• Spotlighting US export controls amid BIS crackdown on semiconductors in China
    semiconductor

    Spotlighting US export controls amid BIS crackdown on semiconductors in China

    desk Posted on

    The United States asserts jurisdiction over US origin products and technology anywhere in the world regardless of whether a US person is involved in a transaction. The principal distinction between US sanctions and US export controls is that US sanctions generally apply to US persons, while US export controls apply to US products and technology. Thus, in some respects US export controls apply more broadly than US sanctions, although, unlike US sanctions, US export controls do not generally apply to financial transactions in US dollars that transit the US financial system or other services provided by US persons.

    The US government divides the authority to regulate US exports primarily between two Cabinet-level agencies within the US Executive Branch: the US Department of Commerce and the US Department of State. The US Department of Commerce, Bureau of Industry and Security (BIS) is principally responsible for implementing dual-use export controls under the Export Administration Regulations (EAR). The US Department of State, Directorate of Defense Trade Controls (DDTC) implements export controls on defence articles and services under the International Traffic in Arms Regulations (ITAR). Whether an item is classified as a dual-use item or a defence article determines the jurisdiction of each agency and the regulations that apply to a transaction. This chapter focuses primarily on the EAR followed by a brief discussion of the ITAR.

    US Export Administration Regulations

    Scope of the Export Administration Regulations

    The EAR, administered by BIS, regulate the export, re-export and transfer (in-country) of most commercial items. The EAR define the term ‘export’ to include ‘[a]n actual shipment or transmission out of the United States, including the sending or taking of an item out of the United States, in any manner’. The term ‘re-export’ is defined as ‘[a]n actual shipment or transmission of an item subject to the EAR from one foreign country to another foreign country, including the sending or taking of an item to or from such countries in any manner’. In some circumstances, export licensing requirements may apply to in-country transfers, which are defined as ‘a change in end use or end user of an item within the same foreign country’.

    The term export also includes ‘[r]eleasing or otherwise transferring ‘technology’ or source code’ to a foreign person in the United States (known as a ‘deemed export’). A foreign person ‘is anyone who is not a US person’ (i.e., is not a US citizen, permanent resident or a protected individual for purposes of US immigration laws (e.g., an asylee or a refugee)).

    The EAR apply to all items subject to the EAR. In basic terms, this includes all US-made items (including commodities, software and technology) and items physically in the United States, as well as certain foreign-made items that incorporate controlled US-origin content in excess of specified de minimis levels (the de minimis rule) or are direct products of certain US-origin technologies or software (the foreign direct product rule). As noted above, the United States asserts jurisdiction over all items subject to the EAR wherever they are located in the world.

    Structure of the Export Administration Regulations

    The EAR contain the Commerce Control List (CCL), which sets out all items that are subject to the export licensing authority of BIS. The CCL is divided into the following broad categories:

    • Category 0: nuclear materials, facilities and equipment (and miscellaneous items);
    • Category 1: materials, chemicals, microorganisms and toxins;
    • Category 2: materials processing;
    • Category 3: electronics;
    • Category 4: computers;
    • Category 5, part 1: telecommunications;
    • Category 5, part 2: information security;
    • Category 6: sensors and lasers;
    • Category 7: navigation and avionics;
    • Category 8: marine; and
    • Category 9: aerospace and propulsion.

    Within each category, there are the following different product groups:

    • Group A: end items, equipment, accessories, attachments, parts, components and systems;
    • Group B: test, inspection and production equipment;
    • Group C: materials;
    • Group D: software; and
    • Group E: technology.

    All items on the CCL have an Export Control Classification Number (ECCN). The ECCN is an alphanumeric code (e.g., 9A991) that describes the item and its level of control (e.g., 9 = Aerospace and propulsion category; A = equipment; 991 = reason for control). Each individual ECCN specifies licensing requirements for the items identified in the ECCN, which vary depending on the sensitivity of the item involved. Some ECCNs require authorisation for export to all destinations, while others require authorisation for a few destinations only.

    Depending on the destination, end user or end use and the item’s ECCN, exporting or re-exporting an item may be subject to a licence requirement (i.e., is controlled content). If a licence is required, the EAR also sets forth licence exceptions that may apply.

    Items that are not listed under a specific ECCN on the CCL are classified in a separate catch-all category known as EAR99. Items that are classified as EAR99 are also subject to the EAR to the same extent as items that are listed in specific ECCNs. EAR99 items tend to be subject to the least stringent licensing requirements, but are still regulated under the EAR. Under the EAR, a party can submit a Commodity Classification Automated Tracking System (CCATS) request to BIS to obtain a binding rule from BIS providing the ECCN of an item, software or technology.

    For export control purposes, non-US countries are placed into five country groups designated by the letters A, B, C, D and E and subgroups such as A:1 to A:6. Generally speaking, the degree of restriction increases from Country Group A to Country Group E. Country Group E includes comprehensively embargoed countries (currently Cuba, Iran, North Korea and Syria). On 23 May 2025, OFAC issued General License 25 effectively lifting long-standing US sanctions on Syria. At the time of writing, BIS has not issued changes to export control restrictions on Syria.

    Separate from the country groups, there are further embargoes and other special controls outlined in Part 746 of the EAR. For example, Russia is listed in EAR Part 746 as a country subject to an embargo policy. This means that in addition to General Prohibitions One and Two, exporting or re-exporting an item subject to the EAR to Russia without a licence would also violate General Prohibition Six because Russia is listed in EAR Part 746 (see ‘General prohibitions’, below, for further details.)

    De minimis rule

    A non-US made product may be subject to the EAR pursuant to the de minimis rule in certain circumstances, specifically:

    The de minimis rule determines whether a foreign-made item is subject to the EAR when controlled US-origin content in excess of a de minimis percentage has been incorporated in the foreign-made item. The use of the term ‘controlled’ means the incorporated content would require a licence or a licence exception to export the content to its ultimate destination regardless of the end user. For example, EAR99 content would not be included in the de minimis calculation unless it is incorporated in a foreign-made item exported to certain comprehensively embargoed destinations for which EAR99 items would require a licence. End use and end user licence requirements are not relevant when determining controlled content for purposes of the de minimis rule.

    The de minimis percentage varies based on the ECCN of the US origin item and the ultimate destination of the non-US origin item. The de minimis level is 25 per cent to all destinations, except for Country Group E:1 (currently Iran, North Korea and Syria) and Group E:2 (currently Cuba), which have a 10 per cent de minimis threshold. This means that for non-embargoed countries, a non-US origin item in which more than 25 per cent of the value of the item consists of US-origin controlled content would be subject to the EAR pursuant to the de minimis rule.

    Foreign direct product rules

    A non-US made item may also be subject to the EAR if it is a foreign direct product (FDP) of US technology or software. Under the original national security FDP rule, a non-US origin item is subject to the EAR if all of the following conditions apply:

    The term ‘direct product’ means the immediate product (including processes and services) produced directly by the use of the technology or software.

    In recent years, eight other variations of this original FDP rule have been published, each addressing a particular situation. These additional FDP rules are:

    Licences and licence exceptions

    The EAR contain the Commerce Country Chart, a matrix that identifies by specified reasons for control when a licence is required for export to each country in the world. Reasons for control set forth in the Country Chart are:

    • national security;
    • regional stability;
    • chemical and biological weapons;
    • nuclear non-proliferation;
    • missile technology;
    • firearms convention; and
    • crime control and anti-terrorism.

    Within each reason for control (other than missile technology and firearms convention), there are up to three columns that distinguish the sensitivity of items. If there is an ‘X’ in the box for the country in question, authorisation is required to export items subject to the reason for control to the destination.

    Depending on the destination, end user or end use, and the ECCN of an item, exporting or re-exporting an item subject to the EAR requires written authorisation from BIS prior to shipment (referred to as a specific licence) unless the item is not controlled for that destination or for the end use or end user (referred to as ‘no licence required’ (NLR) or a licence exception applies to the transaction. A licence exception is an authorisation contained in Part 740 of the EAR that permits an export or re-export, under stated conditions, of items subject to the EAR that would otherwise require a licence. In other words, a licence exception makes it unnecessary to submit an application to BIS and receive a specific licence authorising a transaction if the transaction complies with the terms of the regulation specifying the criteria for using the licence exception.

    Part 740 of the EAR contains 19 licence exceptions, each of which is characterized by a three-letter symbol:

    As an example, the Aircraft, Vessels and Spacecraft (AVS) licence exception, authorises the export or re-export of certain aircraft and vessels on temporary sojourn provided all of the criteria contained in licence exception AVS are met. In the case of aircraft, it is generally not necessary for an exporter or re-exporter to submit a licence application to BIS every time there is an international border crossing. That is because ECCN 9A991.d items do not require licences for most destinations. In cases where a licence is required for an embargoed destination, licence exception AVS would apply provided the flight is not for the purpose of sale or transfer of operational control while the aircraft is in Country Group E:1 or Group E:2.

    General prohibitions

    There are 10 general prohibitions described in EAR Part 736. Acting contrary to any one of these prohibitions constitutes a violation of the EAR. Pursuant to EAR Section 736.1(c):

    If you violate any of these ten general prohibitions, or engage in other conduct contrary to the Export Administration Act, the EAR, or any order, licence, Licence Exception, or authorisation issued thereunder, as described in part 764 of the EAR regarding enforcement, you will be subject to the sanctions described in that part.

    These general prohibitions are as follows:

    General Prohibition Four at EAR Section 736.2(b)(4) states that it is a violation of the EAR to export or re-export an item subject to the EAR that is prohibited by a Temporary Denial Order issued under EAR Part 766.

    General Prohibition Six at EAR Section 736.2(b)(6) states that it is a violation of the EAR to export, re-export or transfer (in-country) an item subject to the EAR without a licence or licence exception to an embargoed destination.

    General Prohibition Nine at EAR Section 736.2(b)(9) states that it is a violation of the EAR to violate the terms or conditions of a licence or licence exception issued under or made a part of the EAR.

    General Prohibition Ten at EAR Section 736.2(b)(10) prohibits taking certain actions with respect to an item subject to the EAR with knowledge that a violation has occurred or is about to occur.

    General Prohibition Ten of the EAR significantly expands liability for parties under the EAR. For example, if a party has knowledge that an item was shipped in violation of the EAR, then it would be a violation of General Prohibition Ten of the EAR for the party to further transport or service that item. In such instance, the party would need to obtain authorisation from BIS to take actions with respect to the item that would otherwise be prohibited by General Prohibition Ten of the EAR.

    Penalties for violations of the EAR

    Violations of the EAR can result in a combination of administrative, civil and criminal penalties.

    Administrative penalties may include placing a party on the Table of Denial Orders (TDOs). This administrative enforcement mechanism is typically used to prevent an imminent violation of the EAR or any order, licence or authorisation issued thereunder. TDOs are usually issued for 180 days and may be renewed. A TDO typically prohibits any person (US or foreign) from directly or indirectly exporting, re-exporting or transferring an item subject to the EAR to the named party, obtaining from the named party any items subject to the EAR or engaging in a transaction to service any item subject to the EAR.

    BIS may issue a denial order after a more formal administrative proceeding that results in placing a party on the Denied Persons List (DPL). The DPL is a more permanent list of individuals and entities that have been denied export privileges for the specified term of the denial order. Like parties subject to a TDO, parties on the DPL are prohibited from participating directly or indirectly in the export of commodities, software or technology subject to the EAR and all persons (US or foreign) are prohibited from engaging in a transaction with the denied person involving any item subject to the EAR.

    Civil penalties for violating the EAR can include fines, which currently may be assessed up to US$374,474 per violation or twice the value of each transaction (note that each shipment in violation of the EAR could be considered a separate violation). US export control violations are subject to a strict standard of liability, meaning that civil penalties can be imposed regardless of whether an exporter had knowledge or reason to know the activity would violate the EAR.

    Criminal penalties for violations of the EAR may include up to 20 years’ imprisonment and fines of up to US$1 million or twice the gross gain or loss from the violation, whichever is greater, per violation, or both, as well as restitution, followed by a term of supervised release. Unlike civil violations, criminal violations require wilful conduct.

    Current developments

    Export controls and sanctions have long been used as tools to advance US national security and foreign policy interests. In recent years, they have become the first measures deployed by the US government to respond to geopolitical developments, particularly with respect to Russia and China. Some of the more significant recent export control developments include the following.

    Russia export controls

    A BIS regulation that became effective 24 February 2022 imposed a licence requirement for exports to Russia of all items listed in Categories 3 to 9 of the CCL. This requirement was expanded on 9 April 2022 to include all items subject to the EAR. Russia is now a country that is subject to an embargo. The licensing requirements and policies set forth in the EAR for Russia are stated at EAR Section 746.8(a)(1) (Sanctions Against Russia and Belarus):

    (1) Items classified in any ECCN on the CCL. A license is required to export, re-export, or transfer (in-country) to or within Russia or Belarus any item subject to the EAR and specified in any Export Control Classification Number (ECCN) on the CCL.

    This embargo policy has had a particular impact on aircraft. Given the classification of aircraft and engines under ECCN 9A991, the EAR require a licence to export to Russia or to re-export to or from Russia, aircraft or engines that are subject to the EAR.

    US origin items designated as EAR99 are not controlled for except in certain limited situations. However, as described in the ‘Foreign Direct Product Rules’ (see ‘US Export Administration Regulations’, above), BIS broadened the controls on non-US made items, which now require a licence for export to Russia, by issuing two new FDP rules. One is broadly applicable to certain foreign direct products of US software and technology intended for Russia, Belarus and the temporarily occupied Crimea region of Ukraine, while the second applies to items intended for certain Russian and Belarusian ‘military end users’.

    BIS excluded from these FDP rules exports or re-exports from partner countries who have committed to implementing substantially similar export controls on Russia under their own domestic laws. Currently, the licence requirements imposed by the new FDP rules do not apply to exports or re-exports from all members of the European Union, as well as Australia, Canada, Japan, New Zealand, South Korea and the United Kingdom.

    Entity List

    The Entity List, found in Supplement No. 4 to Part 744 of the EAR, has been used frequently as a licensing tool to restrict exports to China to address its civil-military fusion programme, human rights abuses and advanced computing capabilities. The Entity List includes the names of foreign persons who are subject to specific licence requirements for the export, re-export or transfer (in-country) of items (commodities, software and technology) subject to the EAR. BIS first published the Entity List in February 1997, naming entities engaged in activities that could result in an increased risk of the diversion of items subject to the EAR. At that time, the principal risk was the diversion of items for weapons of mass destruction. The Entity List was expanded in 2008 to broaden the criteria for designation, authorising the imposition of licensing requirements on entities acting ‘contrary to the national security or foreign policy interests of the United States’. The licence requirements imposed by the Entity List are independent of, and in addition to, licence requirements otherwise imposed in the EAR.

    Entity List Foreign Direct Product Rules

    In May 2019, Huawei Technologies Co, Ltd and many of its affiliates (Huawei) were added to the Entity List. The original designation of Huawei on the Entity List prohibited the export without a licence of items subject to the EAR that are used in connection with the development or deployment of 5G technology.

    In August 2020, BIS created a new and expanded foreign direct product rule applicable to entities on the Entity List with a Footnote 1 designation (the Footnote 1 FDP Rule), which currently is only Huawei. The Footnote 1 FDP Rule further restricts Huawei’s ability to receive not only certain items that are subject to the EAR but also certain items that are the direct products of US technology. These restrictions apply when Huawei is a purchaser or the foreign-made item is being incorporated into a product ordered by Huawei even when Huawei does not take physical possession of the item. Paragraph (a) of the Footnote 1 FDP Rule captures items such as semiconductor designs that are the direct product of US-origin software or technology that fall into specified ECCNs. Paragraph (b) captures items such as semiconductor chips that are produced by a plant or major component that itself is a direct product of one of the specified ECCNs.

    The creation of the Footnote 1 FDP Rule has since led to the implementation of several other FDP rules as noted above. For example, on 7 October 2022, BIS issued an interim final rule creating a new direct product rule that applies to entities on the Entity List designated with a Footnote 4 notation (the Footnote 4 FDP Rule). The Footnote 4 FDP Rule further restricts the ability of Footnote 4 entities from receiving certain foreign-made semiconductor products. The Footnote 4 FDP Rule applies to more companies than the Footnote 1 FDP Rule and applies to a wider range of products and technology. Like Footnote 1, the restrictions apply when a Footnote 4 entity is a purchaser or the foreign-made item is being incorporated into a product ordered by a Footnote 4 entity even if the Footnote 4 entity does not take physical possession of the item. Generally, paragraph (a) of the Footnote 4 FDP Rule captures non-US made items, such as semiconductor designs which are the direct product of certain US-origin software or technology. Paragraph (b) captures non-US made items, such as semiconductor chips, which are produced by equipment (whether US or non-US made) that itself is a direct product of US-origin technology or software in one of the covered ECCNs.

    Semiconductors and artificial intelligence

    The US has imposed increasingly stringent export controls on China, with a particular focus on the semiconductor industry. Beginning in October 2022, BIS issued several new China-related export controls targeting advanced technologies, including semiconductors and artificial intelligence (AI), seeking to combat China’s military-civil fusion strategy and narrowing China’s access to US technology. These rules included the creation of new ECCNs to control certain high-performance integrated circuits (ICs) (ECCN 3A090), supercomputers containing high-performance ICs (ECCN 4A090), and semiconductor manufacturing equipment (ECCN 3B090). The new rules also included end-use restrictions on supercomputers and semiconductor manufacturing, as well as new FDP rules. In October 2023, BIS issued significant updates to the October 2022 rules aimed at closing perceived ‘loopholes’. These rules established new control parameters for advanced ICs based on total processing performance (TPP) and performance density, as well as expanding license requirements beyond China to target diversion and circumvention risks and to provide BIS with greater visibility into the flow of sensitive items.

    In January 2025, BIS further supplemented and clarified export controls on advanced computing semiconductors. BIS rescinded some of these changes in May 2025. Changes currently in place include imposing a presumption applicable to front-end fabricators and outsourced semiconductor assembly and test (OSAT) companies that logic ICs using the ‘16/14 nanometer node’ or below, or using a non-planar transistor architecture, are classified as 3A090.a and designed or marketed for data centers, unless the presumption is overcome. In addition, BIS established new export controls targeting advanced AI chips and model weights for advanced AI models (ECCN 4E091) to protect against national security risks associated with AI and to promote US AI technological leadership. The changes in May 2025 also established a presumption that meet 3A090 and are developed or produced by Chinese companies (or Chinese-owned companies) were likely made in violation of the EAR. Accordingly, dealing in these chips would constitute a violation of General Prohibition 10 and expose the party to civil and criminal penalties.

    Military End User Rule

    In April 2020, BIS expanded the Military End User (MEU) Rule, found in Section 744.21 of the EAR, to impose licence requirements on exports, re-exports or in-country transfers of certain items subject to the EAR to military end users and for military end uses in certain countries (currently, Burma, Cambodia, China, Nicaragua, Venezuela, Russia and Belarus). Specifically, a licence is required for the export, re-export or in-country transfer of items subject to the EAR listed in Supplement No. 2 to Part 744 to Burma, Cambodia, China, Nicaragua or Venezuela if there is knowledge, as defined in Section 772.1, that the item is intended for a military end user or military end use in those countries. Further, a licence is required for the export, re-export or in-country transfer of any item subject to the EAR to Russia or Belarus if there is knowledge that the item is intended for a military end user or military end use in those countries.

    BIS also broadly expanded definitions of what constitutes a ‘military end user’ and ‘military end use’ that include not only traditional foreign military and related organisations but also any other end user ‘whose activities or functions are intended to support military end uses’. The MEU List contained in Supplement No. 7 to Part 744 of the EAR identifies entities who have been determined to be military end users, but this list is non-exhaustive, meaning that exporters must still conduct due diligence to determine whether a specific consignee is a military end user even if not individually named on the MEU List.

    International Traffic in Arms Regulations

    As discussed above, the EAR regulate exports and re-exports of dual-use products and technology, meaning that the products or technology could have both commercial as well as military applications and some military items. The export and re-export (as well as the temporary import) of items that are determined to be defence articles, defence services and related technical data are governed by a separate set of regulations, the ITAR at 22 CFR Sections 120 to 130, which are implemented by a separate US government agency, specifically the DDTC within the US Department of State. The defence articles subject to the ITAR are identified on the United States Munitions List (USML).

    Jurisdiction

    In order to determine which set of regulations applies to a particular transaction, it is necessary to establish which agency has jurisdiction over the item. As a consequence of the Export Control Reform initiative undertaken during the Obama administration, USML categories were revised with more specific descriptions of controlled items and a number of less sensitive items were transferred to the CCL under the licensing jurisdiction of the Department of Commerce. As currently configured, the USML is intended to be a ‘positive’ list, meaning that items must be enumerated in order to be controlled, although certain categories still contain catch-all paragraphs that incorporate ‘specially designed’ as a control parameter.

    If there is doubt as to whether an item is covered by the USML, the ITAR provide for the submission of commodity jurisdiction requests to the DDTC. Whether an item is covered by the USML is based on a determination that an article or service meets the criteria of a defence article or defence service or provides the equivalent performance capabilities of a defence article on the USML, taking into account the form and fit of the article, the function and performance capability of the article and other information, including a history of the product’s design, development and use, as well as specifications and any other relevant data as described in brochures and other related documents. The commodity jurisdiction determination is made by the Department of State in consultation with the Departments of Defense and Commerce.

    Registration and licensing

    Unlike the EAR, the ITAR require any person engaged in the business of manufacturing or exporting (or temporarily importing) defence articles or furnishing defence services in the United States to register with DDTC. Manufacturers are required to register even if not exporting. Registration is also generally required to engage in brokering activities. Registration requires the disclosure of detailed company information including political contributions, fees and commissions. Except for ITAR broker registration, only US persons are permitted to register.

    Unlike the EAR, the DDTC must issue a licence for each export, re-export or retransfer transaction or to furnish defence services. There are no licence exceptions and few exemptions. In addition, there is no de minimis rule for ITAR content incorporated in foreign-made end items. ITAR content in a foreign-made end item generally retains its identity and subjects the foreign-made item to DDTC licence requirements unless otherwise excluded by the US Munitions List. In addition, the ITAR maintain broad jurisdiction over foreign-origin items that are the products of ‘derivative data’ – that is, items and technical data that are manufactured or produced from ITAR-controlled technical data.

    The ITAR do, however, provide certain categories of licences that authorise multiple transfers among the same approved parties over a certain period. These authorisations may be styled as technical assistance agreements or manufacturing licence agreements. Other types of authorisations include permanent export licences (DSP-5s), temporary export licences (DSP-73s) and general correspondence letters for foreign-made items incorporating ITAR content.

    Defence services

    The ITAR require US persons to obtain a licence to provide defence services to foreign persons. The term ‘defence service’ is defined as follows:

    The furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarisation, destruction, processing or use of defence articles.

    The furnishing to foreign persons of any technical data controlled under Section 120.10 of the ITAR, whether in the United States or abroad.

    Military training of foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the United States or abroad or by correspondence courses, technical, educational or information publications and media of all kinds, training aid, orientation, training exercise and military advice (see also ITAR, Section 124.1).

    Brokering

    The ITAR also controls brokering activities involving defence services and defence articles. ‘Brokering activities’ are defined as ‘any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, re-export or retransfer of a US or foreign defence article or defence service’.

    Such activities include but are not limited to financing, insuring, transporting or freight forwarding defence articles and defence services, and soliciting, promoting, negotiating, contracting for, arranging or otherwise assisting in the purchase, sale, transfer, loan or lease of a defence article or defence service. Brokering activities do not include:

    ITAR jurisdiction over brokering activities covers any (1) US persons wherever located, (2) foreign persons located in the United States and (3) foreign persons located outside the United States where the foreign person is owned or controlled by a US person.

    Penalties

    Penalties for violations of the ITAR can include civil fines of up to US$1.2 million per violation or twice the value of the transaction, whichever is higher. Penalties for criminal violations of the ITAR may include up to 20 years’ imprisonment and fines of up to US$1 million per wilful violation. Administrative penalties are also available, including denial of export privileges and debarment.

    Endnotes

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