The Bureau of Industry and Security (“BIS”) in the U.S. Department of Commerce (“Commerce”) added more than 70 entities including Semiconductor Manufacturing International Corporation (SMIC) of China to the Entity List effective 18 December 2020. According to the BIS Federal Register notice and a Commerce Department press release, the designation of SMIC stems from China’s military-civil fusion (MCF) doctrine and is in response to evidence of activities between SMIC and entities of concern in the Chinese military industrial complex. In addition to SMIC, Commerce also designated a number of other companies for their role in human rights abuses, militarization of the South China Sea, and U.S. trade secret theft, according to a separate press release.
What does this mean?
The Entity List is a tool utilized by BIS to restrict the export, re-export, and transfer (in-country) of goods, software, or technology (collectively, “items”) subject to the Export Administration Regulations (EAR) to persons (i.e., individuals, organizations, and companies) reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States. Exports, Reexports, or transfers of items subject to the EAR to listed entities are subject to additional licensing requirements and availability to license exceptions are generally limited.
The designation of SMIC limits its ability to acquire certain U.S. technology by requiring exporters to apply for a license to sell most items to the company. Items uniquely required to produce semiconductors at advanced technology nodes—10 nanometers or below including extreme ultraviolet technology—will be subject to a presumption of denial to prevent such key enabling technology from supporting China’s military-civil fusion efforts. Licenses for all other items to SMIC will be reviewed on a a case-by-case.
Who else was designated?
BIS also added more than 70 other entities to the Entity List, most of which are now subject to a presumption of denial for all items subject to the EAR. These include entities in China that BIS and Commerce have found enabled human rights abuses, supported the militarization of and unlawful maritime claims in the South China Sea, acquired U.S.-origin items in support of People’s Liberation Army’s (“PLA”) programs, or engaged in the theft of U.S. trade secrets.
For example, BIS added AGCU Scientech, China National scientific Instruments and Materials (“CNSIM”), the drone manufacturer DJI, and Kuang-Chi Group for enabling wide-scale human rights abuses within China through abusive genetic collection and analysis or high-technology surveillance, and facilitating the export of items by China that aid repressive regimes around the world. Additionally, BIS added the Beijing University of Posts and Telecommunications for directly participating in the research and development, and production, of advanced weapons and advance weapons systems in support of PLA modernization, which poses a threat to U.S. national security. Similarly, it added China Communications Construction Company (“CCCC”) for enabling China to reclaim and militarize disputed outposts in the South China Sea, and China State Shipbuilding Corporation (“CSSC”) for acquiring and attempting to acquire US-origin items in support of programs for the PLA. It also designated ROFS Microsystems, Tianjin Micro Nano Manufacturing, and Tianjin University for systematically coordinating committing more than a dozen instances of theft of trade secrets from US companies.
The full list of newly added entities can be found in the Federal Register notice linked above.
In addition to these numerous designations, BIS removed Ben Gurion University in Israel from the Entity List, among other entities.
Savings Clause
Although these designations were effective as of 18 December there is a savings clause that covers shipments that were en route aboard a carrier to a port of export or reexport pursuant to actual orders for export or reexport to a foreign destination on December 22, the date the notice will be officially published in the Federal Register. Such shipments may proceed to their destination under the previous eligibility for a License Exception or export or reexport without a license (NLR).
Next steps
For further information or assistance, please contact any of the Hogan Lovells lawyers.
Authored by Beth Peters, Adam Berry and Cayla Ebert
