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August 30, 2022

US Department of Commerce’s Bureau of Industry & Security (BIS) Implements Additional Controls on Semiconductor and Gas Turbine Engine Technologies

Advisory

On August 15, 2022, the US Department of Commerce’s Bureau of Industry and Security (BIS) published an interim final rule, implementing multilateral controls on the following four technologies that meet the criteria for emerging and foundational technologies under Section 1758 of the Export Control Reform Act (ECRA) as essential to the national security of the United States: two substrates of ultra-wide bandgap semiconductors (Gallium Oxide (Ga2 O3) and diamond), Electronic Computer Aided Design (ECAD) software specially designed for the development of integrated circuits with any Gate-All-Around Field-Effect Transistor (GAAFET) structure, and pressure gain combustion (PGC) technology for the production and development of gas turbine engine components or systems. The changes became effective on August 15, 2022, except for the changes relating to the ECAD software for integrated circuits with GAAFET structure which are scheduled to become effective on October 14, 2022.

Changes Made to the Commerce Control List

The interim final rule implements the decisions from the December 2021 Wassenaar Arrangement Plenary meeting by adding the four technologies to the Commerce Control List. Specifically, BIS (1) revised ECCNs 3C001.d-f, 3C005.a-b, 3C006, and 3E003 for two substrates of ultra-wide bandgap semiconductors; (2) created a new ECCN 3D006 for ECAD software for development of integrated circuits with GAAFET structure; and (3) revised ECCN 9E003.a.2.e for PGC technology. The affected ECCNs are controlled for National Security and Anti-Terrorism reasons under the Export Administration Regulations (EAR). As a result, the export, reexport and transfer (in-country) of these items to or within many countries, including China, would require a license from BIS.

Importantly, BIS identified these technologies as emerging and foundational technologies pursuant to Section 1758 of ECRA. This means that there may also be potential implications for the Committee on Foreign Investment in the United States (CFIUS) reviews. Under CFIUS regulations, emerging and foundational technologies controlled under Section 1758 of ECRA are considered “critical technologies,”  and an investment into US companies engaged in such technologies may trigger a mandatory CFIUS declaration requirement.

Savings Clause

There is a limited “savings clause” available for shipments of items removed from eligibility for a License Exception or for exports, reexports or transfers (in-country) without a license (NLR) as a result of the changes if they were enroute aboard a carrier to a port of export, reexport or transfer (in-country), on August 30, 2022 (or October 14, 2022 in the case of 3D006 software), pursuant to actual orders for exports, reexport or transfer (in-country) to or within a foreign destination, provided that the actual export, reexport or transfer occurs before September 14, 2022 (or November 14, 2022 in the case of 3D006 software).

Request for Comments

BIS is seeking comments and input from the industry regarding the scope of license requirement and review of license applications for export of ECAD software designed for GAAFET circuits. Interested parties may submit comments to BIS by September 14, 2022.

Conclusion

The changes in the interim final rule may have significant impact on those in the semiconductor industry. As noted above, items controlled for National Security reasons require a license to export, reexport or transfer (in-country) to or within many countries, including China. In addition, while BIS noted that it is not aware of any current production of engines using PGC, the changes in the interim final rule may impact research institutions and companies engaged in research of PGC technology or those contemplating development or production of commercial engines using PGC technology. Therefore, companies in the semiconductor industry and those working with PGC technology should carefully review the additional controls imposed by the interim final rule to assess any impact the changes may have on their business. Moreover, persons considering investing in US businesses with these technologies should consider potential applicability of mandatory declaration requirements under CFIUS regulations.

*Junghyun Baek contributed to this Advisory.  Mr. Baek is a graduate of Harvard Law School and is employed at Arnold & Porter’s Foreign Legal Consultant Office as a Law Clerk.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.