The United States Department of Commerce (through its Bureau of Industry and Security, or “BIS”) recently issued a final interim Rule (currently cited as 87 Federal Register 62186) which imposes certain controls that may affect Japanese nationals who reside in the United States as lawful permanent residents (“LPR”) and Japanese companies. The Rule imposes a batch of sweeping new export controls intended to target certain advanced computing integrated circuits (“ICs”), computer commodities that contain such ICs, and certain semiconductor manufacturing items that are ultimately intended for export to the People’s Republic of China (“PRC”).
First, a quick primer on rulemaking in the United States may be in order. The United States Congress has the power and authority to enact laws that allow government agencies (such as the Commerce Department and the BIS) to issue regulations and rules such as the Rule discussed here. In other instances, the President of the United States may also delegate existing presidential authority directly to an agency. Eventually, rules issued by agencies may be codified in the Code of Federal Regulations (“CFR”). Once a final interim rule is issued by an agency, however, it generally has the force of law and can be enforced in courts, even without being finally codified in the CFR.
Regarding the substance of the Rule, nationals of foreign countries (including Japan) who are LPRs or that conduct business in the United States should be aware of this Rule and its restrictions on the ability of U.S. persons to engage in business related to semiconductor development or production within the PRC. “Specifically, the rule . . . [r]estricts the ability of U.S. persons to support the development, or production, of ICs at certain PRC-located semiconductor fabrication ‘facilities’ without a license…” (BIS Press Release.) The complete text of the Rule is available on this website: https://www.federalregister.gov/d/2022-21658.
Simply put, and of importance to individuals who may be looking to work in, visit, or permanently immigrate to the United States, this restriction may include any actions by “U.S. Persons” that “support” the “development or production” of certain ICs at certain China-located semiconductor fabrication facilities. Covered support activities may also include the shipping, transmitting, or transferring (in country) of certain items (including items covered under the federal Export Administration Regulations (“EAR”), 15 C.F.R. § 734.9(i) – “foreign produced items”, and facilitating the same, when being sent to certain PRC-located semiconductor fabrication facilities.
Among many other things too numerous to list here, the Rule also adds new licensing requirements destined for a supercomputer or semiconductor development or production end use in the PRC. It also adds new license requirements for items destined to a semiconductor fabrication “facility” in the PRC that fabricates ICs. Under the Rule, licenses for facilities owned by PRC entities will face a “presumption of denial” based on the risk of these items being used contrary to the national security or foreign policy interests of the United States.
Of particular note in the Rule is its broad application to a wide variety of individuals and entities that fall under the definition of “U.S. Person” under United States law. Of particular note in the Rule is its broad application to a wide variety of individuals and entities that fall under the definition of “U.S. Person” under United States law.
- A citizen of the United States;
- An alien lawfully admitted for permanent residence (such as an LPR);
- An unincorporated association with a substantial number of members who are citizens of the U.S. or are aliens lawfully admitted for permanent residence; or,
- A corporation that is incorporated in the U.S.
This makes clear that not only United States citizens are included, but lawful permanent residents from any foreign country, including Japan. Moreover, the definition of “U.S. Person” may actually be broad enough to include foreign companies or other entities. See 22 CFR § 120.62 (U.S. person “also means any corporation, business association, partnership, society, trust, or any other entity, organization, or group that is incorporated to do business in the United States”). Japanese nationals who are LPRs or who own, are involved with, or manage qualifying companies or other such entities should take note of the Rule so as not to run afoul of it or any other U.S. federal laws and regulations.
Finally, it is vital to consider this Rule in the ongoing context of current global political and economic conditions, also taking into consideration the current, tenuous state of U.S. – China relations. Also in this context is the recent enactment by the United States Congress of the federal CHIPS Act of 2022, which is designed to boost U.S. competitiveness, innovation, and national security by prioritizing domestic semiconductor production. It should be assumed that this recent Rule and associated controls are to be considered hand-in-hand with the CHIPS Act, and it is no surprise to see restrictions on U.S. Persons’ activities regarding anything related to China along those lines. LPRs in particular must take into consideration their own status under U.S. law when considering involvement in any industry that touches on semiconductor production as it relates in any way to China.
In sum, the new Rule discussed here imposes export controls for certain computer intended for export to the China. All those affected or potentially affected should be aware of these new provisions and prepared to comply.