Current Chip Controls Will Force Customers Away From US Products, Industry Group Tells BIS
The Bureau of Industry and Security's recent rules that expanded foreign direct product rule restrictions over chip equipment (see 2412020016) and set new foundry due diligence rules (see 2501150040) are already hurting U.S. companies, the U.S.-China Business Council said, including by incentivizing foreign firms to design U.S.-origin goods out of their chip supply chains.
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The council, in public comments to the agency last month, acknowledged that BIS is trying to set “objective bright lines” for chip companies to follow. But it said the agency’s current strategy isn’t working.
Instead of “responding to tech advancements in China by tightening export controls, BIS should holistically reexamine its system to provide the flexibility and speed American companies require to compete -- and win -- in China’s burgeoning semiconductor market,” the council said. “We question the sensibility of tightening controls in a market that is actively growing and gravitating away from American products.”
Nearly half of the respondents told the council in a recent member survey that U.S. export controls have mainly caused them “to lose sales to Chinese competitors.” About 30% said they lost those sales to foreign competitors, “indicating high degrees of supply chain indigenization and a lack of international harmonization,” the council said.
It also said 75% of the respondents cited “difficulties conducting due diligence” as the main compliance challenge of export controls. Trade lawyers, researchers and policy observers, as well as the Government Accountability Office, have said the spate of complex chip-related rules released in recent years by BIS has proven difficult to both follow and enforce (see 2503310037, 2412030023, 2312130052 and 2211010042).
“Broad controls risk blinding American industry, and companies are concerned that their long-term positions will be eroded,” the council said, “not just in China but globally as their competitors grow.”
BIS is urged to harmonize the controls as much as possible with allies, the council said, or in some cases eliminate certain licensing rules altogether. It specifically pointed to restrictions that prohibit U.S. persons from servicing certain chip technology in China. No U.S. ally has yet put in place “equivalent controls on servicing activities,” it said, “which has led to steep losses for US firms and gains for competing international ones.”
The agency should “nullify” those servicing restrictions, and only consider reintroducing them if allies also agree to put them in place. The council also said any servicing restrictions should take into account whether those servicing activities can be carried out by companies in other non-ally countries, including China, and they “should not apply to technologies for which there are domestic substitutes in China.”
BIS also should revise its December rule that extended foreign direct product rule controls, the council said, noting that it introduced controls for any foreign-produced item that contains a “single” U.S.-made chip or a chip that is the product of a U.S. tool. These new controls are “challenging from a compliance perspective and directly disadvantage” U.S. chip equipment suppliers, it said, adding that it’s “unrealistic” for companies to determine the place of origin of “every single” integrated circuit in a foreign-made item. If left unchanged, the council predicted, the rule will cause a “global migration away” from U.S. chip tool suppliers.
“To offset those losses,” those suppliers “will be forced to raise prices for their only remaining customers” -- American chip equipment producers, the council said. BIS should revise the rule so the foreign direct product rule restrictions only apply to products with more than 10 percent U.S.-origin integrated circuits.
The council made several other recommendations for BIS, asking the agency to design a mechanism to adjust its “catch-all controls” based on foreign availability and to update its definition of dynamic random-access memory (DRAM), which currently captures older DRAM integrated circuits instead of the more sensitive technology that the council said BIS should be targeting.
“If left unchanged, the current definition of DRAM ICs will harm DRAM manufacturers worldwide and will trickle down to US companies that supply material and equipment to DRAM manufacturers as well as US companies that incorporate legacy DRAM ICs into their products for American electronics consumers,” it said.