The issue of export control restrictions on US nationals or green card holders working in/with China-listed "entity" companies is not new. Rules and regulations have existed governing the duties and obligations of a US person (defined as a US citizen, permanent resident or US entity) working as an employee, board adviser or third-party contractor (including a lawyer) for any China entity placed on a restricted list maintained by: (1) US Defense Department; or (2) BIS (Bureau of Industry and Security) Entities.
Those rules have been expanded recently to include 14/16nm products, advanced computing and AI, other technologies posing a national security threat to the US and its allies. The US government has also expanded the China Entity List.
Historically prior to the recent intensified focus on China, there was a low risk for a US person being found to violate US Export Control Rules when working for an entity placed on a BIS Entities List. This is because the enforcement of the EAR (Export Administration Regulations) prohibitions previously focused principally on the country of origin of those items.
Section 744.6 of the Export Administration Regulations of the Bureau of Industry and Security contains restrictions on certain activities of a US person related to prohibited end uses.
Regarding activities related to exporting of items for prohibited end use, this now applies to any China semiconductor devices at technology nodes 16 nanometers (as changed from 10 to 14 and now 16 nanometers) or below, were China companies to manufacture any such devices in violation of the BIS Entity List designation. 744.6(a)(1) prohibits a US person from "knowingly" exporting or "supporting" the export of items that will be used in the design, development, production or use of nuclear devices (Country Group D:2 which does not cover China), missiles (Country Group D:4 which covers China) or chemical/biological weapons in any country worldwide. This would apply to any China entity-produced semiconductor devices at advanced technology nodes of 16 nanometers or below, were a China listed entity to manufacture any such devices in violation of the BIS Entity List designation.
With respect to activities unrelated to exporting of such items, Section 744.6(a)(2)(i-iii) prohibits without a license the performance of any "contract, service or employment that the US person knows will directly assist in the design, development, production, or use of missiles in or by a country listed in Country Group D:4 (which covers China)"; or chemical/biological weapons in or by any country; or any plants used to make chemical weapons. This would apply to any China-listed entity-produced semiconductor devices at advanced technology nodes of 16 nanometers or below, were a listed entity to manufacture any such devices in violation of the BIS Entity List designation.
On August 22, 2004, the BIS issued an advisory opinion #10319 limited to the facts of whether a board director violated Section 744.6(a)(2)(i) when overseeing a company that sold ASICs designed for missiles.
The BIS reviewed the standard of "knowledge" as defined in footnote 3 and stated that service as a director and his awareness regarding sales of missile ASICs "do not alone result in a license requirement under Section 744.6(a)(2)(i)." Section 744.6(a)(1)(ii) defines "support" as: "any action, including financing, transportation, and freight forwarding, by which a person facilitates an export." This would apply to a US person working with a listed entity, even if said US person was not involved in such design, production or export.
The BIS warned that certain specific actions by a director could constitute direct assistance that would result in a license requirement such as: "reviewing and approving a contract with missile end-users that indicates a missile end use, supervising or approving personnel assignments or other actions supporting a missile end use, authorizing transmission of technology or provision of services or resources for a missile end use, or approving a business plan designed to attract customers engaged in missile production or to meet the needs of such customers."
Although this advisory opinion relates to a board director, it would be best practice to apply the BIS reasoning to analogous situations for employees or third-party contractors (law firms/auditors). A US person hired by China listed-entity in an executive capacity would also face potential liability for any China listed entity-produced semiconductor devices at advanced technology nodes 16 nanometers or below, were a listed entity to manufacture any such devices in violation of the BIS Entity List designation.
Today - Recent Expansion of the EAR
On October 7, 2022, BIS issued a much-anticipated interim final rule implementing "necessary export controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain manufacturing items." Also, BIS is expanding controls on transactions involving supercomputer and semiconductor manufacturing end uses that are detrimental to "US national security and foreign policy interests." BIS has also added new Export Control Classification Numbers (ECCNs).
Concurrently, the BIS announced it is amending the EAR by adding 31 persons to the Unverified List (UVL) for China. New criteria is established for placing a China organization on the Entity List, including, for the first time, the lack of cooperation by the China government in conducting an UVL end-use check. Exactly what will be considered has been left intentionally vague. Previous license exceptions for UVL parties is now suspended.
Also, a savings clause has been added for shipments established prior to October 7. And, under Section 744.11 the BIS "may impose foreign policy export, re-export, and transfer (in-country) license requirements, limitations on availability of license exceptions, and set license application review policy based on the criteria in this section." This provision allows BIS to further define and enforce the provisions of the EAR discussed above related to individuals.
These rule changes follow on the heals and are authorized by recent presidential orders designed to further tighten existing rules and regulations applicable to China as well as other identified countries such as Russia and North Korea. BIS announced the expanded export control rules on October 7 in a press release. Specifically, the rule:
(1) Adds certain advanced and high-performance computing chips and computer commodities that contain such chips to the Commerce Control List (CCL);
(2) Adds new license requirements for items destined for a supercomputer or semiconductor development or production end use in the PRC;
(3) Expands the scope of the EAR over certain foreign-produced advanced computing items and foreign produced items for supercomputer end uses;
(4) Expands the scope of foreign-produced items subject to license requirements to twenty-eight existing entities on the Entity List that are located in the PRC;
(5) Adds certain semiconductor manufacturing equipment and related items to the CCL;
(6) Adds new license requirements for items destined to a semiconductor fabrication "facility" in the PRC that fabricates ICs meeting specified. Licenses for facilities owned by PRC entities will face a "presumption of denial," and facilities owned by multinationals will be decided on a case-by-case basis. The relevant thresholds are as follows: Logic chips with non-planar transistor architectures (i.e., FinFET or GAAFET) of 16nm or 14nm, or below; DRAM memory chips of 18nm half-pitch or less; NAND flash memory chips with 128 layers or more.
(7) Restricts the ability of US persons to support the development, or production, of ICs at certain PRC-located semiconductor fabrication "facilities" without a license;
(8) Adds new license requirements to export items to develop or produce semiconductor manufacturing equipment and related items; and
(9) Establishes a Temporary General License (TGL) to minimize the short-term impact on the semiconductor supply chain by allowing specific, limited manufacturing activities related to items destined for use outside the PRC.
Item #7, highlighted above, emphasizes that BIS and other government agencies will now apply the existing rules discussed earlier to "US persons" as defined above. The phrase "development, or production" will include all ICs covered in the EAR including the "guardrail" provisions of chips plus legislation.
Some examples of restricted people and activities could include, and not be limited to the following list:
*American executives and engineers working at American equipment vendors such as Applied Materials, KLA can no longer support operations at certain Chinese fabs covered by the BIS Rules (the "Chinese Restricted Fabs");
*PRC nationals who are American citizens or green-card holders;
*US executives/engineers working at the Chinese Restricted Fabs such as Yangtze Memory Technologies;
*Local PRC nationals who are American citizens or green-card holders shipping equipment to the Chinese fabs producing certain ICs;
*Taiwanese IP integration service providers based in Taiwan (if there are employed Taiwanese-American engineers or US green card holder executives) working on certain IPs with the Chinese Restricted Fabs (as "support the development"); and
*Taiwanese equipment vendors who make packaging equipment for the production of 14nm chips if the Taiwanese equipment company's executive/engineers are American citizens or green card holders.
Keep in mind that the list is based on potential legal interpretation. Ultimately, a determination would depend on whether and to what extent the US would want to give Taiwan a pass, which initially appears to be the case. We have always lived with uncertainties on this point but that uncertainty is much worse today. In a sense, this is a form of economic racism. The countries and people most affected are of Asian nationality and not Caucasian (some may call it "Christian terrorism"). This issue will create a further techno-economic divide between East and West. The US may have unintentionally enabled China to do something it has failed to do since the Cultural Revolution - to create a global economic juggernaut. In fact, the issue of "Ren Cai Qiang Guo" - talent development - was a core element of Xi Jinping's recent speech.
In conclusion, what is now happening in the US export control regime is that previous boundaries for the EAR and other restrictions on China (and other identified countries) are now made broader and more inclusive, with far more serious penalties for violations. US economic/technology security nationalism is evolving more restrictively than experienced during the US-Soviet Cold War era.
My concern and deepest fear is that we may now be witnessing the emergence of a more dangerous Eco-Techno Cold War, also to be known as Cold War 2.0.
(Editor's note: The author, Richard L Thurston, is an independent board member of Nantero. He previously spent more than 15 years at TSMC as a general counsel. He helped build up a sophisticated intellectual property and trade secret protection mechanism and participated in many key moments of the Taiwan-based foundry house's growth and success.)