On January 17, 2023, the US Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule (the “January 17 rule”), expanding its recent China-focused export controls, related to advanced computing and semiconductors, to Macau. These controls, initially imposed on China (including Hong Kong), were announced in an interim final rule on October 7, 2022 (the “October 7 rule”).
The October 7 rule contained complex and far-reaching changes to the Export Administration Regulations (EAR), including the imposition of additional controls on certain advanced semiconductors, devices, and related manufacturing equipment, supercomputer-related end uses, and others. For a detailed analysis of the October 7 rule, please see our prior blog post here. According to BIS, the January 17 rule builds upon the October 7 rule by “adding the same controls implemented on China in that rule to Macau.”
The January 17 rule contains a “savings clause” providing that shipments of items now requiring a license for export, reexport, or transfer (in-country) to or within Macau 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 January 17, 2023, may continue to the intended destination so long as they have been exported, reexported or transferred prior to February 16, 2023.
The January 17 rule does not otherwise change the status of Macau under the EAR. Therefore, Macau will continue to be treated as a separate destination from China. Whereas BIS previously changed the EAR to treat Hong Kong generally under the same rules as China – see our prior blog post here – the current rule merely extends these specific China-focused controls to Macau, while other China-related rules still do not apply to Macau.
However, the January 17 rule could be viewed as suggesting that a further tightening of export controls with respect to Macau is possible. BIS notes in the preamble to the January 17 rule that, “[b]ecause of Macau’s position as a Special Administrative Region of China, and the potential risk of diversion of items subject to the EAR from Macau to China, this rule adds Macau as a destination to which a license will be required to prevent the diversion to China of items determined to be critical to protecting U.S. national security and foreign policy interests.” Such language may suggest that BIS has broader concerns about the risk of diversion presented by Macau. On the other hand, the January 17 rule states that BIS was motivated to act “[b]ecause China has invested large amounts of capital to develop a special economic zone to develop semiconductors in Macau,” which may suggest that BIS’s concerns with respect to Macau may be satisfied by this rule focused on the semiconductor sector. We will closely monitor any future developments.
Companies doing business with Macau, even indirectly in the covered sectors, may benefit from assessing their current business activities and whether such activities are impacted by the January 17 rule or could be impacted by future controls.
BIS invites comments on both interim final rules through January 31, 2023, and notes that it intends to “publish a subsequent rule to respond to the comments received, including making updates to the controls included in the October 7 advanced computing and semiconductor manufacturing equipment rule.”
For more information on this action please contact a member of Steptoe’s Export Controls and Sanctions Practice.