solely through BIS's
traditional jurisdiction over exports, reexports, and transfers (in-
country) of items subject to the EAR, rather than a new, untested, and
overly broad restriction on U.S. person ``support'' activities.
BIS response: The national security and foreign policy concerns
addressed in the October 7 IFR required that BIS use its full set of
regulatory tools under the EAR, which included using CCL-based
controls, end-use controls, and end-user controls. For the end-use
controls, BIS used both a standard end-use control and expanded the
``U.S. person'' control to appropriately address its concerns. This AC/
S IFR and SME IFR have focused and clarified the scope of both
Sec. Sec. 744.6 and 744.23.
Provide More Information on Restricted U.S. Person Activities
Topic 68: A commenter requested BIS amend the list of controlled
activities to specify whether additional business processes are
controlled or not. This commenter noted that doing so will decrease
compliance delays arising from ambiguous language. For example, it is
not clear if restrictions apply to a U.S. person that processes product
payments but does not conduct physical transfer of subject items.
BIS response: This AC/S IFR adds paragraph (c)(3) (Scope of
activities of ``U.S. persons'' that require a license under Sec.
744.6(c)(2) of the EAR), including sub-paragraph (c)(3)(i) that
provides greater specificity on the ``U.S. person'' activities that are
caught, consistent with the FAQs posted on the BIS website on January
25, 2023 on the scope of the ``U.S. persons'' control in Sec.
744.6(c)(2). This AC/S IFR adds paragraph (c)(3)(ii) (Due diligence) to
provide compliance guidance for this ``U.S. person'' control, and adds
paragraph (d)(1) (Exclusion of certain administrative and clerical
activities) to add greater specificity on the ``U.S. person''
activities that are excluded.
U.S. Persons Giving Up U.S. Citizenship or Permanent Residency in Order
To Participate in PRC Innovation Efforts
Topic 69: A commenter noted that some U.S. persons may give up
their U.S. nationality to help China build advanced semiconductors, and
they would be compensated by the PRC government to obtain a third
country passport. This commenter noted in this scenario that the now-
former U.S. persons' spouses may still be U.S. citizens, so these
persons will be able to return to the United States when they retire
after making money in China. This commenter believes this is a very
clear loophole in the October 7 IFR.
BIS response: The October 7 IFR and this AC/S IFR and SME IFR used
the various export control tools that BIS has under its jurisdiction to
address U.S. national security and foreign policy concerns. BIS
included an expanded ``U.S. person'' control because of its concerns
that these types of items that are being used by China are part of
their WMD programs. BIS highly discourages any ``U.S. person'' from
relinquishing U.S. nationality to help China engage in military
advancement and human rights violations. BIS does not have regulatory
authority over immigration matters, so BIS is not positioned to respond
to that aspect of the comment. However, being a U.S. citizen or legal
permanent resident of the U.S. has certain benefits and legal rights
that are not afforded to foreign persons. BIS cautions anyone that is
considering giving up their U.S. nationality for purposes of work in
the advanced semiconductor industry in China to weigh those
considerations carefully and not assume they would be able to return to
the United States following participation in activities contrary to
U.S. national security and foreign policy interests. BIS also notes
that a person who relinquished their U.S. nationality would become a
foreign person for purposes of ERC assessment.
[[Page 73472]]
Meaning and Scope of `Support' Under U.S. Person Control in Sec.
744.6(b)(6)
Topic 70: A commenter noted that the exact definition of
``support'' is not clear under the October 7 IFR. BIS should consider
reconfiguring certain definitions to factor in business processes in
the logistics sector. This commenter requested that BIS publish
additional guidance on how logistics firms can understand and apply
``support'' requirements to their supply chains without inducing severe
operational disruptions.
BIS response: The term `support' is defined for purposes of Sec.
744.6 under paragraph (b)(6). BIS also notes that the term `support' is
not a new term added in the October 7 IFR. However, based on the
comments received in response to the October 7 IFR, BIS agrees that
additional clarifications should be made on what types of activities
involving `support' are excluded, such as certain logistics activities.
This AC/S IFR states here that for logistics companies, the prohibited
act is the actual delivery, by shipment, transmittal, or transfer (in-
country), of the item and the act of authorizing the same.
Topic 71: A commenter noted that Sec. 744.6 prohibits U.S. persons
from providing ``support'' for WMD-related end uses and Sec. 744.6(c)
provides that certain specified activities by U.S. persons involving
items not subject to the EAR used in semiconductor fabrication could
involve ``support'' for a prohibited WMD-related end use, but it does
not say that these specified activities are the only activities by U.S.
persons related to semiconductor fabrication that are considered
prohibited ``support'' for WMD-related end uses.
BIS response: This commenter misses the intent of the phrase
``which could involve `support' for the [WMD]-related end uses set
forth in paragraph (b) of this section'' in the introductory text of
Sec. 744.6(c)(2). The prohibition under Sec. 744.6(c)(2) is limited
to the exhaustive listing of `support' activities defined under Sec.
744.6(b)(6). The phrase ``which could involve'' is an acknowledgement
that in certain cases these activities described under Sec.
744.6(c)(2) may not involve WMD-related activities, but BIS believes
that there is a significant possibility that in Macau or a destination
specified in Country Group D:5 such end-uses could involve WMD-related
activities. In cases in which a ``U.S. person'' believes the prohibited
activity does not involve a WMD-related activity, the ``U.S. person''
can set forth its reasoning in the license application.
Topic 72: A commenter asked BIS to confirm whether expediting a
part or component shipment with a supplier or vendor, by a ``U.S.
person,'' is within the scope of the controls in Sec. 744.6 or Sec.
744.23 if there is knowledge that such a part or component will be
exported, reexported, or transferred to a covered fabrication facility.
Another commenter noted that it is unclear whether the reference to
``support'' in Sec. 744.6(c)(2) incorporates all of the definitions of
``support'' under Sec. 744.6(b)(6) in the activities that are
prohibited under Sec. 744.6(c)(2).
BIS response: For the comment regarding expediting a part or
component, whether that activity is captured would depend on whether
the act was limited to a U.S. person conducting administrative or
clerical activities or otherwise implementing a decision already
approved by other persons, consistent with Sec. 744.6(d)(1)(i), added
in this rule. In addition, the reference to ``support'' in Sec.
744.6(c)(2) incorporates all of the definitions of ``support'' under
Sec. 744.6(b)(6) in the activities that are prohibited under Sec.
744.6(c)(2).
BIS Has Experience With Regulating Facilitating, but Should Adopt a
Definition That Is Narrower Than That Used by OFAC
Topic 73: A commenter noted that restrictions on exports of
services by U.S. persons are traditionally administered by OFAC, which
has accordingly developed a framework of guidance and authorizations
over time to facilitate the implementation of these restrictions. Some
commenters noted that the scope of ``facilitate'' should be narrower
under EAR than under the OFAC sanctions. These commenters noted that
while BIS and OFAC share some overlapping jurisdiction, the underlying
statutory authorities for the EAR and the OFAC regulations are no
longer aligned--the current EAR is legally framed by ECRA, not the
International Emergency Economic Powers Act (IEEPA). These commenters
noted that this distinction underscores that controls on
``facilitation'' or ``facilitating'' enacted by BIS under the authority
of the EAR or ECRA must be more limited than controls imposed by OFAC
under IEEPA's broad authority.
BIS response: BIS has long experience with regulating activity
using the term facilitating as Section 744.6 has been in the EAR since
the early 1990s. Use of this term under the EAR is specific to BIS, and
other interpretations from other agencies are not applicable under the
EAR. Moreover, BIS interpretations should not be applied to the
regulations of any other export control agencies, such as OFAC.
Questions on the use of OFAC regulations terminology should be directed
to OFAC.
Topic 74: A commenter requested BIS adopt the definition of
`facilitation' as, ``Authorizing, servicing, and conducting support on
the production of advanced nodes.'' Another commenter requested that
facilitating should be replaced with the term authorizing if that is
what is really intended, noting that BIS guidance indicates that
``facilitating'' such activities means ``authorizing'' such activities.
Without such an amendment, U.S. persons can be unnecessarily cut out
from fully engaging in the business of their employer.
BIS response: The term `facilitation' in the context of Sec.
744.6(b)(6)(iii) has broader application than to just paragraph (c)(2),
so it would not be appropriate to adopt the suggested definitions.
Authorizing is an important part of the scope of facilitating, but
there are additional activities that fall under facilitating that also
need to be caught, so removing facilitating and adding in its place
authorizing is not accepted.
Meaning and Scope of Definition of `Production'
Topic 75: A commenter requested that BIS provide an exact
definition of ``production'' because it is not clear under the October
7 IFR.
BIS response: ``Production'' is a foundational EAR term that is
already defined in Sec. 772.1. The term is also defined and used in
the multilateral export control regimes. As a result, there should be
no ambiguity in how the term is used and no need for an additional
definition for this term.
Meaning and Scope of Definition of `Servicing'
Topic 76: A commenter requested that BIS provide an exact
definition of ``servicing'' because it is not clear under the October 7
IFR.
BIS response: The term servicing has been used in the EAR for many
decades and in various EAR provisions, such as under License Exception
RPL under Sec. Sec. 740.10 and 764.2(e), and in General Prohibition 10
under Sec. 736.2(b)(10). This term is intended to have an expansive
meaning and BIS believes it is well understood in the context of the
EAR. For example, in the context of License Exception RPL, servicing
means inspection, testing, calibration or repair, including overhaul
and reconditioning (see Sec. 740.10(b)(2)(i)). BIS has also provided
guidance through FAQs on the October 7 IFR on what U.S. person
activities are captured by servicing for
[[Page 73473]]
purposes of Sec. 744.6. BIS interprets the meaning of servicing in the
context of Sec. 744.6 consistent with the expansive definition
provided under License Exception RPL.
Scope of Information Covered Under the ``U.S. Person'' Control
Topic 77: Commenter requests that BIS clarify the scope of ``any
item not subject to the EAR'' in Sec. 744.6(c)(2) to specifically
exclude technology and software that is published and/or that arises
during or results from fundamental research. Another commenter is
concerned that, without further clarification from BIS regarding the
scope of ``support'' and ``facilitating,'' these terms could be
interpreted to include core university activities such as training and
teaching students and researchers from China in the United States. This
commenter requests that BIS expand FAQ IV.A2 to further clarify that
these terms do not include training and teaching of students and
researchers from China in the United States.
BIS response: BIS agrees. As noted above, this AC/S IFR in
responding to these comments clarifies that the scope of Sec.
744.6(c)(2) does not include information or software that would
otherwise be excluded from the EAR based on the exclusion criteria
under part 734, e.g., under Sec. 734.7 Published and Sec. 734.8
``Technology'' or ``software'' that arises during, or results from,
fundamental research, which this AC/S IFR specifies in Sec.
744.6(d)(1)(ii).
Exclude Certain Activities When Employer Has a BIS Authorization To
Engage in Those Activities
Topic 78: A commenter requested BIS issue guidance that activities
of U.S. persons in support of licensed activities by their employer are
excluded from the scope of the controls. It would be unfortunate for a
U.S. person to unintentionally violate the EAR because the items
subject to the EAR that they are exporting or reexporting subject to a
BIS license happen to include an item that was not subject to the EAR,
such as bundled software or a spare part.
BIS response: BIS clarifies here in this AC/S IFR that existing BIS
licenses would also cover such ``U.S. person'' activities as described
in the commenter's scenario. BIS cautions that if the activity being
provided goes outside the scope of the BIS license, then a separate
analysis of that ``U.S. person'' activity must be conducted.
C. Expansion of Export Controls on Advanced Computing Items and
Supercomputers
This section describes the specific EAR revisions adopted in this
IFR, which expand and refine the October 7 IFR with respect to advanced
computing items and supercomputers, and addresses the national security
concerns that led to an expansion of the country scope for these
commodities and related software and technology.
Overview of EAR Changes
This AC/S IFR revises ECCN 3A090 to remove paragraph a, including
paragraphs a.1 through a.4, and adds in its place a simplified control
paragraph. Those changes, as well as a conforming change to ECCN
3A991.p, are discussed below in section C.1 of this rule. This rule
also introduces License Exception Notified Advanced Computing (NAC),
which is discussed in section C.2. In response to public comments, the
rule also replaces the criteria ``any other item on CCL that meet or
exceed the performance parameters of 3A090 or 4A090'' by positively
identifying those ECCNs in new .z paragraphs, along with various
conforming changes related to the new .z paragraphs in other parts of
the EAR. The public comments on this issue are described in section B
under Topics 19-24; additional details about those changes, and the
accompanying conforming changes including to the Automated Export
System (AES), can be found in section C.3.
In addition, this rule broadens the country scope for the Regional
Stability controls to destinations specified in Country Groups D:1,
D:4, and D:5 in supplement no. 1 to part 740 that are not also
specified in Country Groups A:5 or A:6 and amends the licensing policy,
as described in section C.4. Section C.5 discusses clarifications to
the scope of ``U.S. person'' and end-use controls related to
supercomputers and advanced computing items. Section 744.23 is expanded
to capture PRC operations outside of China in light of ongoing national
security concerns related to diversion and misuse of items subject to
the EAR; those changes are discussed in section C.6. As discussed in
section C.7, this rule adds ECCNs 3A991.p and 4A994.l to License
Exception Consumer Communication Device (CCD).
As discussed in section C.8, this rule also broadens the country
scope with respect to the advanced computing FDP rule to destinations
specified in Country Groups D:1, D:4, and D:5 that are not also
specified in Country Groups A:5 or A:6. Section C.9 describes changes
clarifying that the model certificate published in the October 7 IFR
may be used for all FDP rules. Section C.10 discusses changes to
enhance compliance, including the addition of five new red flags to
assist with compliance, including adding a red flag for enhanced FDP
guidance for recognizing ``direct products.'' The addition of one new
TGL is described in section C.11. Additional corrections and
clarifications made in this rule are described in section C.12.
Lastly, BIS requests specific comments on several issues, which are
listed and described in section D.
National Security and Foreign Policy Considerations for Expanding
Controls and Country Scope
As noted earlier in the rule, these advanced or frontier AI
capabilities, such as large dual-use AI foundation models with
capabilities of concern are particularly problematic because their use
can lead to improved design and execution of WMD and advanced
conventional weapons. Military decision-making aided by these AI models
can improve speed, accuracy, planning, and logistics. The use of such
items in development and deployment of these AI models would further
China's goals of surpassing the military capability of the United
States and its allies, a goal noted in the February 6, 2023 Annual
Threat Assessment of the U.S. Intelligence Community. That same report
indicated that ``China is rapidly expanding and improving its
artificial intelligence (AI) and big data analytics capabilities, which
could expand beyond domestic use.'' These national security concerns
were paramount in the issuance of this AC/S IFR.
Consistent with the national security and foreign policy concerns
described in the October 7 IFR, BIS is updating the EAR to enhance
effectiveness of the controls in addressing these ongoing concerns.
Following the implementation of the controls last year, BIS continued
to study and assess their effectiveness. This rule strengthens and
improves those controls by addressing the national security
considerations that have come to light through open-source reporting,
public comments, and the intelligence community. Through this process,
BIS learned that certain additional ICs could provide nearly comparable
AI model training capability as those controlled in the October 7 IFR
BIS also seeks to further impair diversion channels through third
countries, particularly those with AI commercial and research ties to
the PRC.
[[Page 73474]]
In addition, credible open source reporting identified PRC
companies using foreign subsidiaries to purchase chips subject to EAR
controls, and accessing and operating datacenters located outside of
the PRC with the ICs subject to EAR controls. Moreover, BIS is also
concerned about certain additional ICs, which in turn can be used to
train frontier AI models that have the most significant potential for
advanced warfare applications, including unmanned intelligent combat
systems, enhanced battlefield situational awareness and decision
making, multidomain operations, automatic target recognition,
autopiloting, missile fusion, precise guidance for hypersonic
platforms, and cyber attacks. Accordingly, to address these issues, BIS
is making several changes to the rule.
First, to prevent technical workarounds, BIS is adding a
performance density parameter to the original control and including a
new structure for the control. A performance density parameter prevents
the workaround of simply purchasing a larger number of smaller
datacenter AI chips which, if combined, would be equally powerful as
restricted chips.
Second, to address PRC operations inside and outside of China and
Macau seeking to acquire advanced ICs through transshipment and
diversion, and accessing datacenters with advanced ICs, the rule
expands controls to destinations in country groups D:1, D:4, and D:5
that are not also in Country Groups A:5 or A:6. Additionally, the rule
also adds two new end use controls to prevent circumvention of the
controls. Moreover, in section D, this rule is also soliciting comment
from Infrastructure as a Service (IaaS) providers and other
stakeholders on additional regulations in this area, including know
your customer requirements that can be adopted to address uses that
present a national security or foreign policy concern.
Third, because advanced-ICs have varying capabilities implicating
national security concerns, with this rule, BIS is controlling a wider
scope of advanced- ICs through adoption of a tiered approach. Thus,
first, for the most powerful data-center ICs (as described in ECCN
3A090.a), which are of the greatest national security and foreign
policy concern, BIS is imposing a license requirement to any
destination specified in Country Groups D:1, D:4, or D:5 that are not
also in Country Groups A:5 or A:6. Second, for advanced-ICs that are
less powerful but could be used to train large-scale AI systems by a
sufficiently well-resourced actor (as described in ECCN 3A090.b, as
well as certain 3A090.a commodities) BIS is providing license exception
NAC for destinations in Country Groups D:1, D:4, or D:5, but use of
such license exception will require pre-notification of the export or
reexport to Macau or a destination specified in Country Group D:5.
This AC/S IFR also adds a new red flag to assist semiconductor
fabrication facilities' additional compliance with the advanced
computing FDP rule as described under section C.10.A.
1. Revision of ECCN 3A090 and Conforming Change to 3A991.p
A. Revisions to 3A090 control parameters to ensure ICs for AI
training are controlled.
In ECCN 3A090, this AC/S IFR revises the ``items'' paragraph in the
List of Items Controlled section to remove paragraph a, including
paragraphs a.1 through a.4, and adds in its place a simplified
paragraph .a and .b. The revised 3A090.a control parameter will control
ICs with one or more digital processing units having either: (1) a
`total processing performance' of 4800 or more, or (2) a `total
processing performance' of 1600 or more and a `performance density' of
5.92 or more. The new ECCN 3A090.b will control ICs with one or more
digital processing units having either: (1) a `total processing
performance' of 2400 or more and less than 4800 and a `performance
density' of 1.6 or more and less than 5.92, or (2) a `total processing
performance' of 1600 or more and a `performance density' of 3.2 or more
and less than 5.92. See Technical Notes to ECCN 3A090 for calculating
`total processing performance' and `performance density.' Together,
these paragraphs expand the scope of control as compared to the October
7 IFR. This action is necessary to ensure that ICs below the October 7
ECCN 3A090 parameters that were still useful for training advanced AI
with military applications would be controlled.
To more precisely control the types of ICs presenting the concerns
described above in section C of this rule, ICs that meet certain
performance thresholds described in Note 2 are not subject to 3A090
controls. Thus, no license is required for these ICs under 3A090;
however, such ICs may require a license under another ECCN.
The scope of this control is calibrated through the addition of
several Notes to ECCN 3A090 and a new license exception, the former
discussed below in sections C.1.B, C.1.C, and C.1.F and the latter
discussed in section C.2. BIS excludes from ECCN 3A090 ICs that (1) are
not designed or marketed for use in datacenters, and (2) do not have a
`total processing performance' of 4800 or more (see Note 2). As
discussed in section C.2 of this rule, License Exception NAC provides a
path for prior notification to BIS when exporting or reexporting
eligible items to the PRC and Macau. The notification requirements do
not apply for transfers (in-country) within the PRC and Macau. Eligible
items for License Exception NAC are defined as those ICs under ECCN
3A090.b (including ICs that are designed or marketed for use in a data
center) and specific ICs under 3A090.a (not designed or marketed for
use in a data center).
B. Addition of exclusion for `non-datacenter integrated circuits'
from the expanded 3A090 control parameter.
In ECCN 3A090, this AC/S IFR adds a new Note 2 to 3A090 to specify
that 3A090 does not apply to non-datacenter integrated circuits that
are (a) not designed or marketed for use in datacenters; and (b) do not
have a `total processing performance' of 4800 or more. In response to
this AC/S IFR, BIS seeks comments on how to refine these parameters to
more granularly cover additional ICs that would not raise concerns for
use in training large-scale AI systems. See section D question 6 of
this rule.
The purpose of this Note 2 is to ensure that as implementation
occurs in the future, the expanded ECCN 3A090.a and .b control
parameters do not increasingly control certain non-datacenter ICs.
C. Revisions to technical notes for clarity.
This AC/S IFR also makes several revisions to the Technical Notes
to address the various comments that BIS received noting that there are
multiple ways to calculate the TOPS calculations and identifying that
the criteria provided in the Technical Notes included in the October 7
IFR under ECCN 3A090 were not adequate for a consistent interpretation
on how to calculate the TOPS calculation. BIS agreed that revisions
were needed. This AC/S IFR revises the five technical notes for
clarity. Most importantly, this AC/S IFR replaces bits x TOPS with
`Total processing performance' (`TPP') values and defines clear,
objective criteria that can be used to calculate the `TPP' value.
In ECCN 3A991, this AC/S IFR amends Technical Note for 3A991.p,
paragraph 3, to conform with the changes to the Technical Notes to ECCN
3A090.
D. Expanded license requirement.
[[Page 73475]]
This AC/S IFR also revises the License Requirements section for the
RS license requirement that applies to the entire ECCN 3A090 to expand
the scope of the destination-based license requirements by removing
China and Macau and adding in its place any destination specified in
Country Groups D:1, D:4, or D:5 that is not also specified in Country
Groups A:5 or A:6. This expanded license requirement is warranted
because of the potential diversion concern for these activities of
concern in or with Macau or a destination specified in Country Group
D:5. However, for destinations to or within destinations not specified
in Country Group D:5 (except Macau), license applications will
generally be reviewed under a presumption of approval license review
policy under Sec. 742.6(b)(10) paragraph (b)(10)(ii) (License review
policy for paragraph (a)(6)(iii)). See section C.4 for fuller
description of the license review policies that will be applicable to
these destinations referenced in this paragraph.
This AC/S IFR also adds a cross reference in the RS control in ECCN
3A090 to see Sec. 742.6(a)(6)(iii) of the EAR.
E. Addition of Note 3 to 3A090 and adding Related Controls cross
references from related ECCNs.
This AC/S IFR, as a conforming change for the addition of Note 3 to
3A090, adds a Related Controls reference to Note 3 to 3A090 in ECCNs
3A001.z, 3A090, 4A003.z, 4A004.z, 4A005.z, 4A090, 5A002.z, 5A004.z,
5A992.z, 5D002.z, or 5D992.z.
2. Addition of License Exception Notified Advanced Computing (NAC) for
Consumer-Grade ICs With AI Capabilities
In Sec. 740.8, which prior to the effective date of this rule was
reserved, this AC/S IFR adds new license exception NAC. This license
exception is for ICs under ECCN 3A090.b (i.e., ICs designed or marketed
for use in datacenters) and non-datacenter ICs under 3A090.a (i.e., ICs
not designed or marketed for use in datacenters and that do have a
`total processing performance' of 4800 or more). NAC is available for
exports, reexports, and transfers in or within Country Groups D:1, D:4,
or D:5 with different requirements applicable to Macau and destinations
specified in Country Group D:5. The purpose of the notification
process, which is only required for exports and reexports to Macau or
destinations specified in Country Group D:5, is to provide BIS and its
interagency export controls partners the opportunity to evaluate the
national security risk posed by ICs that fall within this parameter.
This license exception as specified under the paragraph (a)
(Eligibility requirements) will authorize export, reexport, and
transfer (in-country) of any item classified in ECCNs 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. License Exception NAC
authorizes exports, reexports, or transfers (in-country) to any
destination specified in Country Groups D:1, D:4, or D:5, provided the
applicable criteria specified under paragraphs (a) and (b) are met. For
exports and reexports to Macau or destinations specified in Country
Group D:5, in addition to meeting the criteria under paragraphs (a) and
(b), the notification requirements under paragraph (c) of License
Exception NAC must all be met. The notification requirement does not
apply to exports or reexports to any destination specified in Country
Groups D:1 or D:4 (other than Macau or destinations also specified in
Country Group D:5) nor does it apply to transfers (in-country) to any
destination.
Paragraph (a)(1) (Written purchase order) requires that any export
or reexport authorized under License Exception NAC must be made
pursuant to a written purchase order, except for commercial samples
which are not subject to this purchase order requirement. Written
purchase orders are not required for transfers (in-country). Exports,
reexports, or transfers (in-country) to or within any other destination
identified under Country Groups D:1, D:4, or D:5 are authorized under
License Exception NAC, provided the applicable criteria under
paragraphs (a) and (b) are met.
Paragraph (a)(2) (Notification to BIS) specifies that for exports
or reexports to Macau or a destination specified in Country Group D:5,
you must notify BIS prior to exporting or reexporting, according to the
procedures set forth in paragraph (c) of License Exception NAC.
Paragraph (a)(2) specifies that if you intend to engage in multiple
exports or reexports after the signing of the purchase order, you need
only notify BIS prior to the first export or reexport. Paragraph (a)(2)
is not required for transfers (in-country) within Macau or a
destination specified in Country Group D:5.
Paragraph (b) (Restrictions) apply to all exports, reexports, or
transfers (in-country) authorized under License Exception NAC.
Paragraph (b)(1) (Prohibited end uses and end users) specifies that
License Exception NAC is not able to overcome any part 744 or 746
license requirements, except for a license required under Sec.
744.23(a)(3) for reexports or exports to any destination other than
those specified in Country Groups D:1, D:4, or D:5 (excluding any
destination also specified in Country Groups A:5 or A:6) for an entity
that is headquartered in, or whose ultimate parent company is
headquartered in, either Macau or a destination specified in Country
Group D:5. The restriction under paragraph (b)(2) (`Military end use'
or `military end user') specifies that no exports, reexports, or
transfers (in-country) may be made under License Exception NAC to or
for a `military end use' as defined in Sec. 744.21(f) or `military end
user' as defined in defined in Sec. 744.21(g). This `military end use'
or `military end use' restriction applies to a broader country scope
than those prohibited under Sec. Sec. 744.17 and 744.21.
Paragraph (c) (Prior notification procedures) specifies the
notification requirements that must be followed prior to making any
export or reexport to Macau or a destination specified in Country Group
D:5 under License Exception NAC. Paragraph (c)(1) (Procedures)
specifies the requirement to make this notification prior to using
License Exception NAC as well as what Blocks need to be completed in
SNAP-R for submitting a notification request. You do not need to submit
a commodity classification determination from BIS with your
notification, but doing so will be helpful in limiting any concerns
associated with the technical nature of the item because BIS will
already be familiar with the item's performance characteristics if it
has conducted a classification review.
Paragraph (c)(2) (Action by BIS) specifies that BIS intends during
the 25-calendar day review period to review the notification together
with the other export control agencies. Paragraph (c)(3) (Status of
pending NAC notification requests) describes the process for entities
to follow in BIS's System for Tracking Export License Applications
(STELA) (<a href="https://snapr.bis.doc.gov/stela">https://snapr.bis.doc.gov/stela</a>) to obtain the status of a
pending NAC notification or verify the status in BIS's Simplified
Network Applications Processing Redesign (SNAP-R) System. Paragraph
(c)(3) also specifies that if no objection to a NAC notification is
raised, STELA will, on the twenty-fifth calendar day following the date
of registration, provide a confirmation of that fact and a NAC
confirmation number to be submitted in AES. Paragraph (c)(3) also
indicates that if the NAC notification is not approved, on the twenty-
fifth calendar day following
[[Page 73476]]
the date of registration, STELA will provide you with confirmation if
you cannot use License Exception NAC.
BIS intends to post an announcement on the BIS website once
entities may submit License Exception NAC notifications with the goal
that License Exception NAC requests may be submitted prior to the
effective date of this rule.
This AC/S IFR, as a conforming change for the addition of License
Exception NAC, adds a NAC paragraph to the List-Based License Exception
section under ECCNs 3A001.z, 3A090, 4A003.z, 4A004.z, 4A005.z, 4A090,
5A002.z, 5A004.z, 5A992.z, 5D002.z, and 5D992.z.
3. Replacing Criteria for Any Other Item on CCL That Meet or Exceed the
Performance Parameters of 3A090 or 4A090 by Positively Identifying
Those ECCNs and Adopting .z Paragraphs
The October 7 IFR under Sec. 742.6(a)(6), along with other
provisions in the October 7 IFR, used the criteria ``or identified
elsewhere on the CCL that meet or exceed the performance parameters of
ECCNs 3A090 or 4A090.'' As described above, commenters on the October 7
IFR raised significant concerns that this type of catch-all text
deviated from the common structure of the CCL under supplement no. 1 to
part 774 of the EAR, would be burdensome and possibly unimplementable
for many exporters, reexporters, and transferors, and would lead to
confusion regarding the appropriate classification and control of items
on the CCL. Commenters strongly encouraged BIS to adopt a more
conventional approach to implementing these changes by either adding
new ECCNs to control those additional items that would otherwise meet
or exceed the performance parameters of ECCNs 3A090 or 4A090, or by
identifying a positive list of additional ECCNs that may warrant this
additional control on the CCL and then creating separate ``items''
level paragraphs in each of these respective ECCNs.
After reviewing the concerns raised by the commenters, BIS agrees
that a more conventional structure is needed for imposing this aspect
of the October 7 IFR. Accordingly, BIS is identifying a positive list
of the nine additional ECCNs for which BIS has determined also have
performance characteristics or functions that meet or exceed the
performance parameters of ECCNs 3A090 or 4A090 and is adding a new
``items'' level paragraph in the List of Items Controlled section of
each of these nine ECCNs by adding .z paragraphs to each. This AC/S IFR
makes several changes to the EAR to implement this important change to
the October 7 IFR. For ease of reference these changes are described
here under four types of changes: (1) adding .z paragraphs to nine
ECCNs; (2) revising Related Controls for 3A090, 3A991, 4A090, 4A994 and
the nine ECCNs to cross reference each other to assist with
classification; (3) making other EAR conforming changes needed because
of the addition of .z paragraphs; and (4) changing export clearance
requirements to increase transparency of .z, 3A090, and 4A090
shipments.
A. Adding .z paragraphs to nine ECCNs.
This final rule revises nine ECCNs 3A001, 4A003, 4A004, 4A005,
5A002, 5A004, 5A992, 5D002, and 5D992 to address overlapping controls
with ECCNs 3A090, 4A090, 3A991.p and 4A994.l by adding .z paragraphs to
each of these nine ECCNs. These changes are intended to make it easier
for exporters, reexporters, and transferors to identify these items
subject to controls added in the October 7 IFR and to more easily
distinguish these items from other items controlled under these same
nine ECCNs. Each .z paragraph uses the same structure, but there are
differences in the .z paragraphs because the overlapping controls with
3A090 and 4A090, as well as 3A991.p and 4A994.l, are not the same for
each of the nine ECCNs. Despite the differences in the text used for
each .z paragraph, the commonality in the paragraphs' structure should
assist understanding. Some of the .z paragraphs are limited to one
paragraph, but others such as ECCN 5A002 have several paragraphs under
the .z paragraph. BIS is adopting the .z structure because no ECCN
currently has a .z ``items'' level paragraph. Similar to the structure
used with the .x and .y paragraphs for the ``600 series,'' 9x515, and
0x5zz ECCNs, using a common ``items'' paragraph designation will make
it easier for exporters, reexporters, and transferors to identify these
items, as well as for the U.S. Government to identify these items under
these nine ECCNs.
For each ECCN this rule revises to add a .z paragraph, this rule
reserves the items level paragraph from where the items paragraph ended
prior to this AC/S IFR becoming effective up through paragraph .y. For
example under ECCN 5A002, this rule revises 5A002 to reserve paragraphs
.f through .y. This rule does the same in each of the other eight ECCNs
that are being revised to add the .z paragraphs, but depending on how
many items paragraphs each ECCN had before the effective date of this
AC/S IFR, different paragraphs are reserved.
BIS includes as an illustrative example some of the .z paragraphs
from ECCN 5A002 that this AC/S IFR adds. The introductory text of the
5A002.z paragraph identifies ``Other commodities, as follows'' and then
includes additional control parameters to identify these .z
commodities. ECCN 5A002, because of the complexity of the ECCN and the
overlapping controls with 3A090 and 4A090, has several .z subparagraphs
that are tied to the other ``items'' paragraphs in 5A002. For example,
5A002.z.1 controls commodities that are described in 5A002.a and that
also meet or exceed the performance parameters in 3A090 or 4A090.
Similarly, 5A002.z.2 controls commodities that are described in 5A002.b
and that also meet or exceed the performance parameters in 3A090 or
4A090. Some of the other relevant ECCNs have a simpler and shorter
structure and may be limited to a single .z paragraph. However,
regardless of how many .z paragraphs are added, each .z paragraph
functions the same way because it references an item that is described
elsewhere in the same ECCN that also meets or exceeds the performance
parameters in 3A090, 4A090, 3A991.p, or 4A994.l, as applicable and
specified in the respective .z paragraph. By classifying these items in
their own .z paragraph, it will be easier for exporters, reexporters,
and transferors to identify these items and the additional controls and
other restrictions that are applicable to them.
In ECCN 3A001, this AC/S IFR reserves paragraphs j. through y. and
adds paragraphs z.1 through .4 to the ``items'' paragraph in the List
of Items Controlled section and makes the following conforming changes
by adding certain 3A001.z items to the NS1, RS1, MT1 and NP1 Controls
paragraphs and adding a RS control that applies to items controlled by
3A001.z for destinations specified in Country Groups D:1, D:4, or D:5.
This AC/S IFR adds 3A001.z to the exclusion on using License Exception
LVS.
In ECCN 4A003, this AC/S IFR reserves paragraphs h. through y. and
adds paragraphs .z.1 through .z.4 in the List of Items Controlled
section and makes a corresponding change to the Reason for Control
section by adding a RS control for items controlled by 4A003.z for
destinations specified in Country Groups D:1, D:4, or D:5. This AC/S
IFR adds 4A003.z to the exclusion on using License Exception LVS. This
AC/S IFR also adds a new Note to List Based License Exception in ECCN
4A003 to specify that the related equipment specified under ECCN
4A003.g, z.2, or z.4 are eligible for
[[Page 73477]]
License Exception GBS if three conditions are met. The related
equipment must be exported, reexported, or transferred (in-country) as
part of a computer system, the computer system must either be
designated as NLR or eligible for License Exception APP, and the
related equipment must be eligible for License Exception APP.
In ECCN 4A004, this AC/S IFR reserves paragraphs d. through y. and
adds paragraph .z in the List of Items Controlled section and makes a
corresponding change to the Reasons for Control section by adding a RS
control that applies to items controlled by 4A004.z (1) for
destinations specified in Country Groups D:1, D:4, or D:5 that are not
also specified in Country Groups A:5 or A:6 and (2) to or with any
destination not specified in Country Groups D:1, D:4, or D:5 when the
export, reexport or transfer (in-country) includes an ultimate
consignee or end user headquartered in a destination in Country Groups
D:1, D:4, or D:5 that is not also specified in Country Groups A:5 or
A:6. This AC/S IFR adds 4A004.z to the exclusion on using License
Exception LVS.
In ECCN 4A005, this AC/S IFR revises the heading to add the
parenthetical phrase ``(see List of Items Controlled).'' This AC/S IFR
revises the phrase that referenced ``[T]he list of items controlled is
contained in the ECCN heading'' in the ``Items'' paragraph in the List
of Items Controlled section to add the phrase ``except for the
commodities controlled under 4A005.z.'' This rule reserves paragraphs
a. through .y, adds paragraph .z, and makes a corresponding change to
the Reasons for Control section to add a RS control that applies to
items controlled by 4A005.z for destinations specified in Country
Groups D:1, D:4, or D:5 that are not also specified in Country Groups
A:5 or A:6. This AC/S IFR also adds 4A005.z to the exclusion on using
License Exception ACE.
BIS notes that although the general restriction on the use of
license exceptions under Sec. 740.2(a)(9)(ii) and the terms and
conditions of certain list-based license exceptions, such as LVS or
GBS, or the terms of License Exception STA, would preclude the use of
these EAR license exceptions for destinations specified in Country
Groups D:1, D:4, or D:5, that are not also specified in Country Groups
A:5 or A:6, that this AC/S IFR as an additional safeguard still adds
exclusions for the new .z paragraphs for these ECCNs as an additional
reminder to exporters, reexporters, and transferors that these license
exceptions are not available for .z items for these destinations.
In ECCN 5A002, this AC/S IFR reserves paragraphs f. through y. and
adds paragraphs .z.1 through .5 in the List of Items Controlled section
and makes the following conforming changes by adding a RS control that
applies to items controlled by 5A002.z for destinations specified in
Country Groups D:1, D:4, or D:5 that are not also specified in Country
Groups A:5 or A:6. This AC/S IFR also adds 5A002.z to the exclusion on
using License Exceptions LVS and ENC.
In ECCN 5A992, this AC/S IFR reserves paragraphs d. through y. and
adds paragraphs .z.1 and .2 in the List of Items Controlled section and
makes a corresponding change to the Reasons for Control section by
revising the RS control that applies for 5A992.z items destined to or
within destinations specified in Country Groups D:1, D:4, or D:5 that
are not also specified in Country Groups A:5 or A:6.
In ECCN 5A004, this AC/S IFR reserves paragraphs c. through y. and
adds paragraphs .z.1 and .2 in the List of Items Controlled section and
makes the following conforming change by adding a RS control that
applies to items controlled by 5A004.z for destinations specified in
Country Groups D:1, D:4, or D:5 that are not also specified in Country
Groups A:5 or A:6. This AC/S IFR also adds 5A004.z to the exclusion on
using License Exceptions LVS and ENC.
In ECCN 5D002, this AC/S IFR reserves paragraphs e. through y. and
adds paragraphs .z.1 through .9 in the List of Items Controlled section
and makes the following conforming change by adding a RS control that
applies to items controlled by 5D002.z for destinations specified in
Country Groups D:1, D:4, or D:5 that are not also specified in Country
Groups A:5 or A:6. This AC/S IFR also adds 5D002.z to the exclusion on
using License Exception ENC.
In ECCN 5D992, this AC/S IFR reserves paragraphs d. through y. and
adds paragraph .z in the List of Items Controlled section and makes a
corresponding change to the Reasons for Control section by revising the
RS control that applies for destinations specified in Country Groups
D:1, D:4, or D:5 that are not also specified in Country Groups A:5 or
A:6.
B. Revising Related Controls for 3A090, 4A090, 5E001, and the Nine
ECCNs to cross reference each other to assist with classification.
BIS includes Related Controls paragraphs in the List of Items
Controlled section of ECCNs to alert persons classifying items of
related controls that may be applicable. This rule revises the Related
Controls paragraphs in ECCNs 3A090 and 4A090 to add references to the
nine ECCNs that this final rule adds .z paragraphs to, as applicable.
Because the cross over that is being addressed is not identical for
each of these nine ECCNs with .z paragraphs added, the revisions to the
Related Controls paragraphs are not identical in all cases.
In ECCN 3A001, this AC/S IFR adds a reference to see also ECCN
3A090.
In ECCN 3A090, this AC/S IFR adds a reference to see also 3A001.z,
5A002.z, 5A004.z, 5A992.z, 5D002.z, and 5D992.z.
In ECCN 3A991, this AC/S IFR adds a reference to see also ECCNs
5A002.z, 5A004.z, and 5A992.z.
In ECCN 4A003, this AC/S IFR adds a reference to see also ECCN
4A090.
In ECCN 4A004, this AC/S IFR adds a reference to see also ECCN
4A090.
In ECCN 4A005, this AC/S IFR adds a reference to see also ECCN
4A090.
In ECCN 4A090, this AC/S IFR adds a reference to see also ECCNs
4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, 5A992.z, 5D002.z, and
5D992.z.
In ECCN 4A994, this AC/S IFR adds a reference to see also ECCNs
4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, and 5A992.z.
In ECCN 5A002, this AC/S IFR adds a reference to see also ECCNs
3A090 and 4A090.
In ECCN 5A004, this AC/S IFR adds a reference to see also ECCNs
3A090 and 4A090.
In ECCN 5A992, this AC/S IFR adds a reference to see also ECCNs
3A090 and 4A090.
In ECCN 5D002, this AC/S IFR adds a reference to see also ECCNs
3D001.z and 4D001.z.
In ECCN 5D992, this AC/S IFR adds a reference to see also ECCNs
3D001.z and 4D001.z.
In ECCN 5E001, this AC/S IFR adds a reference to see also ECCN
3A001.z.
C. Other EAR conforming changes needed because of addition of .z
paragraphs.
This AC/S IFR makes various changes to other ECCNs and other parts
of the EAR to make conforming changes where needed as a result of the
addition of the .z items paragraphs to the nine ECCNs 3A001, 4A003,
4A004, 4A005, 5A002, 5A004, 5A992, 5D002, and 5D992.
These changes are made to ensure that certain provisions that
currently apply for other items controlled under these nine ECCNs are
not narrowed or expanded as a result of the addition of the .z
paragraphs. In other cases, specific ``items'' paragraphs from these
[[Page 73478]]
nine ECCNs are identified in other provisions where in certain cases,
it was needed to also add in references to ensure the same provisions
will apply to the .z paragraphs. Because some of the nine ECCNs include
ECCNs, such as 5A002 and 5D002, which are referenced in various other
provisions of the EAR, this AC/S IFR needed to make various conforming
changes to these other ECCNs and parts of the EAR. Although this
appears to be extensive revision, the intent in most cases is to ensure
that the scope of the controls prior to this AC/S IFR generally does
not change. The changes are described below in the order they appear in
the EAR.
Conforming Changes in Part 734
In Sec. 734.4(b)(2), this AC/S IFR removes ECCNs 5A992.c and
5D992.c and adds in their place ECCNs 5A992 and 5D992. These
requirements are intended to apply to the entire ECCNs, so these
changes are needed to account for the addition of .z to 5A992 and
5D992.
In Sec. 734.9(h)(1)(i)(B)(2) and (h)(1)(ii)(B)(2), this AC/S IFR
revises these two paragraphs to remove the phrase ``elsewhere on the
CCL and meets the performance parameters in 3A090 or 4A090'' and adds a
more specific reference to ``meeting the performance parameters in
ECCNs 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, or
5A992.z.'' By adding this more specific reference tied to the new .z
paragraphs, this AC/S IFR will make it easier for foreign manufacturers
to comply with this aspect of the Advanced Computing Foreign Direct
Product (FDP) rule and to more easily apply the de minimis provisions.
Conforming Changes in Part 740
In Sec. 740.2 Restrictions on all License Exceptions, this AC/S
IFR revises the general restriction on the use of license exceptions
under paragraph (a)(9)(ii), which will now be paragraph (a)(9)(ii)(B)
because of the revisions made in this SME IFR, to remove the phrase
``elsewhere on the CCL which meets or exceeds the performance
parameters in ECCNs 3A090 or 4A090'' and adds in its place the more
specific reference to ``specified in ECCNs 3A001.z; 3D001 (for
``software'' for commodities controlled by 3A001.z, 3A090), 3E001 (for
``technology'' for commodities controlled by 3A001.z); 4A003.z;
4A004.z; 4A005.z; 4D001 (for ``software'' for commodities controlled by
4A003.z, 4A004.z, and 4A005.z); 4E001 (for ``technology'' for
commodities controlled by 4A003.z, 4A004.z, and 4A005.z); 5A002.z;
5A004.z; 5A992.z; 5D002.z; 5D992.z; 5E002 (for ``technology'' for
commodities controlled by 5A002.z or 5A004.z); ``software'' specified
by 5D002 (for 5A002.z or 5A004.z commodities); 5E992 (for
``technology'' for commodities controlled by 5A992.z or ``software''
controlled by 5D992.z).'' By adding this more specific reference tied
to the new .z paragraphs, this AC/S IFR will make it easier for
exporters, reexporters, and transferors to know when this general
restriction will apply on the use of license exceptions. In the
introductory text of paragraph (a)(9)(ii), this AC/S IFR adds a
reference to new License Exception NAC by adding the phrase ``NAC,
under the provisions of Sec. 740.8.''
In addition to amending Sec. 740.2(a)(9) to prohibit the use of
license exceptions for certain ECCNs, including those with a .z
paragraph, BIS also notes restrictions for certain license exceptions
as a reminder for exporters. In Sec. 740.7 Computers (APP), this AC/S
IFR adds a reference to 4A003.z.2 or z.4 after the reference to 4A003.g
in paragraph (b)(1) to remind exporters that this restriction on the
use of License Exception APP will also apply when a commodity that is
described in 4A003.g is controlled under 4A003.z.2 or .z.4.
In Sec. 740.16 Additional permissive reexports (APR), this AC/S
IFR revises paragraphs (a)(2) and (b)(2)(ii) to add a reference to
3A001.z to ensure that the restrictions under 3A001.b.2 or b.3 will
continue to apply when a commodity described under one of those two
``items'' paragraphs is controlled under 3A001.z.
In Sec. 740.17 Encryption Commodities, Software and Technology
(ENC), this AC/S IFR makes several conforming changes to ensure the
intended scope of this license exception is not changed as a result of
the addition of the .z ``items'' paragraphs:
Under the fifth sentence of the introductory text to Sec. 740.17,
this AC/S IFR removes the reference to 5A992.c and 5D992.c and adds in
its place a reference to 5A992 and 5D992.
Under paragraph (b)(1) to Sec. 740.17, this AC/S IFR adds a
reference after 5A002.a to 5A002.z.1 and removes the reference to
5A992.c and 5D992.c and adds in its place a reference to 5A992 and
5D992. BIS could have added a reference to 5D992.z, but because ECCN
5D992 only includes ``items'' paragraphs .c and .z, it was simpler to
add a reference to 5D992.
Under paragraph (b)(2)(i)(D) to Sec. 740.17, this AC/S IFR after
5A002.c adds a reference to 5A002.z.3 to ensure the intended scope of
this provision is not changed as a result of the addition of the .z
``items'' paragraph.
Under the Note to paragraph (b)(2) to Sec. 740.17, this AC/S IFR
adds after ECCN 5A002.b a reference to 5A002.z.2 and after 5D002.b a
reference to 5D002.z.5 to ensure the intended scope of this provision
is not changed as a result of the addition of the .z ``items''
paragraph.
Under (b)(3) introductory text to Sec. 740.17, this AC/S IFR
removes 5A992.c and 5D992.c and adds in their place references to 5A992
and 5D992. BIS could have added a reference to 5D992.z, but because
ECCN 5D992 only includes ``items'' paragraphs .c and .z, it was simpler
to add a reference to 5D992.
Under (b)(3)(i) introductory text to Sec. 740.17, this AC/S IFR
after 5A002.a adds a reference to 5A002.z.1 to ensure the intended
scope of this provision is not changed as a result of the addition of
the .z ``items'' paragraph.
Under paragraph (b)(3)(iii)(B) to Sec. 740.17, this AC/S IFR after
5D002.a.3.b adds a reference to 5D002.z.4, and after 5D002.c.3.b adds a
reference to 5D002.z.9 to ensure the intended scope of this provision
is not changed as a result of the addition of the .z ``items''
paragraph.
Under paragraph (b)(3)(iv) to Sec. 740.17, this AC/S IFR after
5A002.b adds a reference to 5A002.z.2, and after 5D002.b adds a
reference to 5D002.z.5 to ensure the intended scope of this provision
is not changed as a result of the addition of the .z ``items''
paragraph.
Under paragraph (e)(3) second sentence to Sec. 740.17, this AC/S
IFR removes the reference to 5A992.c and 5D992.c and adds in its place
a reference to 5A992 and 5D992. BIS could have added a reference to
5D992.z, but because ECCN 5D992 only includes ``items'' paragraphs .c
and .z, it was simpler to add a reference to 5D992.
Under paragraph (f)(1) to Sec. 740.17, this AC/S IFR adds after
5A004.a a reference to 5A004.z.1 and z.2, after 5D002.a.3.a a reference
to 5D002.z.3 and z.8 to ensure the intended scope of this provision is
not changed as a result of the addition of the .z ``items'' paragraph.
Conforming Changes in Parts 742, 746, and 748
In Sec. 742.6 Regional stability, this AC/S IFR revises paragraph
(a)(6)(i), to remove the phrases beginning with ``5A992 (that meet or
exceed the performance parameters of ECCNs 3A090 or 4A090)'' and
``5D992 (that meet or exceed the performance parameters of ECCNs 3A090
or 4A090).'' Also in paragraph (a)(6)(iii), this AC/S IFR removes the
phrase ``elsewhere on the CCL that meet or exceed the performance
parameters of ECCNs
[[Page 73479]]
3A090 or 4A090'' and in its place references the nine .z ECCNs
``3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z, 5A004.z, 5A992.z,
5D002.z, or 5D992.z.'' As noted and requested by several commenters,
having a positive listing of relevant ECCNs will significantly ease the
burden on exporters, reexporters, and transferors and the controls will
be easier to implement.
In Sec. 746.8 Sanctions against Russia and Belarus, this AC/S IFR
adds .c after 5A992 and 5D992. This AC/S IFR makes this change to
ensure that 5A992.z and 5D992.z commodities and software will not be
within the scope of this exclusion.
In Sec. 742.15 (Encryption items), this AC/S IFR revises the third
sentence of paragraph (a)(1) to remove the .c after 5A992.c and 5D992.c
to ensure the scope of requirement is not changed by the addition of
5A992.z and 5D992.z.
In Sec. 746.10 `Luxury Goods' Sanctions Against Russia and Belarus
and Russian and Belarusian Oligarchs and Malign Actors, this AC/S IFR
adds .c after 5A992 and 5D992. This AC/S IFR makes this change to
ensure that 5A992.z and 5D992.z commodities and software will not be
within the scope of this exclusion.
In supplement no. 7 to part 748--Authorization Validated End-User
(VEU): List of Validated End-Users, Respective Items Eligible For
Export, Reexport And Transfer, And Eligible Destinations, this AC/S IFR
revises the VEU entry for ``Advanced Micro Devices China, Inc.'' in
China to remove the reference to 4A003 and add in its place the more
specific reference to 4A003.b through .g to ensure that the currently
approved scope of this VEU entry does not change because of the
addition of 4A003.z. In addition, this AC/S IFR revises the entry for
``Shanghai Huahong Grace Semiconductor Manufacturing Corporation'' in
China to remove the reference to 5A002 and add in its place the more
specific reference to 5A002.a through .e; remove the reference to 5A004
and add in its place a more specific reference to 5A004.a through .b;
and remove 5A992 and adds in its place a reference to 5A992.c. Also in
supplement no. 7 to part 748, this AC/S IFR revises the heading of the
supplement to add the parenthetical phrase ``(in-country)'' after the
term ``transfer'' for clarity on the scope of the VEU authorizations
under this supplement and for consistency with other EAR the
provisions, such as the definition of ``transfer (in-country).''
Conforming Changes to Sec. Sec. 770.2 and 772.1
In Sec. 770.2 Item interpretations, this AC/S IFR after 4A003.g
adds a reference to 4A003.z.2 and .z.4 in paragraph (l)(2) to ensure
the intended scope of this provision is not changed as a result of the
addition of the .z ``items'' paragraph.
In Sec. 772.1 Definitions of terms as used in the Export
Administration Regulations (EAR), this AC/S IFR revises Note 1 to the
term ``specially designed,'' to add the parenthetical phrase ``(except
for .z)'' after ECCNs 5A992 and 5D992 to ensure the intended scope of
this provision is not changed as a result of the addition of the .z
``items'' paragraph.
In ECCNs 3D001, 3E001, 4D001, 4E001, 5D002 5E002, and 5E992, this
AC/S IFR revises the License Requirement section of each of these nine
ECCNs to add related ``software'' and ``technology'' controls for the
new .z items added to the nine ECCNs 3A001, 4A003, 4A004, 4A005, 5A002,
5A004, 5A992, 5D002, and 5D992 to impose the same license requirements
on the related ``software'' and ``technology'' as applies to the .z
commodities this AC/S IFR adds.
Conforming Changes to the CCL
In ECCN 3D001, this AC/S IFR revises the TSR paragraph in the List
Based License Exceptions section to add after ECCN 3A001.b.8 a
reference to 3A001.z to ensure the intended scope of this provision is
not changed as a result of the addition of the .z ``items'' paragraph.
In ECCN 3E001, this AC/S IFR revises the TSR paragraph in the List
Based License Exceptions section to add after ECCNs 3A001.b.8,
3A001.e.4, 3A001.b.2, and 3A001.b.3 references to 3A001.z after each of
these items paragraphs to ensure the intended scope of this provision
is not changed as a result of the addition of the .z ``items''
paragraph. Also in ECCN 3E001 under the Special Conditions for STA
section, this AC/S IFR adds after ECCN 3A001.b.2 and .b.3 a reference
to 3A001.z to ensure the intended scope of this provision is not
changed as a result of the addition of the .z ``items'' paragraph. Also
in Note 2 in the ``items'' paragraph in the List of Items Controlled
section, this rule adds after 3A001.a.3 and .14 a reference to 3A001.z
to ensure the intended scope of this provision is not changed as a
result of the addition of the .z ``items'' paragraph.
In Note 3 to Category 4--Computers, this AC/S IFR after 5A002.a
adds a reference to 5A002.z.1 and z.6, and after 5A004.b adds a
reference to 5A004.z; after 5D002.c.3 adds references to 5D002.z.6,
5D002.z.8, and z.9. These changes are made to ensure the intended scope
of this provision is not changed as a result of the addition of the .z
``items'' paragraph.
In the Technical Note paragraph 2 in the TECHNICAL NOTE ON
``ADJUSTED PEAK PERFORMANCE'' (``APP'') at the end Category 4--
Computers, this AC/S IFR after 4A003.c adds a reference to 4A003.z.1
and z.3 to ensure the intended scope of this provision is not changed
as a result of the addition of the .z ``items'' paragraph.
In Note 3 to Category 5--Telecommunications and ``Information
Security'' Part 1--Telecommunications, this AC/S IFR after 5A002.a adds
a reference to 5A002.z.1 and z.6; after 5A004.b adds a reference to
5A004.z; after 5D002.c.1 adds a reference to 5D002.z.6; and after
5D002.c.3 adds a reference to 5D002.z.8 and z.9 to ensure the intended
scope of this note is not changed as a result of the addition of the .z
``items'' paragraph.
In Note 3 (Cryptography Note) to Category 5--Telecommunications and
``Information Security'' Part 2--``Information Security,'' to ensure
the intended scope of this note is not changed as a result of the
addition of the .z ``items'' paragraph, this AC/S IFR after 5D002.a.1
adds 5D002.z.1; after 5D002.b adds 5D002.z.5; and after 5D002.c.1 adds
5D002.z.6 . In addition, under the N.B. to Note 3 (Cryptography Note),
this AC/S IFR removes 5A992.c and 5D992.c and adds in their place 5A992
and 5D992. BIS could have added a reference to 5A992.z and 5D992.z, but
because ECCNs 5A992 and 5D992 only include ``items'' paragraphs .c and
.z, it was simpler to add references to 5A992 and 5D992.
In ECCN 5B002 under ``items'' paragraph .b in the List of Items
Controlled section, this AC/S IFR after 5D002.a adds a reference to
5D002.z.1 through z.4 and after 5D002.c adds a reference to 5D002.z.6
through z.9 to ensure the intended scope of this provision is not
changed as a result of the addition of the .z ``items'' paragraph.
In ECCN 5E002, this AC/S IFR under ``items'' paragraph a in the
List of Items Controlled section after 5D002.a adds a reference to
5D002.z.1 through .z.3, and after 5D002.c adds a reference to 5D002.z.6
through .z.8. Also in the Note to 5E002.a, this AC/S IFR after
5D002.a.3.b adds a reference to 5D002.z.4; and after 5D002.c.3.b adds a
reference to 5D002.z.9. Lastly under `items'' paragraph b in the List
of Items Controlled section, this AC/S IFR after 5A002.b adds a
reference to 5A002.z.2. All of these changes are made to ECCN 5E002 to
ensure the intended scope of
[[Page 73480]]
these provisions is not changed as a result of the addition of the .z
``items'' paragraph.
In ECCN 5E992, this AC/S IFR revises ``items'' paragraph b in the
List of Items Controlled section to remove 5D992.c and add in its place
5D992. BIS could have added a reference to 5D992.z, but because ECCN
5D992 only includes an ``items'' paragraph .c and .z, it was simpler to
add a reference to 5D992.
In ECCN 9A004, this AC/S IFR under ``items'' paragraph d in the
List of Items Controlled section, after 3A001.b.1.a.4 adds a reference
to 3A001.z (if also described in 3A001.b.1.a.4), after 5A002.c adds a
reference to 5A002.z.3, and after 5A002.e adds a reference to 5A002.z.5
and z.10 to ensure the intended scope of these provisions is not
changed as a result of the addition of the .z ``items'' paragraph.
In ECCN 9A515 under Note 2 to 9A515.d and .e, this AC/S IFR after
3A001.a adds a reference to 3A001.z to ensure the intended scope of
this note is not changed as a result of the addition of the .z
``items'' paragraph. In addition, under ``items'' paragraph x.4 in the
List of Items Controlled section, this rule after 3A001.e.4 adds a
reference to 3A001.z, after 3A001.b.4 adds a reference to 3A001.z; and
under ``items'' paragraph x.6 after 3A001.b.8 adds a reference to
3A001.z. All of these changes to ECCN 9A515 are made to ensure the
intended scope of these provisions is not changed as a result of the
addition of the .z ``items'' paragraph.
Conforming Changes to Supp. No. 6 to Part 774
In supplement no. 6 to part 774--Sensitive List, this AC/S IFR
revises paragraphs: (3)(i) to add after 3A001.b.2 the parenthetical
phrase ``(including those described under 3A001.b.2 that are controlled
by 3A001.z)''; (3)(ii) to add after 3A001.b.3 the parenthetical phrase
``(including those described under 3A001.b.3 that are controlled by
3A001.z);'' (3)(iv) to add after 3A001.b.3 the phrase ``equipment
described under 3A001.b.2 or 3A001.b.3 that are controlled under
3A001.z'' and after 3A002.g.1 to add the phrase ``and equipment
described under 3A002.g.2 that are controlled under 3A002.z;'' and
lastly under (3)(v) after 3A001.b.3, adds the phrase ``equipment
described under 3A001.b.2 or 3A001.b.3 that are controlled under
3A001.z'' and after 3A002.g.1 adds the phrase ``and equipment described
under 3A002.g.2 that are controlled under 3A002.z.'' All of these
changes to the Sensitive List are made to ensure the intended scope of
these provisions is not changed as a result of the addition of the .z
``items'' paragraph.
D. Export clearance changes to increase transparency of .z, 3A090,
and 4A090 shipments.
i. Identification of .z items in AES. The identification of items
under .z paragraphs will assist exporters, reexporters, and transferors
by having a distinct classification of these items under these nine
ECCNs, which will assist companies in reducing their compliance burdens
and keeping better track of these items. For all shipments to China,
regardless of dollar value, an Electronic Export Information (EEI)
filing is required in AES for any items classified under an ECCN on the
CCL pursuant to the requirement under Sec. 758.1(b)(10), which
includes the nine ECCNs that this rule adds .z paragraphs to, unless
authorized under License Exception GOV under Sec. 740.11. The
mandatory EEI filing requirement in AES is important for transparency
into which CCL items are being shipped to China. However,
classification information filed in AES is at the ECCN level and does
not include the ``items'' level classification. One exception to this
practice is in the case of end-item firearms for exporters who wish to
use the EEI filing in AES as the method for submitting conventional
arms reporting to BIS instead of submitting separate reports to BIS.
They do so by entering the items level classification as the first text
to appear in the Commodity description block in the EEI filing in AES.
The benefit for exporters would be undermined if they are not
allowed to identify in the EEI filing in AES the .z items level
classification because their shipments to a destination specified in
Country Groups D:1, D:4, or D:5, excluding any destination also
specified in Country Groups A:5 or A:6, could potentially be stopped if
someone from the U.S. Government had questions as to whether, for
example, the item was classified under ECCN 5A002.a or under 5A002.z.
The U.S. Government also has an interest in being able to easily
identify the .z items in the EEI filing data in AES. The solution to
this problem, to benefit both exporters and the U.S. Government, BIS
applies the successful model that has been used for identifying end-
item firearms in the EEI data in AES by adopting a similar type of
requirement for these .z paragraphs for EEI filings in AES. In Sec.
758.1 (The Electronic Export Information (EEI) Filing to the Automated
Export System (AES)), this rule adds a new paragraph (g)(5) (Exports of
.z items that meet or exceed the performance parameters of ECCN 3A090
or 4A090). New paragraph (g)(5) imposes a requirement for identifying
.z items by ``items'' level classification in the EEI filing in AES.
New paragraph (g)(5) specifies that for any export of .z items
controlled under ECCNs 3A001, 4A003, 4A004, 4A005, 5A002, 5A004, 5A992,
5D002, or 5D992 in addition to any other required data for the
associated EEI filing, the EEI filer must include the items paragraph
classification (i.e., .z), when applicable, for ECCNs 3A001.z, 4A003.z,
4A004.z, 4A005.z, 5A002.z, 5A004.z, or 5A992.z, 5D002.z, or 5D992.z. as
the first text to appear in the Commodity description block in the EEI
filing in AES.
ii. Identification of 3A090, 4A090, and .z commodities on the
commercial invoice. In Sec. 758.6, this AC/S IFR revises paragraph
(a)(2) to expand the list of ECCNs that an exporter must incorporate as
an integral part of the commercial invoice. Prior to this final rule
becoming effective, this requirement was limited to ECCN(s) for any
9x515 or ``600 series'' ``items'' being shipped (i.e., exported in
tangible form). This AC/S IFR adds 3A090 and 4A090, and the seven
commodity .z ECCNs 3A001.z, 4A003.z, 4A004.z, 4A005.z, 5A002.z,
5A004.z, and 5A992.z, to the requirement. This AC/S IFR does not add
ECCNs 5D002.z and 5D992.z to Sec. 758.6 because these exports would
typically be done in an intangible format. However, even when EEI is
not required to be filed in AES for an intangible export, BIS still
encourages exporters, as a good compliance practice, to identify the .z
classification for ECCN 5D002.z and 5D992.z on the commercial invoice
when applicable. For the nine ECCNs with a .z paragraph, the
requirement to include the classification only applies to commodities
classified under the .z paragraphs. If the commodity is classified
under any other items paragraph in one of those nine .z ECCNs, then the
requirement under Sec. 758.6(a)(2) is not applicable. This AC/S IFR
also specifies that the requirement for identifying ECCN 3A090 includes
identifying the commodity as either 3A090.a or .b.
BIS is adding this additional export clearance requirement to
increase the transparency of these items for entities receiving these
items overseas. In particular, with the foreign direct product rules
from the October 7 IFR also tied to these ECCNs, it will assist foreign
manufacturers and other parties to be able to more easily identify when
they receive a 3A090, 4A090, or a 3A001.z, 4A003.z, 4A004.z, 4A005.z,
5A002.z, 5A004.z, or 5A992.z ECCN item. BIS is aware that companies
outside the United States have
[[Page 73481]]
requested in the past on several occasions that BIS broaden the
requirement under Sec. 758.6(a)(2) to require additional ECCNs to be
included on the commercial invoice to assist them and reduce their
burden. There were also a significant number of comments in response to
the October 7 IFR that expressed concern that the burdens being imposed
in particular on reexporters may lead to a designing out of U.S.-origin
content, so broadening this requirement for U.S. exporters to assist
foreign manufacturers is a tangible way that BIS can reduce the burden
on reexporters, while at the same time helping to improve the
effectiveness of the October 7 IFR by ensuring greater transparency for
these items. BIS does not anticipate any change in the burden for
exporters as a result of this expanded requirement.
4. Expansion of RS License Requirements, and Adoption of Additional
Presumption of Approval License Review Policy With Certain Exclusions
That Will Be Presumption of Denial
A. Expansion of RS license requirement from China and Macau to
include Country Groups D:1, D:4, and D:5.
In Sec. 742.6 Regional stability, the AC/S IFR revises paragraph
(a)(6) (RS requirement that applies to advanced computing and
semiconductor manufacturing items) to reflect the expanded scope of
this paragraph for certain items. BIS is revising paragraph (a)(6)(i)
to remove references to 3A090 and 4A090 and the associated software and
technology, adding .z items created by this AC/S IFR, and imposing a
license requirement for these items under new paragraph (a)(6)(iii)
(Exports, reexports, transfers (in-country) to or within destinations
specified in Country Groups D:1, D:4, and D:5, excluding destinations
also specified in Country Groups A:5 or A:6). This AC/S IFR adds these
items under a separate paragraph (a)(6)(iii) because of the expanded
country scope of destinations in Country Groups D:1, D:4, and D:5 that
are not also specified in Country Groups A:5 or A:6, which will apply
to these items. The broader country scope license requirement for these
items identified under paragraph (a)(6)(iii) is warranted to address
diversion concerns from these destinations specified in Country Groups
D:1, D:4, and D:5 (excluding destinations also specified in Country
Groups A:5 or A:6) to China and Macau. BIS notes that these additional
countries are members of Country Group D:1, D:4, or D:5 because of
concerns related to national security or missile technology
proliferation, or as countries subject to a U.S. arms embargo,
respectively. A fuller description of the national security concerns
that led to these changes can be found in section C of this rule,
including a description of the different license review policies that
apply to some of these additional Country Group D:1, D:4, or D:5
destinations compared to China and Macau. See section C.4 for the
description of the license review policies.
Also, in Sec. 742.6(a)(6), the AC/S IFR removes Sec.
742.6(a)(6)(ii) (Deemed exports) and redesignates that paragraph as
(a)(6)(iv), as described further below under Section C.3.B. In
addition, this AC/S IFR removes the former license requirement under
paragraph (a)(6)(i) that applied to exports from abroad originating in
either China or Macau, and adds that under paragraph (a)(6)(ii),
including adding references to the .z items this AC/S IFR adds to the
EAR, consistent with Sec. 734.9(h)(1)(i)(B)(1) and (h)(2)(ii) of the
EAR. This AC/S IFR redesignates this text also under paragraph
(a)(6)(ii) because BIS is not expanding the country scope of the FDP
rules under Sec. 734.9(h)(1)(i)(B)(1) and (h)(2)(ii) of the EAR. This
AC/S IFR also removes paragraph (a)(6)(ii) (which this SME IFR
redesignated as (a)(6)(iii) and this AC/S IFR redesignates as
(a)(6)(iv)), as described further below under section C.3.B). Also, in
Sec. 742.6, this rule redesignates the introductory text of paragraph
(b)(10) (Advanced computing and semiconductor manufacturing items) as
new paragraph (b)(10)(i) (License review policy for paragraphs
(a)(6)(i) and (ii)) to specify the license review policy that applies
to those two new paragraphs. This AC/S IFR specified that such license
applications will be reviewed consistent with license review policies
in Sec. 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 rule.
This AC/S IFR also adds a new paragraph (b)(10)(ii) (License review
policy for paragraph (a)(6)(iii)) to specify license applications for
items specified in paragraph (a)(6)(iii) to or within destinations not
specified in Country Group D:5 (except Macau) will be reviewed on a
presumption of approval basis, unless the export, reexport, or transfer
(in-country) is to an entity headquartered in or whose ultimate parent
company is headquartered in, either Macau or a destination specified in
Country Group D:5, in which case license applications will be reviewed
under a presumption of denial. This AC/S IFR also specifies that
license applications for items to or within Macau or destinations
specified in Country Group D:5 for items specified in paragraph
(a)(6)(iii) will be reviewed under a presumption of denial.
In conformity to the changes described above, this AC/S IFR also
revises ECCNs 3A001, 3D001, 3E001, 4A003, 4A004, 4A005, 5A002, 5A004,
and 5D002 to add a RS license requirement and a reference to
destinations specified in Country Groups D:1, D:4, or D:5 (excluding
destinations specified in Country Groups A:5 or A:6). Similarly, the RS
license requirement in ECCNs 3A090, 4A090, 5A992, and 5D992 is revised
to remove the reference to ``China and Macau'' and to add in its place
a reference to destinations specified in Country Groups D:1, D:4, or
D:5 (excluding destinations specified in Country Groups A:5 or A:6).
B. Exclusion of deemed exports and deemed reexports.
This AC/S IFR removes Sec. 742.6(a)(6)(iii) that, prior to the
effective date of this SME IFR, specified that deemed exports and
deemed reexports were excluded from the license requirements under
paragraph (a)(6) and redesignates this paragraph as paragraph
(a)(6)(iv). See section D question 4 for specific public comments BIS
is seeking on the application of deemed exports and deemed reexports.
5. Clarifications for ``U.S. Person'' End Use Control
A. Clarification of the scope of ``U.S. persons'' activities
controlled under Sec. 744.6(c)(2) with the addition of new paragraph
(c)(3).
This AC/S IFR revises paragraphs (c)(2)(i) and (ii) to broaden the
country scope of those controls from Macau and China to apply to Macau
and destinations specified in Country Group D:5 when you know the item
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.
This AC/S IFR also adds a paragraph (c)(3) (Scope of activities of
``U.S. persons'' that require a license under Sec. 744.6(c)(2) of the
EAR) to clarify the scope of activities that are caught under Sec.
744.6(c)(2)(i) through (iii). This clarification, partially codifying
previously issued guidance from BIS through Frequently Asked Questions
for the October 7 IFR, addresses questions received regarding the types
of activities of ``U.S. persons'' that are intended to be
[[Page 73482]]
caught and are subject to the paragraph (c)(2)(i) through (iii) license
requirements. This AC/IFR adds paragraph (c)(3)(i) to specify that the
``U.S. persons'' controls in Sec. 744.6(c)(2) apply to persons who
meet the criteria under paragraph (c)(3)(i)(A), (B), or (C).
The persons subject to the license requirements under paragraph
(c)(3)(i)(A) are ``U.S. persons'' that authorize the shipment,
transmittal, or transfer (in-country) of items not subject to the EAR,
under paragraph (c)(3)(i)(B) are ``U.S. persons'' that conduct the
delivery, by shipment, transmittal, or transfer in-country, of items
not subject to the EAR, and under paragraph (c)(3)(i)(C) are ``U.S.
person'' that service, including maintaining, repairing, overhauling,
or refurbishing items not subject to the EAR.
This AC/S IFR also adds paragraph (c)(3)(ii) (Due diligence) to
illustrate the type of due diligence that should be undertaken when
reviewing a transaction for purposes of Sec. 744.6(c)(2)(i) through
(iii). ``U.S. persons'' should conduct due diligence to determine
whether the end use for the item not subject to the EAR involves the
``development'' or ``production'' of ``advanced-node integrated
circuits versus other legacy ICs.'' Paragraph (c)(3)(ii) provides
examples of what appropriate due diligence may include, including
guidance for how to resolve potential red flags.
Lastly, this AC/S IFR adds a new paragraph (d)(1) (Exclusion of
certain administrative and clerical activities and information
otherwise excluded), which includes adding new paragraph (d)(1)(i)
(Exclusion of Certain administrative and clerical activities) to
specify the types of ``U.S. person'' activities that are excluded from
the controls in Sec. 744.6. This AC/S IFR also adds new paragraph
(d)(1)(ii) that clarifies that the scope of Sec. 744.6(c)(2) does not
include information or software that would otherwise be excluded from
the EAR based on the exclusion criteria under part 734, e.g., under
Sec. 734.7 Published and Sec. 734.8 ``Technology'' or ``software''
that arises during, or results from, fundamental research. This AC/S
IFR also adds paragraph (d)(1)(iii) to add an exclusion of law
enforcement and intelligence operations of the U.S. Government to
specify the ``U.S. persons'' criteria in Sec. 744.6(c)(2)(i)-(iii) do
not extend to ``U.S. persons'' conducting law enforcement and
intelligence operations of the U.S. Government.
B. Addition of guidance for submitting license applications for
``U.S. persons'' activities.
In supplement no. 2 to part 748--Unique Application and Submission
Requirements, this rule adds a new paragraph (s) (``U.S. person''
support activities that require a license under Sec. 744.6), to
provide guidance on how to apply for a license application for ``U.S.
person'' activities that require a license application under Sec.
744.6. The guidance, codifying and expanding upon previously issued BIS
Frequently Asked Questions on this issue, is under new paragraph (s).
The provision specifies that applicants should use the reexport
designation on the SNAP-R form and in the ``Additional Information''
section of the license application, they should note that a license is
required for the transaction under Sec. 744.6 of the EAR. The guidance
also specifies that in the special purpose field, the applicant should
describe the specific activity the ``U.S. person'' is engaged in that
requires a license. In addition, the guidance specifies the applicant
should provide the ECCN of the technology or item or, if unknown, use
EAR99 (regardless of whether the items are subject to the EAR), as well
as a complete explanation of the activity in supplemental
documentation.
In Sec. 748.8 (Unique application and submission requirements),
this rule makes a conforming change to add a new paragraph (d) (U.S.
person support activities that require a license under Sec. 744.6).
This rule also, as additional conforming changes with the existing
supplement no. 2 to part 748, adds paragraphs (s) (Exports of firearms
and certain shotguns temporarily in the United States); (t) (``600
Series Major Defense Equipment''); and (z) (Semiautomatic firearms
controlled under ECCN 0A501.a). Paragraphs (s), (t), and (z) were
included in supplement no. 2 to part 748, but were inadvertently
omitted from the text in Sec. 748.8, so this rule corrects that
oversight.
6. Expansion of Sec. 744.23 To Add Two Additional End-Use license
Requirements
A. Addition of end-use control for Macau and D:5 headquartered
(headquartered in or whose ultimate parent company is headquartered in
Macau or Country Group D:5), companies when located outside of D:1,
D:4, or D:5.
In Sec. 744.23 ``Supercomputer'' and semiconductor manufacturing
end use, this rule expands the scope of the end-use controls under this
section by adding two new end-use controls. First, this AC/S IFR adds
under paragraph (a)(3)(i) a new advanced computing end-use control
which will apply to any item subject to the EAR and specified in ECCN
3A001.z, 3A090, 4A003.z, 4A004.z, 4A005.z, 4A090, 5A002.z, 5A004.z,
5A992.z, 5D002.z, or 5D992.z. A license will be required under
paragraph (a)(3)(i) for the export, reexport, or transfer (in-country)
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) of commodities identified in ECCNs 3A001.z, 3A090, 4A003.z,
4A004.z, 4A005.z, 4A090, 5A002.z, 5A004.z, 5A992.z, or 5D002.z, or
5D992.z when the exporter, reexporter, or transferor has ``knowledge''
at the time of the export, reexport, or transfer (in-country) that item
is destined for any entity that is headquartered in, or whose ultimate
parent company is headquartered in, either Macau or a destination
specified in Country Group D:5. This additional end-use control is
needed to ensure that the national security objectives of the October 7
IFR and this AC/S IFR are not undermined by Macau, PRC or other Country
Group D:5 entities setting up cloud or data servers in other countries
to allow these headquartered companies of concern to continue to train
their AI models in ways that would be contrary to U.S. national
security interests. This expanded end-use control is intended to target
entities of concern, such as a PRC-headquartered cloud or data server
provider located outside of China in a destination other than Country
Groups D:1, D:4, or D:5, excluding any destination also specified in
Country Groups A:5 or A:6. The license requirements under this end-use
control apply to destinations in Country Group A:5 and A:6 and any
other destination not specified in Country Groups D:1, D:4, or D:5.
B. Addition of end-use control for ``production'' of advanced
computing items in any destination worldwide when using certain direct
products exported from Macau or a destination specified in Country
Group.
This AC/S IFR adds an additional end-use control for the items
identified under paragraph (a)(3)(ii) to specify an end-use control
applies to any ``technology'' subject to the EAR and specified in ECCN
3E001 (for 3A090) ``technology'' when the technology meets all of the
following: the technology is developed by an entity headquartered in or
whose ultimate parent company is headquartered in, either Macau or a
destination specified in Country Group D:5; the technology is subject
to the EAR pursuant to the FDP rule in Sec. 734.9(h)(1)(i)(B)(1) and
(h)(2)(ii) of the EAR; and the technology is for the reexport or
transfer (in-country) from or within Macau or a
[[Page 73483]]
destination specified in Country Group D:5to any destination worldwide
of 3E001. The FDP rule requirement highlighted above is intended to
better ensure the intent of these two FDP rules are not able to be
circumvented by trying to conduct these types of activities outside of
Macau or destinations specified in Country Group D:5 by entities
headquartered in, or whose ultimate parent company is headquartered in,
either Macau or a destination specified in Country Group D:5.
C. Expansion of Country Scope to conform to broader country scope
included in this AC/S IFR.
This AC/S IFR as a conforming change also revises paragraphs
(a)(1)(ii)(A) and (B) and (a)(2)(i) and (ii) to remove China and add in
its place the broader country scope of Macau and any destination
specified in Country Group D:5.
D. Revision of Supercomputer end-use control.
This AC/S IFR revises paragraph (a)(1)(ii)(A) and (B) to broaden
the destination scope of the supercomputer end-use control by replacing
``China or Macau'' with ``Macau or a destination specified in Country
Group D:5.''
7. Addition of ECCNs 3A991.p .z, 4A994.l, or .z to License Exception
CCD
In Sec. 740.19 Consumer communications devices (CCD), this final
rule adds a new paragraph (b)(17) to add commodities described under
3A991.p or 4A994.l, as commodities eligible for License Exception CCD.
ECCNs 3A991.p and 4A994.l were not included in the October 7 IFR. BIS
determined it is warranted to add these commodities as eligible
commodities under License exception CCD because these ECCNs are for
low-level items and are in line with other items identified as eligible
for License Exception CCD. This AC/S IFR as a conforming change also
revises paragraph (b)(16) to remove the period and add a semi-colon and
the word ``and'' after the semi-colon to reflect the addition of new
paragraph (b)(17).
8. Broadening the Country Scope of the Advanced Computing FDP Rule
In Sec. 734.9(h) (Advanced computing FDP rule), this AC/S IFR
broadens the country scope of the advanced computing FDP rule by
revising paragraph (h)(2) (Destination or end use scope of the advanced
computing FDP rule). Specifically, BIS revises paragraphs (h)(2)(i) and
(ii) by removing ``PRC or Macau'' and adding in its place a
``destination specified in Country Groups D:1, D:4, or D:5, excluding
any destination also specified in Country Groups A:5 or A:6.'' Under
revised paragraph (h)(2)(i) the country scope also extends worldwide
when the ``direct product'' is to or for an entity headquartered in or
whose ultimate parent company is headquartered in, either Macau or a
destination specified in Country Groups D:5. This AC/IFR also adds a
new Note to paragraph (h)(2) to clarify that the requirements apply
when any of these headquartered in or whose ultimate parent company is
headquartered in, companies are a party to the transaction involving
the foreign-produced item, e.g., as a ``purchaser,'' ``intermediate
consignee,'' ``ultimate consignee,'' or ``end-user.'' Additional
corrections and clarifications to this section are described in Section
C.11.A of this rule.
9. Clarification That Model Certificate May Be Used for All Foreign
Direct Product (FDP) Rules
In supplement no. 1 to part 734--Model Certification for Purposes
of Advanced Computing FDP rule, this AC/S IFR revises the heading to
Model Certification for Purposes of the FDP rules, and revises
paragraph (a) of that supplement to clarify that the model
certification may be used for any of the FDP rules under Sec. 734.9.
This AC/S IFR revises paragraph (a) to clarify that the model
certificate may be provided by any entity in a supply chain or to an
exporter, reexporter, or transferor of the item. In addition, this rule
adds an example to improve public understanding that the model
certification may flow more than one way (forward or backwards) in a
supply chain.
This AC/S IFR also revises paragraph (b) (model criteria), to
revise the introductory text of paragraph (b) and the text of paragraph
(b)(2) to make the model certification applicable for any of the FDP
rules under Sec. 734.9. New paragraphs (b)(2)(i) through (ix) to
provide model criteria for any of the FDP rules that is applicable to
their scenario.
This AC/S IFR removes paragraph (b)(3) because the substance of
paragraph (b)(3) is already addressed under paragraph (b)(2).
This AC/S IFR also redesignates paragraph (b)(4) as (3) and revises
the newly redesignated paragraph to make a conforming edit to add the
phrase ``or exporter(s), reexporter(s), or transferor(s)'' to clarify
that the model certification can flow in either direction in a supply
chain. This AC/S IFR also revises Note 1 to paragraph (b) to clarify
that the model certification can flow from the exporter, reexporter, or
transferor to another entity in the supply chain or may flow the other
way from a consignee back to an exporter, reexporter, or transferor in
the supply chain. The purpose of the model certification is to enhance
awareness of the potential applicability of the FDP rules in supply
chains, so there is flexibility for how entities use the model
certification between different entities involved in supply chains to
help achieve that objective.
10. Changes To Enhance and Assist With Compliance
A. Addition of five new red flags to assist with compliance.
In supplement no. 3 to part 732--BIS's ``Know Your Customer''
Guidance and Red Flags, this AC/S IFR adds five new red flags that are
intended to provide additional compliance guidance to assist exporters,
reexporters, and transferors as part of their compliance programs for
the October 7 IFR. Several commenters on the October 7 IFR requested
BIS add red flags to the EAR that have applicability for the types of
transactions involving items from the October 7 IFR, similar to what
was done when the ``600 series'' military items were moved to the EAR
under Export Control Reform. BIS agreed with the commenters and adds
five new red flags to assist exporters, reexports, and transfers
identify potential red flags.
New red flag 15 identifies a scenario where, prior to the October 7
IFR, a customer's website or other marketing materials indicated that
the company had advertised or otherwise indicated its capability for
``developing'' or ``producing'' ``advanced-node integrated circuits.''
This type of activity would raise a red flag and require additional due
diligence.
New red flag 16 is a variant of some of the red flags regarding a
mismatch between what a customer says an item would be used for, and
the item's traditional use. New red flag 16 provides a similar type of
example but makes it specific to items intended for the ``development''
or ``production'' of ``advanced-node integrated circuits.''
New red flag 17 identifies a scenario where the customer is
``known'' to ``develop'' or ``produce'' items for companies located in
Macau or a destination specified in Country Group D:5 that are involved
with supercomputers, which would also trigger a red flag under the EAR.
This type of scenario may be indicative that the items that are being
``developed'' or ``produced'' may be for use in supercomputers and
warrants additional due diligence.
[[Page 73484]]
New red flag 18 addresses how exporters, reexporters, or
transferors should evaluate anticipated future capabilities, which was
another issue about which commenters sought additional compliance
guidance, in particular the end-use controls under Sec.
744.23(a)(2)(i), (ii), or (iii), which have been redesignated as
paragraph (a)(1)(i)(A) and (B) and (a)(2)(i) in this SME IFR. New red
flag 18 specifies that in scenarios where a customer has indicated
intent to ``develop'' or ``produce'' supercomputers or integrated
circuits in Macau or a destination specified in Country Group D:5 in
the future that would otherwise be restricted under Sec.
744.23(a)(2)(i), (ii), or (iii), redesignated as paragraphs
(a)(1)(i)(A) and (B) and (a)(2)(i), raises a red flag under the EAR.
New red flag 19 addresses how semiconductor fabrication facilities
can identify when they receive an order from a destination in Country
Groups D:1, D:4, or D:5 or worldwide from an entity headquartered in or
whose ultimate parent company is headquartered in, either Macau or a
destination specified in Country Group D:5 where the item to be
produced is likely a ``direct product'' that will be subject to the EAR
under Sec. 734.9(h). Red flag 19 is part of BIS's efforts to provide
guidance to semiconductor fabrication facilities trying to develop
enhanced FDP guidance for recognizing ``direct products.''
Specifically, BIS is adding this new red flag 19 to better assist any
semiconductor fabrication facility that is or will be producing, for a
company headquartered in or whose ultimate parent company is
headquartered in, either Macau or a destination specified in Country
Group D:5 an IC, or a computer, ``electronic assembly,'' or
``component'' that incorporates an IC that meets certain specified
criteria under Sec. 734.9(h)(1)(i)(B)(2) and (h)(1)(ii)(B)(2) that
there is a high degree of likelihood (``knowledge'') that the ``direct
product'' that is or will be ``produced'' is within the product scope
of Sec. 734.9(h). This criteria specifies that if the item that is or
will be produced is an IC, or a computer, ``electronic assembly,'' or
``component'' that incorporates more than 50 billion transistors and
high-bandwidth memory (HBM), it raises a red flag that there is a high
degree of likelihood that a license is required under the EAR for
reexport or export from abroad of that ``direct product'' if destined
to any destination in Country Groups D:1, D:4, or D:5 excluding
destinations also specified in Country Groups A:5 or A:6 unless the red
flag is resolved. BIS emphasizes here in this AC/S IFR that red flag 19
is only applicable if the entity has ``knowledge'' the criteria of the
red flag 19 are met. If the entity does not have ``knowledge'' that the
transaction would otherwise meet the criteria under red flag 19, then
this red flag is not applicable.
A reexporter or transferor may take additional steps as part of
their compliance program to attempt to resolve the red flag, e.g.,
obtaining additional information from the entity requesting the item to
be produced, in order to determine whether the item being produced is
outside the scope of Sec. 734.9(h)(1)(i)(B)(2) and (h)(1)(ii)(B)(2).
The addition of red flag 19 in this rule includes
[…truncated; see source link]Indexed from Federal Register on October 25, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.