Late this August, the U.S. Department of Commerce took steps to restrict certain artificial intelligence computer chips from export or reexport to China, and added seven entities to the Bureau of Industry & Security ("BIS") Entity List. Both actions reflect Commerce's continued increased focus on enforcing export restrictions that target China.

Changes to US Export Policy for Certain Advanced Computer Chips

In a regulatory filing with the US Securities and Exchange Commission ("SEC"), US chip manufacturer NVIDIA Corp ("NVIDIA") disclosed that on August 26, the US government informed the company that it had imposed, with immediate effect, a new license requirement for any future export to China (and Russia) of its A100 and H100 computer chips.1 Meanwhile, according to Reuters reporting, Advanced Micro Devices ("AMD") also received new export license restrictions from the US government with respect to its MI250 artificial intelligence ("AI") chips.2

According to NVIDIA's SEC filing, US officials informed them that the new policy "will address the risk that products may be used in, or diverted to, a 'military end use' or 'military end user' in China." The Wall Street Journal reported that, according to an unnamed industry official, "the new rule sets a performance threshold on chips that handle advanced artificial-intelligence calculations that are becoming increasingly crucial to businesses, governments and militaries[.]"3 According to Reuters and The New York Times, the US Department of Commerce stated that "it is reviewing its China-related policies and practices to 'keep advanced technologies out of the wrong hands'"4 and that it might adopt new measures to accomplish these goals.5 Commerce has not issued any formal commentary on these recent actions, which apply solely to entities that received the specific notices. However, Reuters recently reported that the Biden administration is considering adopting a broader regulatory rule-making,6 which will require Commerce to go through rulemaking procedures, including notice and comment.

The AI chips are instrumental in advance computing that uses image and speech recognition, among other features. As Reuters explained, "[i]mage recognition and natural language processing are common in consumer applications like smartphones that can answer queries and tag photos."7 However, as referenced in NVIDIA's regulatory filing, the chips also have military uses, "such as scouring satellite imagery for weapons or bases and filtering digital communications for intelligence-gathering purposes."8

According to The New York Times, an anonymous source reports that "[o]ther companies that make tool or design software have received similar letters [as Nvidia and AMD] in recent weeks informing them that the high-end technologies they export to China have been restricted[.]"9

Addition of Seven Chinese Entities to BIS Entity List

The news of Commerce's changes to its policy for the export of advanced computer chips came on the heels of BIS's announcement that it had issued a final rule adding seven Chinese entities to the BIS Entity List.10 The Entity List

identifies entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entities . . . have been involved, are involved, or pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy of the United States.11

Parties on the Entity List are subject to individual licensing requirements and policies supplemental to those found elsewhere in the US Export Administration Regulations ("EAR").

The seven entities, which operate in the Chinese space, aerospace, and related industries, are:

  • China Aerospace Science and Technology Corporation (CASC) 9th Academy 771 Research Institute;
  • China Aerospace Science and Technology Corporation (CASC) 9th Academy 772 Research Institute;
  • China Academy of Space Technology 502 Research Institute;
  • China Academy of Space Technology 513 Research Institute;
  • China Electronics Technology Group Corporation 43 Research Institute;
  • China Electronics Technology Group Corporation 58 Research Institute; and
  • Zhuhai Orbita Control Systems.

BIS states that this action will "severely restrict [the entities'] access to commodities, software, and technologies subject to the" EAR.12 BIS alleges that the entities were added to the Entity List for engaging in "activities contrary to U.S. national security and foreign policy interests, specifically for acquiring and attempting to acquire U.S.-origin items in support of the People's Republic of China's (PRC) military modernization efforts."13 The rule, and thus the export restrictions, took effect on August 24, 2022.

In connection with this announcement, the Under Secretary of Commerce for Industry and Security Alan Estevez stated that Commerce is "constantly monitoring these sectors [space and aerospace] for evidence of diversion" to the Chinese military.14 Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler similarly commented that potential for diversion of aerospace technology to military applications is "high." She further added that the Entity List "is a powerful tool . . . for demonstrating that the U.S. government will not hesitate to use export controls to protect U.S. national security."15 Finally, Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod proclaimed that Commerce "will continue to leverage all our investigative resources to deny the PRC access to sensitive U.S. technologies."16

To date, the Entity List includes approximately 600 Chinese entities, more than 110 of which were added since the start of the Biden Administration.

Footnotes

1. Nvidia Corporation, Form 8K (Aug. 26, 2022), https://www.sec.gov/ix?doc=/Archives/edgar/data/0001045810/000104581022000146/nvda-20220826.htm.

2. Stephen Nellis & Jane Lanhee Lee, U.S. Officials Order Nvidia to Halt Sales of Top AI Chips to China, Reuters (Sept. 1, 2022), https://www.reuters.com/technology/nvidia-says-us-has-imposed-new-license-requirement-future-exports-china-2022-08-31/.

3. Asa Fitch, Nvidia Warns of Sales Hit from New U.S. Chip Licensing Requirements for China, Wall St. Journal (Aug. 31, 2022), https://www.wsj.com/articles/nvidia-warns-of-sales-hit-from-new-u-s-chip-licensing-requirements-for-china-11661984074.

4. Stephen Nellis & Jane Lanhee Lee, U.S. Officials Order Nvidia to Halt Sales of Top AI Chips to China, Reuters (Sept. 1, 2022), https://www.reuters.com/technology/nvidia-says-us-has-imposed-new-license-requirement-future-exports-china-2022-08-31/.

5. Don Clark & Ana Swanson, U.S. Restricts Sales of Sophisticated Chips to China and Russia, New York Times (Aug. 31, 2022), https://www.nytimes.com/2022/08/31/technology/gpu-chips-china-russia.html.

6. Karen Freifeld & Alexandra Alper, Exclusive: Biden to Hit China with Broader Curbs on U.S. Chip and Tool Exports, Reuters (Sept. 12, 2022), https://www.reuters.com/business/exclusive-biden-hit-china-with-broader-curbs-us-chip-tool-exports-sources-2022-09-11/.

7. Stephen Nellis & Jane Lanhee Lee, U.S. Officials Order Nvidia to Halt Sales of Top AI Chips to China, Reuters (Sept. 1, 2022), https://www.reuters.com/technology/nvidia-says-us-has-imposed-new-license-requirement-future-exports-china-2022-08-31/.

8. Id.

9. Don Clark & Ana Swanson, U.S. Restricts Sales of Sophisticated Chips to China and Russia, New York Times (Aug. 31, 2022), https://www.nytimes.com/2022/08/31/technology/gpu-chips-china-russia.html.

10. Press Release, Department of Commerce, Bureau of Industry and Security, Commerce Adds Seven Chinese Entities to Entity List for Supporting China's Military Modernization Efforts (Aug. 23, 2022), https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3121-2022-08-23-press-release-seven-entity-list-additions/file.

11. Id.

12. Id.

13. Id.

14. Id.

15. Id.

16. Id.

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