On April 4, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) published an interim final rule (the April 2024 IFR) (89 FR 23876) to correct inadvertent errors and make additional clarification for the two interim final rules (IFRs) published on October 25, 2023—i.e., the “Export Controls on Semiconductor Manufacturing Items” IFR (the SME IFR) (88 FR 73424) and the “Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections” IFR (the AC/S IFR) (88 FR 73458). Information on the SME IFR and the AC/S IFR is available here.

Among various corrections and clarifications, the April 2024 IFR provided material revisions to: (i) remake License Exception NAC as two separate license exceptions, License Exception Advanced Computing Authorized (ACA) and License Exception NAC; (ii) clarify that the notification requirement for License Exception NAC applies to exports, and reexports to any destination when the recipient is headquartered in, or with an ultimate parent company headquartered in, Country Group D:5; (iii) add Extreme Ultraviolet (EUV) lithography masks under ECCN 3B001.j and 3B991.b.2 to the end-use scopes in 744.23 and 744.6; (iv) restore National Security (NS) controls to a number of ECCNs caught under .z subparagraphs; and (v) update license policy reviews to apply case-by-case review for certain activities covered by the “advanced-node integrated circuits” and semiconductor manufacturing equipment end-use controls in § 744.23 and U.S. Person controls in § 744.6.

The April 2024 IFR changes were effective upon publication on April 4, 2024. However, the April 2024 IFR provides a savings clause to authorize shipments of items otherwise removed from license exception eligibility or eligibility for export, reexport, or transfer (in-country) without a license as a result of the April 2024 IFR, so long as the items were, “on dock for loading, on lighter, laden aboard an exporting carrier, or en route aboard a carrier to a port of export, on or before April 4,” and were actually exported, reexported, or transferred (in-country) before May 4, 2024.

Key Changes and Priorities

The April 2024 IFR implemented a number of key changes to the AC/S IFR and SME IFR, including:

• Revisions and Clarifications to License Exception NAC. The April 2024 IFR separated License Exception NAC into License Exception NAC and License Exception ACA and further clarified the following key points:
  • The NAC notification requirement applies not only to exports or reexports to Macau or a destination specified in Country Group D:5, but also to entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located;
  • License Exception ACA, which does not require a notification to BIS, covers exports or reexports to Country Group D:1 and D:4 as well as transfers (in-country) within Macau or a destination in Country Group D:5.
  • Notifications under License Exception NAC must include certain technical specifications regarding items, including Total Processing Performance (TPP), performance density and documentation (e.g., data sheet) showing the intended design goal and how the item is marketed.
  • One NAC notification can cover multiple exports or reexports when the export or reexport made under License Exception NAC is to the same end user and for the same item(s) and as long as the total dollar value and quantity of the shipments do not exceed the amounts stated on the notification;
  • For notifications that cover multiple shipments, (A) the dollar value and quantity on the notification do not need to match the dollar value and quantity on the purchase order submitted to BIS, (B) the notification’s quantity and dollar value amounts may be estimates of future sales, and (C) prior to export or reexport you must have a purchase order for every shipment made against the NAC notification; and
  • For ECCNs 5A002.z, 5A004.z, or 5D002.z, all License Exception Encryption Commodities, Software, and Technology (ENC) requirements must also be met for eligibility under License Exceptions NAC or ACA; and
• Changes to “U.S. Person” Restrictions
  • New Restrictions. The April 2024 IFR added EUV masks (Export Control Classification Number (ECCN) 3B001.j) and associated software and technology to § 744.6 (Restrictions on specific activities of “U.S. persons”) to the related SME restrictions.
  • New License Review Policy. As exceptions from the presumption of denial license review policy, the April 2024 IFR added (i) the case-by-case policy for items specified 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) and (ii) case-by-case review policy for activities involving an item subject to the license requirements of paragraph (c)(2) where there is an item that performs the same function as an item meeting the license requirements of paragraph (c)(2).
• Expansion of § 744.23. The April 2024 IFR made the following key changes to end-use controls in § 744.23:
  • Included EUV masks classified under ECCN 3B001.j and 3B991.b.2 to the scope of restrictions by narrowing the exceptions for masks in § 744.23(a)(4)(i) to those included 3B001.h, and 3B991.b.2.a through .b.;
  • Added a new paragraph (a)(4)(ii) to distinguish between direct exports, reexports, and transfers (in-country) in (a)(4)(i) and indirect exports, reexports, transfers (in-country) in (a)(4)(ii) for the “development” or “production,” by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5;
  • Required a license for the export, reexport, or transfer (in-country) of any item subject to the EAR and specified on the Commerce Control List (CCL) to any destination when there is “knowledge” that (A) the item is for “development” or “production” of a foreign-made item, whether subject to the EAR or not, that is specified in an ECCN listed in paragraph (a)(4)(i); (B) when the foreign-made item is for “development” or “production” of any initial or subsequent foreign-made item, whether subject to the EAR or not, specified in an ECCN listed in paragraph (a)(4)(i) (i.e., ECCN 3B001 (except 3B001.g and .h), 3B002, 3B611, 3B991 (except 3B991.b.2.a through .b), 3B992, or associated “software” and “technology” in 3D or 3E of the CCL); and (C) the “development” or “production” is by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5;
  • Limited the scope of the above control to circumstances involving the “development” or “production” of front-end SME items by entities that are headquartered in, or whose ultimate parent company is headquartered in, Macau or a destination specified in Country Group D:5; and
  • Added a new Note 2 to explain that, to the extent new paragraph (a)(4)(ii) controls the “development” or “production” of front-end SME produced at the direction of entities headquartered outside of Macau or Country Group D:5 destinations, the Temporary General License (TGL) is available, provided the other requirements of that section are satisfied.
• Restoration of Controls with respect to ECCNs that Contain .z Paragraphs. The April 2024 IFR revises the reasons for control on .z paragraphs to ensure they are also still subject to NS, missile technology, nuclear proliferation, and/or crime control license requirement paragraphs from ECCNs 3A001, 3D001, 3E001, 4A003, 4A004, 4A005, 4D001, 4E001, 5A002, 5A004, 5D002, and 5E002. This change addresses the inadvertent decontrol by making the .z items only subject to regional stability (RS) controls in the AC/S IFR. The April 2024 IFR also made conforming changes to retain the status quo for EAR license exception eligibility when not restricted by § 740.2(a)(9)(ii).
• Addition of .z Paragraphs to ECCN 3A001: The April 2024 IFR added four new .z paragraphs to ECCN 3A001 relating to certain Monolithic Microwave Integrated Circuit” (MMIC),  described in 3A001.b.2, discrete microwave transistors described in in 3A001.b.3, items described in 3A001.a.1.a when usable in “missiles” and certain items described 3A001.a.5.a that also meet the parameters in 3A090, in order to make a distinction of those paragraphs controlled for NS:1, RS:1, MT:1, and NP:1 reasons.
• Restoration of License Requirements of ECCN 3D001. The April 2024 IFR corrected the NS license requirement paragraph in the License Requirements section of ECCN 3D001 by restoring NS:1 license requirements to software for commodities controlled by 3A001.z by adding 3A001.z to the NS:1 licensing paragraph.
• Clarifications in ECCN 4A090. The April 2024 IFR added 4A090.b (which was inadvertently reserved by BIS) to control computers, “electronic assemblies,” and “components” containing integrated circuits, any of which meets or exceeds the limits in 3A090.b.
• Correction to ECCNs 5E992 and 5E002. The April 2024 IFR corrected the Reason for Control paragraph in the License Requirement section of ECCN 5E992 and 5E002 by adding “RS” to indicate the regional stability license requirements in the License Requirements table.
• Revisions to ECCN 3B001. The April 2024 IFR corrected the scope of items subject to § 742.4(a)(4) national security controls and § 742.6(a)(6)(i) regional stability controls in ECCN 3B001 by adding ECCN 3B001.j “Mask “substrate blanks” with multilayer reflector structure consisting of molybdenum and silicon …" and being ““Specially designed” for “Extreme Ultraviolet” (“EUV”) lithography” and compliant with SEMI Standard P37.

Key BIS Comments

BIS clarified a few of its responses to certain public comments topics from the AC/S IFR, The key takeaways from these responses are provided below:

 Scope of § 744.23 Restrictions (Topic 45): In response to a question about the scope of § 744.23(a)(4) on upstream transactions (e.g., to OEM outside of Macau or a D:5 country), BIS made clear that a license is required where there is “knowledge” that the item, “is destined for a destination, end use, or type of end user described in (a)(1) through (a)(4),” of § 744.23. Specifically, BIS notes that “production,” as defined in Part 772 includes all production stages, such as integration. Thus, if there is “knowledge” the item will be used in the “production” (e.g., integration) of a specified Group 3B ECCN destinated to Macau or a Country Group D:5 country, then a license would be required pursuant to § 744.23(a)(4) (or similar considerations if destined for facilities where “production” of “advanced-node ICs” occurs under § 744.23(a)(2)(i) or (ii)).

Restructuring Supply Chains and Proportions of Covered Items (Topic 46): In response to a question about how far back up the supply chain the licensing obligation extends under § 744.23(a)(2) when an item will be involved in multiple steps of producing foreign-made items before ultimately being used at a covered facility under § 744.23(a)(2) BIS noted that § 744.23(a)(2) does not prohibit transactions involving the incorporation, as it pertains to de minimis rules, or integration of items subject to the EAR into foreign-made items, so long as the incorporation does not separately trigger a license requirement or § 744.23 (e.g., incorporation with “Knowledge” of the prohibited end-use). However, BIS stated that if an OEM restructures its supply chain to avoid a license requirement under § 744.23(a)(2), then a license would still be required because such restructuring would be deemed as an attempt to evade or otherwise violate the EAR.

BIS also addressed a scenario where only a small percentage of the foreign-made items (which were produced by incorporating EAR items) will be used at a covered fabrication facility under § 744.23(a)(2). In this scenario BIS stated that a license would be required for the portion or percentage of items for which there is “knowledge” that the items are destined for use in a prohibited end use under § 744.23(a)(2), and this applies to any point in the supply chain at which such “knowledge” exists.

Due Diligence Regarding IC Production Facilities (Topic 47): Regarding a scenario where an exporter or reexport of items subject to the EAR cannot confirm whether the semiconductor fabrication facility in Macau or a D:5 Country to which the items are destined is producing ”advanced-node ICs”, BIS clarified that, in addition to a license being required when the items being exported, reexported or transferred are in a Category 3B/C/D/E ECCN, a license would also be required if the exporter, reexporter, or transferor has positive “knowledge” that their 3B/C/D/E products are used by some number of entities engaged in legac IC “development” or ”production” (i.e., not “advanced-node ICs”), but they do not know how 100% of their product is used,  Unless the exporter, reexporter, or transferor can determine which portion of their items will be in “development” or “production” of legacy ICs, then 100% of the items will be subject to a license requirement under § 744.23(a)(2)(ii).

Additional Information Regarding Certain Key Changes

Revised License Exceptions NAC and ACA

Below is select key language from revised §740.8 (Notified Advanced Computing (NAC) and Advanced Computing Authorized (ACA).):

(a) Eligibility requirements. License Exception NAC authorizes the export and reexport of any item classified in ECCN 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, to Macau and Country Group D:5 or an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located. License Exception ACA authorizes the export, reexport, and transfer (in-country) of any item classified in ECCN 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, to or within any destination specified in Country Groups D:1 and D:4 (except Macau, a destination in Country Group D:5, or an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located), as well as transfers (in-country) within Macau and destinations in Country Group D:5. These license exceptions may be used provided the export, reexport, or transfer (in-country) meets all of the applicable criteria identified under this paragraph (a) and none of the restrictions in paragraph (b) of this section. . . .

(ii) Multiple exports and reexports. For multiple exports or reexports under License Exception NAC to the same end user and for the same item(s), the exporter or reexporter need only notify BIS prior to the first export or reexport, as long as the total dollar value and quantity of the shipments do not exceed the amounts stated on the notification. The dollar value and quantity on the notification do not need to match the dollar value and quantity on the purchase order; the notification's quantity and dollar value amounts may be based on estimates of future sales. However, prior to export or reexport you must have a purchase order for every shipment made against the NAC notification. BIS will provide further information on the notification process in the policy guidance tab on the BIS website (emphasis added).

Revised End Use Controls for “Supercomputer,” “Advanced-Node Integrated Circuits,” and Semiconductor Manufacturing Equipment

Below is select key language from revised § 744.23:

(a) * * * (4) Semiconductor manufacturing equipment (SME) and “components,” “assemblies,” and “accessories”. A license is required for export, reexport, or transfer (in-country) if either paragraph (a)(4)(i) or (ii) of this section applies.

(i) Directly destined to Macau and Country Group D:5. Any item subject to the EAR and specified on the CCL when destined to or within either Macau or a destination specified in Country Group D:5 for the “development” or “production” of `front-end integrated circuit “production” equipment' and “components,” “assemblies,” and “accessories” therefor specified in ECCN 3B001 (except 3B001.g and .h), 3B002, 3B611, 3B991 (except 3B991.b.2.a through .b), 3B992, or associated “software” and “technology” in 3D or 3E of the CCL.

(ii) Indirect exports, reexports, or transfers (in-country). Any item subject to the EAR and specified on the CCL for export, reexport, or transfer (in-country), if all of the following apply:

(A) The item is for “development” or “production” of a foreign-made item, whether subject to the EAR or not, that is specified in an ECCN listed in paragraph (i);

(B) When the foreign-made item is for “development” or “production” of any initial or subsequent foreign-made item, whether subject to the EAR or not, specified in an ECCN listed in paragraph (a)(4)(i) of this section; and

(C) The “development” or “production” is by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5.

Next steps

Companies in the semiconductor, artificial intelligence, and supercomputing industries, including those that use semiconductors in their manufacturing process, should reassess whether any of their products or activities are impacted by the changes discussed above (e.g., changes to the referenced ECCNs, restrictions on “U.S. Persons,” and related end use controls) and consider whether the changes to License Exception NAC warrant modification to any of their activities, including ensuring that notifications pursuant to License Exception NAC include the relevant technical specifications now required.  Further, parties submitting license applications to BIS for advanced computing items captured under ECCN 3A090, 4A090 or the .z paragraphs should consider proactively including the additional technical details required in the NAC notification (e.g., TPP, performance density) in their license applications to limit the need for follow-up from BIS.

BIS is accepting comments for the New IFR until April 29, 2024. Companies should consider whether to submit comments.

Please reach out to any of the Hogan Lovells contacts listed above with any questions.

Authored by Ajay Kuntamukkala, Josh Gelula, and Hao-Kai Pai.