On December 2, 2024, the Bureau of Industry and Security (BIS), a division of the U.S. Department of Commerce, enacted two significant rulemakings aimed at restricting China’s capabilities in the semiconductor and advanced computing sectors. The initiatives are part of the U.S. government's broader strategy to hinder Chinese advancements in technologies with military applications, particularly in artificial intelligence (AI) and sophisticated weaponry.

The new regulations encompass a variety of measures, including the imposition of stringent controls on numerous types of semiconductor manufacturing equipment (SME) and specific software tools crucial for chip development and production. Among the outlined changes, there are updated guidelines pertaining to 24 categories of semiconductor equipment and three types of software, as well as reinforced oversight on high-bandwidth memory (HBM) — an essential element in advanced computing integrated circuits and AI systems.

According to BIS, the new Interim Final Rule (IFR) significantly alters the Export Administration Regulations (EAR) that govern the export of advanced computing items, supercomputers, and semiconductor manufacturing machinery. This comprehensive update includes both revisions to existing classifications and the introduction of new Export Control Classification Numbers (ECCNs). These updates specifically cover a range of equipment required for the fabrication of next-generation integrated circuits, addressing critical tools such as lithography, etching, and inspection machinery.

Additionally, the regulations include controls on software tools designed for chip production, highlighting both Electronic Computer Aided Design (ECAD) and Technology Computer Aided Design (TCAD) software. As noted in the IFR, these updates are specifically enforced when there is knowledge that such software is intended for the design of advanced-node integrated circuits to be fabricated in Macau or other locations identified within the restrictive Country Group D:5 of the EAR, which notably includes China. This measure underscores a growing concern regarding the transfer of critical technology.

The BIS also introduced new controls concerning high-bandwidth memory, which plays a vital role in the training of AI systems and large-scale computing workloads. Recognising the importance of HBM in advancing computing capabilities, the new rule includes exceptions for military-related exports while still imposing regulations on the broader HBM category.

Moreover, the IFR lays out two new Foreign Direct Product (FDP) rules. These rules extend the U.S. jurisdiction over specific foreign-produced semiconductor and related items if they are direct products of U.S. technology and intended for destinations like Macau or those classified under Country Group D:5. The establishment of these rules signals an intensified effort to govern foreign engagements in semiconductor manufacturing, particularly involving entities with ties to the Chinese government.

Complementing these measures, the BIS updated its "red flag" guidance to include eight additional indicators aimed at enhancing compliance monitoring. These indicators help stakeholders identify activities that might warrant further diligence and scrutiny under the new regulations.

Furthermore, the BIS has added 140 new entries to its Entity List, which identifies foreign entities that pose a threat to U.S. national security or foreign policy interests. The entities affected are located in various countries, including China, Japan, South Korea, and Singapore, and are linked to semiconductor fabrication and other strategic technology production that supports China’s military capabilities. As stipulated by the BIS, these additions aim to prevent the transfer of vital technologies that could bolster military advancements.

The new regulations took immediate effect on December 2, 2024, although the enforcement of certain changes has been deferred until December 31, 2024. This delay allows exporters and involved parties to adjust to the extensive changes to the Export Administration Regulations.

The newly implemented rules are complex, requiring further analysis by companies, both U.S. and foreign, operating within the advanced semiconductor and computing sectors. As such, BIS is encouraging public feedback on these developments until January 31, 2025, through a designated federal rulemaking portal.

As the landscape of AI and advanced computing continues to evolve, this regulatory effort reflects the increasing interconnectedness of technology, national security, and international relations, particularly between the United States and China. The impact of these changes on global market dynamics remains to be seen as industries adapt to the shifting compliance landscape.

Source: Noah Wire Services