The New Export Controls on Advanced Semiconductors

The U.S. Government Accountability Office (GAO) recently examined the Department of Commerce’s Bureau of Industry and Security (BIS) implementation of rules regulating the export of advanced semiconductors. These tiny but powerful components are integral to technologies such as artificial intelligence, communications, and weapons systems. As a result of national security concerns, the BIS introduced significant measures to control the export of advanced semiconductors and related manufacturing equipment, with a particular focus on restricting access by the People’s Republic of China (PRC). This analysis explores the creation, implementation, and compliance challenges associated with these rules, as well as their implications for the semiconductor industry and broader geopolitical considerations.

The BIS introduced three pivotal rules in October 2022 and October 2023, marking the most comprehensive effort yet to regulate advanced semiconductor exports. These interim final rules were implemented to preempt stockpiling and address urgent national security and foreign policy concerns. They regulate exports based on technical specifications, end-use applications, and the involvement of entities on restricted lists. The rules also created new licensing requirements for U.S. persons engaged in semiconductor activities and imposed restrictions on foreign-produced items derived from U.S. technologies. This regulatory framework seeks to prevent the PRC from leveraging advanced semiconductors for military advancements and espionage, aligning with broader U.S. strategies to maintain technological superiority.

Developing these rules required extensive collaboration. BIS consulted with federal agencies, industry experts, and international partners to address technical and scientific challenges while minimizing market disruptions. This approach was complemented by public feedback processes, although the interim nature of the rules limited the scope of such input before enforcement. Efforts were made to refine rule definitions and address ambiguities, such as clarifying the classification of semiconductor equipment and updating export control lists to align with evolving technologies.

Implementation has involved significant outreach and coordination. BIS has worked with private-sector stakeholders to improve compliance through seminars, training sessions, and online resources. It has also engaged foreign partners to harmonize export control policies and establish collaborative mechanisms like the Disruptive Technology Protection Network with Japan and South Korea. Additionally, BIS has established new license exceptions to facilitate legitimate trade while adhering to national security objectives. These exceptions enable faster processing for exports to specific destinations under strict conditions.

Despite these efforts, the private sector has faced notable challenges in complying with the rules. Companies have cited the rules’ complexity, lack of clarity, and breadth as significant obstacles. For example, some businesses struggled to interpret technical parameters or navigate the intricate licensing processes. The cost of compliance, including hiring specialized legal counsel and updating internal compliance systems, has also been a concern. Furthermore, discrepancies in international export controls have created competitive disadvantages for U.S.-based firms, prompting calls for greater international alignment.

To address these challenges, BIS has taken several responsive measures. It has clarified technical definitions, revised licensing processes, and created resources such as FAQs to assist businesses. These actions reflect an iterative approach to rulemaking, aimed at balancing regulatory enforcement with industry concerns. Nonetheless, gaps remain, particularly in ensuring timely guidance and addressing the uneven playing field in global markets.

The implications of these export controls extend beyond the semiconductor industry. By restricting access to advanced technologies, the rules aim to curtail the PRC’s ambitions in artificial intelligence and military modernization. However, they also underscore the strategic importance of maintaining U.S. leadership in semiconductor innovation. The CHIPS Act of 2022, which allocated over $50 billion for domestic semiconductor development, complements these efforts by bolstering the U.S. production capacity and supply chain resilience.

Looking ahead, BIS plans to continue refining these rules in response to technological advancements and geopolitical shifts. Periodic updates will incorporate public feedback, address emerging challenges, and enhance the clarity of regulations. This adaptive strategy is critical to ensuring that export controls remain effective in safeguarding national security while fostering international collaboration.

This blog post is a summary based on publicly available information and is not guaranteed to be accurate or comprehensive. It does not constitute legal advice.