It comes as a surprise to no one that the administration of U.S. President Joe Biden released an interim final rule for the third round of semiconductor chip export controls last week.
This latest update of export controls revises and builds on sweeping measures implemented in the past couple years to regulate the global trade in chips, as well as the know-how and equipment used to make them. But significant loopholes have emerged in these controls, including the use of lower performing chips in large quantities to train AI and the unconventional use of less-advanced lithography tools to manufacture 7-nanometer chips. In October 2023, the Biden administration released a round of updates that lowered the threshold for chips that are blocked from being shipped to China without a license. These updates also blocked the export to China of various equipment needed to make advanced chips, and blacklisted 13 Chinese AI firms.
Last week, the Bureau of Industry and Security published its updated export controls, targeting cutting edge technology where the U.S. wants to maintain a lead, such as quantum computing, chip-making machinery and the most advanced transistors. The U.S. updated licensing requirements for the newly controlled technology and introduced a new general license that protects existing collaboration with China, as well as a license exception for countries that implement equivalent controls. Also included are measures to prevent China from reverse-engineering advanced chips and to stop companies from circumventing restrictions by creating technology that is only nominally different. Two things that were anticipated but missing, according to discussions preceding the release of these controls, are a lower threshold for blocking advanced chips exports and significant carve-outs for allies.
What Has Changed With the Most Recent Round of Semiconductor Export Controls
One portion of the updated controls targets China’s ability to develop quantum computing capabilities. Quantum computers process data much faster than classic computers, by leveraging quantum mechanics to simultaneously perform multiple calculations. Since semiconductor and logic circuits need to be cooled to very cold temperatures to scale up quantum, the new measures restrict certain chips that are able to operate around absolute zero temperatures.
The update also restricts any “technology” for the “production” or “development” of gate-all-around field effect transistors, or GAAFET, which are essentially 3D transistors that more effectively control the flow of electricity within chips. GAAFET is one of the most advanced transistor architectures used for cutting-edge semiconductor technology. According to the new controls, technology used in the production, but not the design, of GAAFET technology will be restricted. This includes process recipes, which are detailed instructions for the creation of GAAFETs covering things like temperature, chemical concentrations and timing. The U.S. wants to block China’s ability to create GAAFET technology because the power efficiency and scalability of these cutting-edge transistors is key to fabricating semiconductors that are smaller than 3 nanometers. As noted in the regulations, “The greater efficiency and lower power consumption of GAAFET-produced chips enable faster and more robust artificial intelligence and other military and commercial applications.”
The Bureau of Industry and Security also added new licensing requirements for the equipment used to remove material in silicon wafers to define the patterns and features of integrated circuits and transistors, as well as an imaging technology that can be used to reverse engineer advanced chip designs.
While the new export controls don’t directly alter lithography controls, the U.S. did add new restrictions on tools that are used to print circuit designs onto chips, namely masks and reticles for extreme ultraviolet light, or EUV, lithography. EUV lithography, which uses light to print circuit designs onto the world’s most advanced semiconductor chips, has already been restricted under U.S. controls. Masks and reticles, templates used to transfer circuit patterns onto semiconductor wafers during the lithography process, must be designed specifically for EUV.
For each of the rules described above, the Bureau of Industry and Security applied national security and regional stability licensing requirements, with exceptions for countries that share equivalent controls on the same items as the U.S. When an export license is required, countries that are generally considered friendly to the U.S. are reviewed under a presumption of approval, while countries that pose a national security risk, namely China, are reviewed under a presumption of denial.
Additionally, the Bureau of Industry and Security added a new general license for existing GAAFET technology projects and quantum computing items that would allow collaboration with Chinese scientists and engineers in the U.S. if obtained. This license has an annual reporting requirement.
Finally, the updated controls document includes a note to clarify that if a piece of electronic equipment is “specially designed” for and has the same functional characteristics as restricted technology, then that technology is treated as restricted. This revision will prevent companies from skirting export controls by creating new technologies that are not specifically named on the control list but have the same intended purpose as restricted items.
What’s Missing From the Updated Controls
According to reports preceding the announcement of new controls last week, the Bureau of Industry and Security was considering whether to change performance thresholds for advanced chips, like it did in 2023. The U.S. is particularly concerned about China accessing high-bandwidth memory chips, which are used to train AI models. One reason why the U.S. might want to lower the performance threshold is that Chinese companies are able to use large quantities of less advanced chips to train AI. Another reason is that Chinese AI companies are innovating around their restricted access to advanced chips by making more efficient code for large language models that can run on less powerful chips.
However, the new round of controls released last week did not introduce restrictions on high bandwidth memory chips for AI. This is likely happy news for companies like Nvidia, which are forced to redesign the chips they create for the China market every time performance parameters are changed. When the Bureau of Industry and Security adjusted the performance parameters last year, Nvidia had to cancel hundreds of thousands of orders of chips, worth at least $5 billion, that it had designed in accordance with the 2022 controls, according to the Wall Street Journal. U.S. chip companies like Nvidia, Intel and Qualcomm have been lobbying the Biden administration against shifting the goalposts yet again, arguing that these measures threaten U.S. technological competitiveness.
Another highly anticipated aspect of the new controls was “significant carve-outs” for U.S. allies. While last week’s update did introduce a new, multilaterally focused license exception called the Implemented Export Controls, or IEC, license, it is not very permissive, nor is it widely applied. The goal of the IEC license is to sync up new measures with countries that have implemented “equivalent” export controls in order to reduce redundancy and protect international collaboration and innovation. In August, The New York Times reported that 30 allied countries were suspected to be on this IEC list, but there are actually only eight. Notably, the Netherlands and South Korea, two semiconductor powerhouses, are not on this list of exempted countries. This is likely because the IEC license exception only seems to be applied to new export controls explicitly mentioned in the 2024 update. The fact that no new controls on lithography were implemented last week is likely why the Netherlands isn’t mentioned on the IEC list. The document does not state whether IEC designations will be retroactively applied to previous rounds of controls.
It remains to be seen whether more U.S. allies will align their controls and make their way onto the IEC list. After all, this is still an interim rule. But as American technological competitiveness is increasingly at the forefront of discussions about U.S. national and economic security, Commerce Secretary Gina Raimondo is resolved to “do whatever it takes to protect our people including expanding our controls.”
Leave a Reply