BIS Issues Expansive New Rules Targeting China

On October 7, 2022, in a move that was hailed by senior U.S. government officials as a paradigm shift in U.S. export controls policy toward China, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule that amends the Export Administration Regulations (EAR) to impose new and expanded controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items. Transactions for supercomputer end-uses and transactions involving certain entities on the Entity List are now subject to additional export controls, as are certain semiconductor manufacturing items and transactions for certain IC end uses. U.S. person activities as they relate to certain semiconductor activities in China are also now restricted.

Certain aspects of the rule, specified below, including the availability of license exceptions, became effective immediately on October 7, 2022. The new restrictions on U.S. person activities under § 744.6 became effective on October 12, 2022. The remainder of the provisions with a delayed effective date are specified below and will become effective on October 21, 2022. BIS is also accepting public comments on the interim final rule through December 12, 2022.

Separately, also on October 7, 2022, BIS issued a final rule, which revised the Unverified List (UVL) and clarified the activities and criteria that may lead to the addition of an entity to the Entity List. BIS stated that a sustained lack of cooperation by the host government in a country where an end-use check is to be conducted, such as China, that effectively prevents BIS from determining compliance with the EAR, will be grounds for adding an entity to the Entity List.

The U.S. policy goals behind the new rules are ambitious and seek to degrade China’s advanced computing capabilities in an unprecedented manner. As summarized recently by National Security Advisor Jake Sullivan: “On export controls, we have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies.  We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”

The broad implications of these new rules, along with their efficacy from a policy standpoint, may take some time to come fully in to focus. For now, it is clear that any U.S. or non-U.S. individuals or entities that play any role in the global semiconductor supply chain—whether as manufacturers, producers, consumers, or otherwise—need to carefully review the new rules to determine what is required to comply and, if necessary, seek guidance or a license from BIS.

Below we provide an overview of the new rules and some observations on the practical impact they may have in the near term.

I. BIS Interim Final Rule (87 FR 62186)

New Controls for Certain Advanced Computing ICs and Commodities and Semiconductor Manufacturing Items; License Requirements and License Exceptions

Additions to the Commerce Control List (CCL) – Advanced computing chips, computer commodities that contain them, semiconductor manufacturing items, and associated “software” and “technology”

New ECCNs have been added to the CCL to cover certain advanced computing ICs and computer commodities that contain such chips, and certain semiconductor manufacturing items.

Specifically, the rule adds new ECCN 3A090 for specified high-performance ICs. The accompanying new ECCN 4A090 covers computers, “electronic assemblies,” and “components,” not elsewhere specified, containing ICs in ECCN 3A090. Associated controls over production and development software and technology are included in amended ECCNs 3D001, 3E001, and 4E001, as well as a newly created ECCN 4D090 (to cover software associated with items controlled under ECCN 4A090). These additions and revisions are effective on October 21, 2022.

The rule also adds new ECCN 3B090 for specified semiconductor manufacturing items. Associated software and technology are included in amended ECCNs 3D001 and 3E001. These additions and revisions became effective October 7, 2022.

Regional Stability (RS) controls apply to ECCNs 3A090, 3B090, and 4A090 applicable to China (§ 742.6(a)(6)), and to the derivative software and technology controls to the extent that such technology/software relate to ECCNs 3A090, 3B090, or 4A090. Additionally, as discussed further below, the RS controls apply to mass market encryption hardware and software (ECCNs 5A992 and 5D992) when these ECCNs meet or exceed the performance parameters of ECCN 3A090 or 4A090.

License Requirements for New Advanced Computing Items and Semiconductor Manufacturing Items

These new RS controls impose a license requirement for exports, reexports, and transfers (in-country) to or within China.  It is quite unusual for the EAR to impose a license requirement on a single country, as it has in this case.  There is an exclusion, however, for deemed exports or reexports to Chinese nationals located outside of China, where the item or related technology will not actually be transferred to China. These license requirements for semiconductor manufacturing items became effective on October 7, 2022, and the license requirements for advanced computing items will become effective on October 21, 2022.

BIS has acknowledged the impact this new licensing requirement will have on certain mass-market electronics items classified under ECCNs 5A992 and 5D992, which previously did not require a license for China, by adding a note about these new RS license requirements to those encryption-related control categories. This is a reminder that even when the EAR’s encryption controls do not require a license, other reasons for control under the EAR still need to be considered.  Because of the limitations on the availability of license exceptions under these new RS controls, when applicable, they will often also impose new licensing requirements on encryption items subject to the EAR’s “EI” controls (e.g., ECCN 5A002) and items otherwise eligible for License Exception ENC.

There is a presumption of denial for license applications to overcome these controls; however, BIS will evaluate license applications on a case-by-case basis for semiconductor manufacturing items destined to end users located in China that are headquartered in the United States or in a country in Country Group A:5 or A:6, “taking into account factors including technology level, customers and compliance plans.”  This underscores the importance of semiconductor manufacturing firms with a presence in China putting in place strong export controls compliance programs.

For the time being, these are unilateral U.S. controls. Quite clearly, however, the U.S. government hopes to enlist allies in this more expansive approach, as BIS noted that “[i]f a relevant multilateral export control regime adopts controls for the identified technology, BIS will adopt multilateral controls in place of the unilateral control.”  In fact, BIS announced in a public briefing that the U.S. government will advocate for the addition of these controls to the Wassenaar Arrangement dual-use control list. Whether other participating states will agree to multilateral controls on these items remains in question.  A plurilateral control agreement, such as within the recently proposed “Chip 4” grouping of the U.S., Japan, S. Korea, and Taiwan, is another, perhaps more realistic, possibility.

Anti-terrorism (AT) Controls for Lower-Level Computing ICs and Computer Commodities That Contain Them

Effective October 21, 2022, the rule adds AT controls to cover certain lower-level ICs and computer commodities that contain them. The new AT controls are implemented by adding new paragraph (p) to ECCN 3A991 (electronic devices and “components” not controlled by 3A001) and new paragraph (l) to 4A994 (computers, “electronic assemblies” and related equipment, not controlled by 4A001 or 4A003, and “specially designed” “parts” and “components” therefor). The rule also makes a clarifying editorial amendment to ECCNs 3D001 and 4D994 by replacing the word “equipment” with “commodities” to ensure that these ECCNs control software not only for equipment, but also for parts, components, and assemblies.

Currently, the AT licensing requirement only applies to Iran, North Korea, and Syria, which limits the practical impact of this change. Nevertheless, treatment of deemed exports and reexports implicated by the newly expanded AT controls is notable and distinct from the approach described above in regard to the new RS controls. BIS has explained that deemed exports and reexports of technology and software that previously did not require a license, but now require a license because of the newly implemented AT controls, will only require licenses if the technology or software release exceeds the scope of the technology or software that the foreign (i.e., non-U.S.) national already had lawful access to prior to the controls implemented in this rule. Thus, a foreign national who lawfully accessed technology or software specified in new ECCN paragraphs 3A991.p or 4A994.l would not need a new license to continue receiving the same technology or software for items controlled under ECCN paragraphs 3A991.p or 4A994.l, but would require a license for the release of controlled technology or software different from that previous release, even if covered under the same ECCNs. Producers of electronics and computers utilizing ICs may need to reassess whether any software or technology covered by the expanded rule is being released to any Iranian, North Korean, or Syrian nationals and take appropriate steps to address any new licensing requirements thereafter.

License Exception Eligibility for New Advanced Computing Items and Semiconductor Manufacturing Items

The new rule provides limited license exceptions for the following: (1) items controlled under the newly created ECCNs (3A090 and 4A090); (2) ICs, computers, electronic assemblies, or components that meet the performance parameters of ECCN 3A090 / 4A090, but are in existing ECCNs (e.g., ECCN 5A002 for encryption functionality); and (3) related software and technology in ECCNs 3D001, 3E001, 4D090, and 4E001.

Section 740.2(a)(9) lists the license exceptions available for these items:

• Servicing and replacement of parts and equipment (RPL) under § 740.10;
• Governments, international organizations, international inspections under the Chemical Weapons Convention, and the International Space Station (GOV), restricted to eligibility under the provisions of § 740.11(b)(2)(ii) (exports, reexports, and transfers (in-country) made by or consigned to a department or agency of the United States Government); and
• Technology and Software Unrestricted (TSU), under the provisions of § 740.13(a) and (c).

For License Exceptions RPL and TSU, the equipment or software must have been shipped lawfully to its current location and continue to be legally used. These license exceptions would typically be used in this context to authorize repairs, software updates, and bug fixes for lawfully exported items. Importantly, no license exceptions (including those listed above) are available to overcome the export license requirement imposed under new § 744.23 (related to certain IC development and production facilities in China).

For semiconductor manufacturing items, only License Exception GOV (restricted to eligibility under the provisions of § 740.11(b)(2)(ii)) is available.

Savings Clause

The interim final rule also contains a Savings Clause with respect to shipments of items—removed from license exception eligibility or eligibility for export, reexport or transfer (in-country) without a license as a result of the rule—that were on dock for loading, on lighter, laden aboard an exporting carrier, or en route aboard a carrier to a port of export on October 7, 2022. Such items may continue to the destination under the previous license exception eligibility or without a license so long as they have been exported, reexported, or transferred (in-country) before November 7, 2022. Any such items not actually exported, reexported, or

transferred (in-country) before midnight on November 7, 2022, require a license.

Revising the Entity List and Entity List Foreign Direct Product (FDP) Rule; Establishing Two New FDP Rules for Advanced Computing and Supercomputers

Revised Entity List and Entity List FDP Rule

BIS has significantly expanded the scope of items subject to FDP Rule restrictions for 28 existing Entity List entities located in China. The scope of these restrictions has been set out in a new Footnote 4 to the Entity List. BIS alleges that some of the entities now designated with new Footnote 4 are involved in, among other things, the development of supercomputers believed to be used in nuclear explosive activities; the development and production of ICs for WMD programs and military end-users and end-uses; and the procurement of U.S.-origin items for activities that threaten U.S. national security and foreign policy objectives, such as supporting China’s military actors and military modernization efforts. This change becomes effective on October 21, 2022.

Most ECCNs triggering the FDP Rule in Footnote 4 are the same as in Footnote 1, but two new ECCNs, 5D002 and 5E002, are added to the scope of restrictions for Footnote 4 entities. It seems, therefore, that the scope of restrictions applicable to Footnote 4 entities is even broader than the restrictions applicable to Footnote 1 entities.

In addition, exporters can use applicable license exceptions when exporting to Footnote 1 entities, but not when exporting to Footnote 4 entities. Non-U.S. suppliers and partners of Footnote 4 entities should carefully assess whether the broader application of the Entity List FDP Rule and U.S. export control jurisdiction and the unavailability of commonly used license exceptions such as ENC may impact current supply arrangements or require a license from BIS.

Finally, the rule makes clear that Footnote 4 restrictions apply not only if a Footnote 4 entity is “a party to the transaction” (similar to language in Footnote 1), but also if the items subject to the EAR “will be used in the ‘development’ or ‘production’ of any ‘part,’ ‘component,’ or ‘equipment’ produced, purchased, or ordered by” a Footnote 4 entity.

Advanced Computing FDP Rule

The new Advanced Computing FDP Rule, set forth in § 734.9(h), builds upon the newly added ECCNs 3A090 and 4A090 covering specified high-performance ICs and computer commodities that contain such chips. This provision will become effective on October 21, 2022.

The Advanced Computing FDP Rule provides that foreign-produced items that meet the product scope in § 734.9(h)(1) and destination scope in paragraph (h)(2) are now subject to the EAR and RS license requirements. Foreign-produced items meet the product scope if they are the “direct product” of specified “software” or “technology” subject to the EAR and the foreign-produced item is specified in ECCNs 3A090 or 4A090 or is an IC, computer, “electronic assembly,” or “component” specified elsewhere on the CCL, which meets or exceeds the limit in the performance parameters of ECCN 3A090 or 4A090. The rule also applies to foreign-produced items specified in ECCN 3A090 or 4A090 and other specified items that are products of a complete plant or ‘major component’ of a plant, whether made in the United States or a foreign country, that itself is the “direct product” of specified U.S.-origin “technology” or “software.”

The destination scope of the Advanced Computing FDP Rule is met if there is “knowledge” that the foreign-produced item is being exported, reexported, or transferred (in-country) to or within China or being incorporated into any “part,” “component,” “computer,” or “equipment” destined to China, or is technology developed by an entity headquartered in China for the “production” of a mask or an integrated circuit wafer or die.

Supercomputer End-Use FDP Rule

Related to the new Supercomputer End-Use FDP Rule, § 772.1 was amended to define a “supercomputer” as “[a] computing ‘system’ having a collective maximum theoretical compute capacity of 100 or more double-precision (64-bit) petaflops or 200 or more single-precision (32-bit) petaflops within a 41,600 ft³ or smaller envelope.” As discussed further below, end-use and end-user controls have been amended by adding § 744.23 to cover certain supercomputer and semiconductor-related end uses.

Foreign-produced items are subject to the EAR pursuant to the Supercomputer End-Use FDP Rule if they meet the product scope in § 734.9(i)(1) and the end-use and country scope in paragraph (i)(2). Any foreign-produced item meets the product scope if it is the “direct product” of certain specified “technology” or “software” subject to the EAR or is a foreign-produced item that is the product of a complete plant or ‘major component’ of a plant, whether made in the United States or abroad, that itself is a “direct product” of certain specified U.S.-origin “technology” or “software.”

The country and end-use scope in paragraph (i)(2) of § 734.9 is met if there is “knowledge” that the foreign produced items will be (1) used in the design, “development,” “production,” operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of a “supercomputer” located in or destined to China; or (2) incorporated into or used in the “development” or “production” of any “part,” “component,” or “equipment” that will be used in a “supercomputer” located in or destined to China. Items that are caught by the new Supercomputer End-Use FDP Rule are subject to license requirements under § 744.23.

Imposing Certain End-Use and End-User Controls Under New Section 744.23

End-use and end-user controls have been amended by adding new § 744.23 to cover certain supercomputer (effective October 21, 2022) and semiconductor manufacturing-related (effective October 7, 2022) end uses, in addition to controls that may apply under separate CCL-based license requirements. Specifically, two restrictions have been added under paragraphs (a) and (b) as follows:

Under § 744.23(a):

• An export, reexport, or transfer (in-country) of any item is prohibited if it is within the “product scope” of (a)(1) and controlled by BIS (i.e., a license is required) and when a person has “knowledge” (at the time of such transfer) that the item will be used, directly or indirectly, in an end use described in (a)(2). Note that any item subject to the EAR is controlled when a person has “knowledge” that the item is destined for a specified end-use in (a)(2)(iii), that is, the “development” or “production” of ICs at a semiconductor fabrication “facility” located in China that fabricates the specified ICs.
• Paragraph (a)(2) states the end-use scope, covering:
• • the design, “development,” “production,” operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of a “supercomputer” located in or destined to China;

• • the incorporation of an item meeting the product scope into any “component” or “equipment” that will be used in a “supercomputer” located in or destined to China;

• • the “development” or “production” of ICs at a semiconductor “facility” located in China that either:

• • • fabricates ICs with specific parameters, or
    • if a person does not know whether such “facility” can produce such ICs.

• • the “development” or “production” in China of any “parts,” “components,” or “equipment” specified under ECCN 3B001, 3B002, 3B090, 3B611, 3B991, or 3B992. Readers should recognize the breadth of this final end-use scope control.

Under §744.23(b):

• Any person may be informed of § 744.23 end use controls by either specific notice or through an amendment to the EAR.
• A notice is authorized to be provided by the Assistant Secretary for Export Administration, and can be made orally (with written notice to follow in two days).

If applicable, as discussed above, no license exceptions under Part 740 are available to supersede a license requirement when BIS export, reexport, or transfer (in-country) controls are triggered under § 744.23. Thus, a specific license would be required when these end use controls apply.

A presumption of denial applies to any license application for items within scope, unless an end user is headquartered in the United States or in a country in Country Group A:5 or A:6. This negative presumption applies even if a more favorable licensing policy could apply to an item with certain ECCNs destined to China. Further, any end user designated with a reference to Footnote 4 on the Entity List and a party to the transaction would be subject to a license review policy stated in that party’s entry block in Supplement No. 4 to Part 744 (e.g., presumption of denial, case-by-case).

Measures to Minimize Short-Term Impacts on the Supply Chain

Given the expansive nature of the new controls, BIS recognized that there is a potential for significant disruption to existing supply chains. Therefore, “to give companies time to become familiar with the new controls being implemented,” BIS has implemented two changes to minimize the short-term impact on supply chains in “transactions that do not appear to implicate national security or foreign policy concerns.” These changes include (1) a certification of compliance with the new FDP rule and (2) a temporary general license, and will become effective on October 21, 2022.

Certification of Compliance with New FDP Rule

The interim final rule adds paragraph (h)(3) to § 734.9 of the EAR to “assist exporters, reexporters, and transferors in determining whether the items being exported, reexported, or transferred (in-country) are subject to the EAR based on the advanced computing FDP rule under § 734.9(h).” The paragraph states that exporters, reexporters, and transferors may obtain a written certification from a supplier asserting that a provided item would be subject to the EAR if future transactions fall within the destination scope of the new advanced computing FDP rule contained at § 734.9(h)(2)(i)-(ii).

The model certificate is contained in new Supplement No. 3 to Part 734. Use of the certificate is not required, but is “provided to assist exporters, reexporters, and transferors with the process of resolving potential red flags regarding whether an item is subject to the EAR based on § 734.9(h).” If a person in the supply chain is unable to obtain the certificate, then additional due diligence should be conducted, including to determine if an item meets the scope of paragraph (h), following the “Know Your Customer” guidance in Supplement No. 3 to Part 732.  BIS indicates that while the certificate will be “useful in facilitating understanding of the application of the EAR to an item,” solely obtaining a certificate will not be viewed as a “comprehensive due diligence process.” In other words, persons in a supply chain that obtain a certificate should view the certificate as additive to a robust due diligence process and not as supplanting that process.

When multiple consignees that form “a network engaged in a production process (or other type of collaborative activity, such as joint development)” will be receiving items, a single certification may be used for the multiple consignees.

Persons using the certification may add additional elements to the certification, as warranted under their compliance programs, so long as the elements of the certification are all included.  Consequently, companies may be able to reduce compliance burden by combining the Supplement No. 3 elements with other certifications they typically request from business partners in their supply chain.

Finally, all provided certificates must be retained in accordance with Part 762 of the EAR, which contains a number of general recordkeeping requirements.

Temporary General License – Supply Chain

A new temporary general license (TGL) was also added to paragraph (d) of Supplement No. 1 to Part 736. The TGL authorizes exports, reexports, and transfers destined to or within China, by companies not headquartered in Country Groups D:1, D:5, or E, to continue or to engage in “integration, assembly (mounting), inspection, testing, quality assurance, and distribution” of specified items, which are items covered by ECCNs 3A090 and 4A090, as well as associated software and technology in ECCNs 3D001, 3E001, 4D090, and 4E001; and any item that is a computer, integrated circuit, “electronic assembly” or “component” and associated software and technology, specified elsewhere on the CCL, which meets or exceeds the performance parameters of ECCNs 3A090 or 4A090. This provision will become effective on October 21, 2022.

As explained by BIS, “The purpose of this TGL is to avoid disruption of supply chains for items covered by ECCNs that are ultimately destined to customers outside of China.” During the October 13 public briefing on this rule, BIS stated that the intent behind the TGL is to allow companies not headquartered in Country Groups D:1, D:5, or E to perform certain intermediary steps absent other license requirements. The TGL does not authorize the export, reexport, or transfer to “end users” or “ultimate consignees” in China, nor does the TGL overcome any license requirements involving an Entity List entity or other prohibited end use or end user restrictions. When using the TGL to export, reexport, or transfer (in-country) any item to China, the exporter, reexporter, or transferor must obtain the name of the entity receiving the item and a complete physical address for the destination of the item within China, as well as the location of the relevant company’s headquarters.

BIS has invited comments on the TGL, including comments on “how important the temporary general license is for supply chains to continue functioning, comments on dependency of certain aspects of the supply chain on companies in China, overview of steps taken by companies to reduce dependency on China for those aspects of their supply chains, and if a request to extend the temporary license is made to provide a rationale for why an extension may be warranted.” The TGL is currently scheduled to expire on April 7, 2023, after which persons will need to apply for specific licenses for the same activity. Persons intending to rely upon the TGL may wish to consider submitting comments to BIS by the December 12, 2022 deadline.

New Restrictions on the Activities of U.S. Persons

One of the most novel, and far-reaching, aspects of the new rule is the substantial expansion of restrictions imposed on U.S. persons under § 744.6, as they relate to semiconductor activities in China. This provision became effective on October 12, 2022. Notably, these restrictions do not require use or involvement of an item subject to the EAR, the typical jurisdictional nexus for U.S. export controls. Nevertheless, the following activities are now prohibited to U.S. persons absent authorization from BIS:

• Shipping, transmitting, transferring (in-country), facilitating such actions, or otherwise servicing:
  • any item not subject to the EAR
    • destined to or in China,
    • that you know will be used in the “development” or “production” of ICs,
    • at a semiconductor fabrication “facility” located in the PRC,
    • that fabricates integrated circuits meeting any of the following criteria:
      • Logic integrated circuits using a non-planar architecture or with a “production” technology node of 16/14 nanometers or less;
      • NOT-AND (NAND) memory integrated circuits with 128 layers or more; or
      • Dynamic random-access memory (DRAM) integrated circuits using a “production” technology node of 18 nanometer half-pitch or less.

• • any item not subject to the EAR meeting the parameters of any ECCN in CCL Category 3, Product Groups B, C, D, or E
    • destined to or in China,
    • that you know will be used in the “development” or “production” of ICs,
    • at a semiconductor fabrication “facility” located in the PRC,
    • without knowing if the facility fabricates ICs that meet any of the criteria enumerated above.

• • any item not subject to the EAR meeting the parameters of ECCNs 3B090, 3D001 (for 3B090), or 3E001 (for 3B090)
    • destined to or in China,
    • regardless of end use or end user.

Critically, these new restrictions do not appear to require that U.S. person support be tied to the production or development of ICs that meet the specified criteria. Rather, they appear to apply to any ICs, if they are produced by a facility that otherwise produces any of the specified types of ICs, or if one does not know whether the facility fabricates such specified ICs.

Moreover, if the items not subject to the EAR fall within the scope of the semiconductor manufacturing equipment in new ECCN 3B090 or the associated software and technology ECCN entries of 3D001 and 3E001, then the restrictions on U.S. persons apply regardless of the end use or end user.

License applications for these restricted activities can be submitted to BIS, but there is a presumption of denial, except for end-users in China that are headquartered in the U.S. or a country in Country Group A:5 or A:6. These will be reviewed on a case-by-case basis. As mentioned elsewhere, no license exceptions are available to overcome these restrictions.

U.S. persons who are employees of a department or agency of the U.S. Government may support a military-intelligence end use or a military-intelligence end user, or otherwise engage in the restricted activities if the support is provided in the performance of official duties in furtherance of a U.S. Government program authorized by law and subject to control by the President by other means. Contractor support personnel can also take advantage of this exception when acting within the scope of their authorized activity.

Based on early reaction to the new restrictions on U.S. person activities under § 744.6, we anticipate this will be one of the most consequential elements of the new rule. Companies in the semiconductor ecosystem that have any connection to China and are managed by, employ, or contract or consult with U.S. persons should consider assessing how they may be impacted by these new restrictions.

II. BIS Final Rule (87 FR 61971)

UVL Amendments and Revisions to Criteria for Adding to the Entity List

UVL Amendments

This final rule, also issued on October 7, 2022, added a total of 31 Chinese entities to the UVL. Under the EAR, an entity can be added to the UVL if BIS or federal officials acting on BIS’s behalf cannot verify an entity’s bona fides (i.e., the legitimacy and reliability relating to the end use and end user of items subject to the EAR) when an end-use check (e.g., pre-license check (PLC) or post-shipment verification (PSV)) cannot be completed satisfactorily for reasons outside of the U.S. government’s control. This has been a long-standing rule.

BIS recognizes that there may be many reasons a company is unable to satisfactorily complete a BIS end-use check, including inability to produce sufficient documentation or other evidence for BIS to verify its bona fides, or failure of the host government to schedule or facilitate the completion of the end-use check. BIS has stated that a host government failure to schedule an end use check is not a defense to the foreign entity being added to the UVL, nor a defense to being added to the Entity List, as further discussed below. If BIS cannot satisfactorily complete an end-use check for any reason outside of the U.S. government’s control, the EAR allow BIS to add foreign entities subject to the end-use check to the UVL.

The regulatory consequences of an entity being added to the UVL include: (1) the export may not rely on a license exception if an entity on the UVL as “a party to the transaction” (as defined in § 748.5 of the EAR); (2) the exporter, reexporter, or in-country transferor must obtain and retain a UVL statement meeting the requirements set forth in EAR § 744.15(b); and (3) for all exports of tangible items subject to the EAR where a UVL-listed entity is a party to the transaction, regardless of value or destination, an electronic export information (EEI) filing must be made by someone in the United States (whether the exporter or its agent) in the Automated Export System (AES).

The final rule also removed nine (9) Chinese entities from the UVL, including Wuxi Biologics Co., Ltd., Wuxi Turbine Blade Co., Ltd., and Hefei Institutes of Physical Science, because BIS was able to verify their bona fides. An entity added to the UVL can request to be removed from the list by sending a written request to the Director of the Office of Enforcement Analysis of BIS. The request should state why the entity should be removed from the UVL and provide information that verifies the entity’s bona fides. The Deputy Assistant Secretary for Export Enforcement makes the decision regarding an entity’s removal from the UVL.

Revisions to the Criteria for Adding to the Entity List

BIS revised § 744.11 of the EAR to clarify that the inability to complete a BIS end-use check due to the lack of cooperation by a host government authority may also result in such an entity being added to the Entity List.

Specifically, the rule revised § 744.11(b) to provide that an entity may pose “a significant risk” of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States (the criteria for addition to the Entity List) through certain circumstances that may be outside of its own control. These circumstances include “a sustained lack of cooperation by a host government authority.” Further, the rule revised the illustrative list of activities that could result in an entity being added the Entity List to include a sustained lack of cooperation by the host government to schedule and facilitate the completion of an end-use check of entities identified on the UVL.

BIS issued a policy paper with these UVL revisions, Addressing Foreign Government Prevention of End-Use Checks, which Assistant Secretary for Export Enforcement Matt Axelrod emphasized at a conference on October 13, 2022. The new policy provides that if 60 days pass after BIS requests an end-use check, BIS will initiate the process to add the party to the UVL. Thereafter, BIS will initiate the interagency process to add a UVL party to the Entity List if, after another 60 days, that end-use check has still not been completed successfully. The 60-day Entity List clock has already begun running for parties currently on the UVL. Thus, if an entity is added to the UVL and the lack of cooperation by the host government to schedule and facilitate the completion of the end-use check of the entity continues longer than 60 days, the entity may be considered for addition to the Entity List.