US to apply FDPR rule to Chinese buyers of AI and supercomputing chips

US to apply FDPR rule to Chinese buyers of AI and supercomputing chips

The Biden administration is preparing new rules aimed at limiting China’s advanced chip and computing capabilities – the most significant US government effort yet to restrict China’s development of technologies critical to its advancement military.

The rules, which are expected to be announced as early as this week, will be broader than a draconian export control previously applied to Chinese tech giant Huawei.

The use of the so-called foreign direct product rule will prevent companies around the world from selling certain advanced computer chips to Chinese buyers without a license from the US government if the companies use US technology to manufacture the chips, according to several people briefed on the measure, who spoke on condition of anonymity to discuss the as-yet-unannounced plans.

The rule would apply to semiconductor chips used in supercomputers and some artificial intelligence applications.

These advanced computer systems can be used to develop nuclear weapons, hypersonic missiles and missile defenses, officials said. According to a 2016 report by the National Security Agency and the Department of Energy, a loss of American leadership in this country would “seriously compromise” national security and “undermine profitable sectors of the American economy”.

The Foreign Direct Product Rule is a particularly harsh trade measure because it imposes restrictions not only on chipmakers in the United States, but on any company or factory anywhere in the world that relies on American equipment or software to make chips. There is hardly a semiconductor on the planet today that is not made with American tools or designed with software originating in the United States.

The administration also wants to restrict the export to China of chip-making tools used by Chinese firms such as the country’s top memory chip maker, YMTC, and China’s top processor producer, SMIC. If the rule is enacted as currently envisioned, it would cut off access to U.S. manufacturing and design tools for chips 14 nanometers or smaller.

“What they’re doing is a sea change from 30 years of policy,” said Eric Sayers, managing director of Beacon Global Strategies, a national security consultancy. “It’s a form of technological confinement. Not just to stay ahead of China, but to degrade their ability to try and catch up with us.”

Restrictions on China’s biggest chipmakers could have a significant impact, said Dan Wang, technology analyst at Shanghai-based research firm Gavekal Dragonomics. “They would harm these companies and their customers, which include major Chinese electronics makers and internet platforms,” ​​he said.

The Biden administration also plans to place more Chinese organizations on an export blacklist called the Entity List.

The White House and the Commerce Department declined to comment.

Reuters has already reported on some of these measures.

A plethora of Chinese companies that use high-end AI chips made with American tools or designs are likely to be affected by the rule, analysts said.

Some U.S. chipmakers and manufacturing equipment vendors have publicly said in recent weeks that they have received government notifications about the new restrictions, including equipment makers Lam Research, KLA Corp. and Applied Materials, as well as chipmakers Nvidia and AMD.

The administration has signaled its intention to use its powers more to curb Beijing’s efforts to harness technology to gain global advantage militarily and economically.

“When it comes to export controls, we need to revisit the long-held principle of maintaining ‘relative’ advantages over our competitors in certain key technologies,” National Security Advisor Jake Sullivan said in a speech. last month, alluding to China.

The approach of only staying “a few generations ahead” is no longer tenable, he said.

When the United States used the Foreign Direct Proceeds Rule, or FDPR, to starve Huawei of chips, it crippled Huawei’s production and sales.

After Russia’s invasion of Ukraine, the United States also used FDPR to prevent companies from selling certain semiconductors to buyers in Russia, a ban that U.S. officials say hurts the economy. Russian army.

An industry executive, who was not authorized to speak officially, said the new rules and the administration’s general concerns about China will make it increasingly “really difficult” to do business there. .

“We heard from the administration that they wanted us to find customers outside of China,” the executive said.

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