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.

Semiconductors Trade & Export Law FAQs

1. What are the major security concerns of the semiconductor industry?

The semiconductor industry presents significant national security and trade compliance risks, as its products and technologies serve both commercial and military purposes. U.S. agencies such as U.S. Customs and Border Protection (CBP) and the Bureau of Industry and Security (BIS) closely monitor semiconductor imports and exports due to the global, complex supply chain and the involvement of sensitive technologies. Minor errors in import classification, valuation, country of origin, or entry documentation can result in shipment delays, CF 28 or CF 29 inquiries, audits, or penalties under 19 U.S.C. § 1592. Semiconductor companies are also subject to strict export controls under the EAR, 15 C.F.R. Parts 730–774, especially regarding advanced computing chips, manufacturing equipment, supercomputing applications, China, and other sensitive destinations. CBP may coordinate with BIS to verify licensing and detect potential circumvention of technology-transfer restrictions. To mitigate these risks, semiconductor companies should implement strong internal controls, maintain accurate ECCN and HTS classifications, conduct thorough supplier vetting, perform end-use and end-user screening, and keep detailed documentation to demonstrate reasonable care.

2. What semiconductor items may require an export license?

Semiconductor-related items may require an export license if they are specifically controlled under the EAR, destined for a restricted country, intended for a prohibited end use, or going to a restricted end user. Examples may include advanced computing chips, high-performance integrated circuits, semiconductor manufacturing equipment, certain electronic assemblies, equipment used to produce advanced node semiconductors, related software, and technology used for development or production. Licensing requirements may also apply to certain foreign-produced items if they are subject to the EAR through the foreign direct product rules or because they contain controlled U.S.-origin content. A company should not assume that a semiconductor product is uncontrolled simply because it is commercial or sold globally. Exporters should consider the ECCN, destination, end user, end use, restricted party screening results, and whether the transaction involves advanced computing, supercomputing, military, surveillance, or weapons-related applications.

3. What is an ECCN, and why is it important for semiconductor exporters?

An Export Control Classification Number (ECCN) is used under the Commerce Control List to identify items subject to specific EAR export controls. For semiconductor companies, the ECCN determines if a product, software, or technology is controlled for reasons such as national security, regional stability, anti-terrorism, missile technology, or nuclear nonproliferation. It also indicates whether a license is required for a specific destination, customer, or end use. ECCN classification is critical in the semiconductor industry because minor technical differences can affect export-control status. Factors such as processing performance, interconnect bandwidth, end-use capability, manufacturing tolerances, node size, equipment function, software capability, and technology content may influence whether a semiconductor item is controlled.

4. What is the Entity List, and why does it matter to semiconductor companies?

The Entity List is a BIS restricted party list that identifies foreign persons, companies, research institutes, universities, and organizations subject to specific export licensing requirements. Semiconductor companies should screen customers, distributors, foundries, design houses, research partners, logistics providers, and end users against the Entity List before exporting, reexporting, or transferring items subject to the EAR. Entity List restrictions can be particularly significant in the semiconductor sector, as a listed entity may be involved in chip design, fabrication, packaging, testing, supercomputing, artificial intelligence, telecommunications, surveillance, or military modernization. If a party is listed, exports of semiconductor items, software, or technology to such party will generally require a BIS license, and license applications may be subject to a presumption of denial depending on the listing.

5. What Customs risks apply to importing wafers, substrates, chemicals, and other semiconductor materials?

Semiconductor materials often undergo multiple transformations across different countries, making origin determinations and classification particularly challenging. CBP may question whether the importer has correctly identified the point of substantial transformation, especially when origin affects duty rates or free‑trade agreement eligibility. Chemicals, photoresists, and specialty gases may also be subject to additional regulatory requirements enforced at the border, including EPA, DOT, or hazardous‑materials rules. Incomplete or inconsistent documentation can lead to CF 28s, CF 29s, or shipment holds, disrupting manufacturing timelines.

6. Are semiconductor companies at risk for anti‑dumping and countervailing duty (ADD/CVD) enforcement?

Yes. Semiconductor companies may be subject to antidumping and countervailing duty (ADD/CVD) risk when they import materials, components, or equipment covered by active duty orders, such as certain aluminum, steel, chemicals, substrates, wafers, fasteners, packaging materials, or machinery parts. ADD applies to goods sold in the United States at below-fair-value prices, while CVD addresses imports that benefit from foreign government subsidies that harm U.S. industry. U.S. Customs and Border Protection (CBP) enforces these orders and may investigate evasion under the Enforce and Protect Act, especially in cases of transshipment, misclassification, undervaluation, or false country-of-origin claims. To mitigate risk, semiconductor companies should maintain thorough supplier due diligence, accurate country-of-origin documentation, bills of materials, production records, mill certificates where applicable, and supplier certifications.

7. What challenges arise when importing R&D samples, prototypes, and engineering lots?

Importing R&D samples, prototypes, and engineering lots may lack a standard commercial price, may be shipped free of charge, or may not be packaged or labeled for commercial sale. Regardless of whether a sale occurs, CBP requires importers to declare an accurate customs value using an acceptable valuation method, such as production cost, the value of similar merchandise, or another legally supportable basis under 19 U.S.C. § 1401a and 19 C.F.R. Part 152. Prototypes can also pose classification and country-of-origin challenges, particularly when design, wafer fabrication, assembly, testing, or packaging occur in different countries.

8. What should semiconductor companies do if they receive a CF 28, CF 29, or pre‑penalty notice?

Semiconductor companies should treat any CBP inquiry as a serious compliance event. A CF 28 requires a complete and accurate response within 30 days, while a CF 29 may finalize CBP’s position or propose an adverse action that must be addressed within 20 days. Pre‑penalty notices under 19 U.S.C. § 1592 require a prompt and strategic response, and companies may consider submitting a prior disclosure, disputing the allegations, or negotiating mitigation depending on the circumstances.