Semiconductors
The backbone of modern electronics, semiconductors are critical components in a wide array of devices, including smartphones, computers, automobiles, and military systems. Semiconductor applications span various sectors, such as telecommunications, healthcare, and defense.
The geopolitical landscape has heightened concerns regarding the national security implications of semiconductor supply chains. To address these challenges, many nations are implementing policies to promote domestic semiconductor production and reduce reliance on foreign sources. The U.S. has introduced the CHIPS Act, which provides substantial funding to support semiconductor research, development, and manufacturing. This legislative framework aims to enhance national security by ensuring a resilient and secure semiconductor supply chain.
The U.S. has enacted export controls to restrict the transfer of semiconductor technology and equipment to specific nations. This is especially pertinent in relation to countries like China. These controls aim to prevent adversaries from acquiring advanced technologies that could enhance their military capabilities. Certain export-controlled semiconductor equipment and technology for military applications are included in the “critical technology” definition found in the Committee on Foreign Investment in the United States (CFIUS) regulations. As a result, the semiconductor sector has been and remains under strict scrutiny by CFIUS. Businesses considering mergers or acquisitions involving foreign parties must assess whether their transaction will be subject to CFIUS jurisdiction. CFIUS has the authority to block or impose conditions on transactions deemed to pose a risk to national security, ensuring that foreign investments do not compromise U.S. defense capabilities. In addition to inbound investment reviews by CFIUS, the U.S. Department of the Treasury has implemented outbound investment controls to address potential national security threats posed by the flow of capital into sensitive technology sectors, including the semiconductor industry, in China.
Semiconductor companies should prioritize regulatory compliance by implementing regular training on the ITAR, EAR, and other regulatory requirements, utilizing screening tools, and establishing a compliance team to conduct audits, manage licensing, and ensure adherence to CFIUS and outbound investment regulations.
For several years, Torres Trade Law has advised companies operating withing the semiconductor industry and supply chain, including:
- Representing a foreign buyer before CFIUS in the purchase of the assets and intellectual property of a U.S. semiconductor business.
- Advising one of the largest semiconductor manufacturers in the United States on a broad range of national security issues, as well as responding to government investigations related to federal export regulations.
- Advising multiple companies on new export controls on semiconductor equipment inputs, including foreign direct product (FDP) rules of the EAR.
- Classifying semiconductors and related items pursuant to the EAR.
- Preparing and implementing a Know Your Customer (KYC) policy for an online platform for the purchase of integrated circuits and other electrical components.
- Obtaining the successful removal of a Russian electronic components company from the BIS Unverified List.
INSIGHTS
Commerce Imposes Sweeping New Rule Restricting Exports of AI Chips
On January 13, 2025, the Department of Commerce Bureau of Industry and Security (BIS) announced new rules restricting the export of advanced artificial intelligence (AI) chips and certain closed AI model weights in an expected move that was preemptively criticized by giants in the tech and semiconductor industries. The 168-page “Framework for Artificial Intelligence Diffusion” interim final rule (the “Rule”) adds a global licensing requirement for the export of advanced AI chips and closed AI model weights but with certain exclusions for some allied countries. Compliance with most portions of the new rule is required by May 15, 2025, and interested persons may submit public comments on the rule until May 15, 2025.
New Rules Further Restrict China’s Access to Semiconductor Technology
On December 2, 2024, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) issued two new rules further restricting China’s capability to produce advanced semiconductors. One final rule (the “Entity List Updates Rule”) adds 140 entities to the BIS Entity List and assigns 16 entities the new Footnote 5 designation. Concurrently, an interim final rule makes several changes to the Export Administration Regulations (“EAR”), including adding new Foreign Direct Product (“FDP”) rules, adding or modifying several Export Control Classification Numbers (“ECCNs”) on the Commerce Control List (“CCL”), adding new license exceptions, and other revisions.
Biden’s Gift to Trump: An Easy Route to Begin Imposing Hefty Tariffs on China
On December 23, 2024, the Office of the United States Trade Representative (USTR) launched an investigation of China’s acts, policies, and practices related to targeting of the semiconductor industry for dominance. The investigation was launched under Section 301 of the Trade Act of 1974.
USTR Provides Detail on Products Subject to Additional Section 301 (“China”) Tariffs
On May 22, 2024, the United States Trade Representative (“USTR”) announced the publication of a Federal Register Notice (“the FRN”) setting forth additional and increased Section 301 tariffs for specific Harmonized Tariff Schedule of the U.S. (“HTSUS”) subheadings. In addition, the FRN provides details on products subject to potential exclusions from the tariffs and establishes a period for interested parties to provide comments on the tariff modifications and potential exclusions.
BIS Releases New Rules Updating Restrictions on Advanced Computing Chips, Manufacturing Equipment, and Supercomputing Items to Countries of Concern
On October 17, 2023, the U.S. Department of Commerce Bureau of Industry & Security (“BIS”) released three rules amending the Export Administration Regulations (“EAR”) to strengthen export controls on advanced computing semiconductors and semiconductor manufacturing equipment to arms embargoed countries, including the People’s Republic of China (“China”), and to place certain additional entities in China on BIS’s Entity List.
Export Controls on Chips to China Typify the Biden Administration’s National Security Strategy for Outcompeting China
On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) announced a major new rule that restricts the ability of the People’s Republic of China (“PRC” or “China”) to obtain advanced computing chips