New Semiconductor Rule Unlikely to Affect the ASA Community; Except for Semiconductor Manufacturing Articles, Materials, Software or Technology

The United States’ Bureau of Industry and Security (BIS) is promulgating new rules designed to protect the U.S. semiconductor industry. Our initial review of these new rules suggests that they are unlikely to affect most aircraft parts (including avionics), but ASA members who export (or re-export) articles, materials, software or technology related to the production of semiconductors should pay attention to the standards set by these new rules.

The interim final rule is scheduled to be published on October 13, but an advance copy is already available for public inspection. It will be immediately effective when it is published, with elements being retroactively effective to last week (October 7). It will be open for public comment for 60 days.

The new rules create new Export Commodity Classification Numbers (ECCNs) for goods, materials, software and technology related to the production of semiconductors. They also set new standards for limiting export of these items.

An important element of this is the expansion of the foreign direct product rule. This rule typically extends U.S. export jurisdiction over foreign articles that are produced with U.S. content, or based on U.S. technology. The new foreign direct product rule, though, will extend U.S. export jurisdiction to include foreign-produced items that are produced by any foreign production site when the plant itself is a “direct product” of U.S.-origin “technology” or “software.” This could mean that the U.S. intends to extend jurisdiction over certain products produced in some Chinese facilities, which could produce the unusual result of declaring in-country transfers of certain semiconductor chips (within China) to be subject to U.S. export jurisdiction. It is unclear if this is the intended result of the new regulation, but the fact that this rule expands the scope of the foreign-produced item rule to include twenty-eight existing entities that are located in China suggests that China is certainly a focus of the new rule. The preamble to the new rule clarifies that the U.S. government intends to require licensing in order to support certain semiconductor chip manufacturing activities in China.

At present, the export treatment of avionics does not appear to be changed.