BIS Enacts Stricter Semiconductor Export Controls for China
For my first Substack entry, I’ll attempt to break down the Biden Administration’s latest—and likely final—set of export controls against China. These measures aim to restrict China’s ability to develop advanced-node semiconductors with potential use in advanced weapon systems and AI-driven military applications
Overview of the New Rules
On December 2, 2023, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced two final rules tightening China’s access to advanced-node semiconductors. The goal is to slow China’s progress towards self-sufficiency in producing chips integral to AI and high-performance computation- sectors the U.S. views as a national security priority.
The Two Key Rules:
Docket No. 2024-28270: Expands the Foreign Direct Product Rule (FDPR) and bolsters the Entity List. It adds 140 entities and modifies 14 existing entries, targeting semiconductor fabs, equipment suppliers, and investment firms integral to China’s advanced chip supply chain. A new Footnote 5 (FN5) category subjects certain entities to additional restrictions beyond those applied to standard Entity List designees. Under the new Footnote 5 FDPR, U.S. export control jurisdiction extends to certain “direct products” if the exporter has constructive knowledge that the foreign-produced commodity i) will be incorporated into anything produced, purchased, or ordered by a Footnote 5 designee, or ii) is part of a transaction involving a Footnote 5 designee.
Docket No. 2024-28267: Broadens controls on advanced-node semiconductor manufacturing equipment and high-bandwidth memory (HBM) components, while tightening restrictions on related software and technology. It adds 24 new equipment categories, updates rules for advanced-node integrated circuits, introduces controls on HBM, and lowers de minimis thresholds. It also clarifies that software “keys” remain subject to U.S. rules, extending U.S. jurisdiction over foreign-made items containing minimal U.S. content and tightening oversight across the entire semiconductor supply chain.
Effective Dates and Delayed Compliance
The majority of the rules took effect on December 2, 2024. Entities without FN5 status face immediate regulatory obligations. Sixteen FN5-designated entitles have until December 31, 2024, to comply, providing time to adjust compliance strategies.
Why Does This Matter?
These measures build on the Biden Administration’s October 2022 rules targeting China’s semiconductor and AI sectors. By narrowing the range of critical technologies and raising regulatory barriers, the U.S. reaffirms its intent to protect national security and deter the transfer of key capabilities to a strategic rival.
A More Complex Compliance Landscape
The new approach moves beyond traditional, item-by-item controls toward a dynamic system focused on end-use, end-users, and foreign direct product criteria. Companies must now evaluate entire transactions—including all parties, destinations, and underlying technologies.
The rules also add eight new “Red Flags” to guide exporters in their due diligence. These red flags are now in effect, and exporters are expected to exercise reasonable and appropriate inquiry to meet the applicable “knowledge” standards. Examples include:
Red Flag 21: Lack of transparency about the true end user or owner of the product (e.g., an order placed through a distributor for a customized item, suggesting the distributor is not the ultimate recipient).
Red Flag 24: Overlapping management or leadership between the customer and an Entity List party, signaling possible diversion to an unauthorized recipient.
Red Flag 26: Products assumed subject to Footnote 5 or SME FDPR (e.g., foreign-made items containing an integrated circuit) require confirming that no U.S. inputs were used before proceeding.
Exporters are thus expected to recognize these pitfalls and conduct reasonable, appropriate inquiries to ensure compliance. Meeting these standards is increasingly challenging given China’s secrecy laws and limited multilateral support, forcing U.S. companies to shoulder greater compliance burdens and invest more in due diligence, supply chain scrutiny, and robust compliance infrastructures.
The Importance of Industry Input
BIS acknowledges that no policy is perfect and encourages public comments to refine these rules. By actively participating in the policymaking process, industry stakeholders can help ensure a balanced approach—one that addresses national security risks without imposing undue burdens on legitimate commerce. Thoughtful industry feedback can guide refinements that preserve economic vitality while keeping sensitive technology out of adversarial hands.
Looking Ahead
The December 2 package likely represents President Biden’s final major move against China’s semiconductor ambitions. Future administrations may adopt different approaches, potentially leveraging export controls in ways that extend beyond nonproliferation to address strategic competition, promote democratic values in authoritarian regimes, and prevent dual-use goods from facilitating human rights abuses.
Historically, as seen with President Trump’s actions (notably against Huawei), U.S. export controls have expanded beyond traditional frameworks, linking economic considerations to national security. As this nexus evolves, U.S. controls—particularly those targeting China—will inevitably impact entire industry ecosystems, ensuring that commercial consequences remain a central concern.
Bottom Line
The December 2 BIS rules represent a decisive step in preventing U.S.-linked technology from enhancing China’s military capabilities. While these measures clearly signal U.S. priorities, they also add complexity for businesses navigating export controls. Success will hinge on foresight and sustained engagement between government and industry to ensure these measures remain both effective and manageable.
Disclaimer: The views expressed here are solely my own and do not represent the positions of my employer. They do not constitute legal advice nor create an attorney–client relationship.