Commerce Continues to Issue Semiconductor Restrictions in Bid to Protect Supply Chains

Oct. 24, 2023
By: Chaney A. Finn

The semiconductor supply chain has been subject to new and different regulations at least since the pandemic-related shortages made clear how central semiconductors had become to many products. These developments have been reported in this space in detail during that time.

Most recently, the Commerce Department’s Bureau of Industry and Security (BIS) published two announcements that build on prior restrictions and agreements. As was the case for the previous developments, these latest developments have the stated purpose of reducing the U.S.’s dependency on foreign suppliers (such as China), due to the posed economic and national security risk because of the various the commercial and military applications of semiconductors. As way of background, previous risk-reduction steps taken included promoting domestic production of the critical minerals used to produce semiconductors, stockpiling national reserves of critical minerals, federal funding for domestic semiconductor production, semiconductor export restrictions, and trade agreements with U.S.-allies, to name a few.

The first announcement strengthens the national security partnership to secure semiconductor supply chains with the Republic of Korea. Specifically, the Bureau of Industry and Security authorized Korean companies, Samsung and SK Hynix operating in China as Valid End-Users (VEU), which allows U.S. exporters to export goods to these companies in China without having to obtain certain export licenses. This facilitates trade directly between U.S. entities and these Korean semiconductor companies’ facilities in China. Korea is a major semiconductor producer, key trading partner in reducing reliance on China for semiconductors. Under Secretary of Commerce for Industry and Security Alan Estevez stated, “The VEU program is an important tool for ensuring continued partnership that achieves our national security objectives. These authorizations are consistent with our close partnership with the Republic of Korea (ROK The U.S. and ROK and our companies play a critical role in the global semiconductor supply chain and today’s announcement demonstrates the strength of our partnership and commitment to a secure and transparent supply chain, particularly for memory chips.”

The second announcement strengthens restrictions on semiconductor exports, and semiconductor-production equipment. Specifically, BIS added several companies operating in China to the Entity List, requiring exporters to obtain BIS licenses before exporting goods to them. These companies were designed to the Entity List for allegedly engaging in activities contrary to U.S. national security and foreign policy interests. Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler stated, “By imposing stringent license requirements, we ensure that those seeking to obtain powerful advanced chips and chip manufacturing equipment will not use these technologies to undermine U.S. national security. We will continue to hone these controls as technology evolves so that our technology is not used to threaten global peace and security.”

These continuous developments are important because despite the demand for domestic semiconductor production being immediate, short term reliance on foreign producers will remain as domestic production will perhaps take decades to match the scale of foreign competition with hundreds of billions in funding expected to be required. 

Should you have any questions about semiconductors, supply chain management, or any other trade-related question, do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP.