By Jim McShane, Export Solutions

So, you think your computer is fast?  The U.S., China, the European Union and Japan are in a race to build exaflop-capable supercomputers.  These machines would be capable of processing 1 quintillion - or 1,000,000,000,000,000,000 - calculations per second.  In the latest action to help the United States in this race, on June 24, 2019, the Department of Commerce published a Final Ruling amending the Export Administration Regulations (EAR) by adding five entities to the Entity List.  These entities have been “determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States.”

The five entities and the aliases associated with them are all Chinese companies involved in supercomputing. As a result of the Ruling, a license will be required to export, reexport, or transfer any items (including commodities, software, and technology) that are subject to the Export Administration Regulations (EAR).  License applications will be required, but there will be a presumption of denial.  This action effectively bars most transactions involving items subject to the EAR—including collaborative research and technology transfer arrangements. According to the Final Rule, shipments of items removed from eligibility for a License Exception or export or reexport without a license (NLR) as a result of this regulatory action that were en-route aboard a carrier to a port of export or reexport, on June 24, 2019, may proceed to that destination under the previous eligibility for a License Exception or export or reexport without a license (NLR).

The five entities that have been added to the entity list are:

  1. Chengdu Haiguang Integrated Circuit, including two aliases (Hygon and Chengdu Haiguang Jincheng Dianlu Sheji);
  2. Chengdu Haiguang Microelectronics Technology, including two aliases (HMC and Chengdu Haiguang Wei Dianzi Jishu);
  3. Higon, including five aliases (Higon Information Technology, Haiguang Xinxi Jishu Youxian Gongsi, THATIC, Tianjing Haiguang Advanced Technology Investment, and Tianjing Haiguang Xianjin Jishu Touzi Youxian Gongsi);
  4. Sugon, including nine aliases (Dawning, Dawning Information Industry, Sugon Information Industry, Shuguang, Shuguang Information Industry, Zhongke Dawn, Zhongke Shuguang, Dawning Company, and Tianjin Shuguang Computer Industry);
  5. Wuxi Jiangnan Institute of Computing Technology, including two aliases (Jiangnan Institute of Computing Technology and JICT).

All of these companies (and aliases) are involved in supercomputing.  The U.S. concerns relate to military applications of the supercomputers being developed.  One of the companies (Wuxi Jiangnan Institute of Computing Technology) is owned by the 56th Research Institute of the General Staff of China’s People’s Liberation Army.

Semiconductor manufacturing and supercomputing capabilities are just two of the elements of the “Made in China 2025” initiative which has, as its stated goal, the ability of China to move away from being the world's “factory” (producing cheap, low-quality goods due to lower labor costs) and instead moving to producing higher-value products and services. To achieve the aims of Made in China 2025, China must move from Chinese-domestic content of core materials to 40 percent by 2020 and 70 percent by 2025.

Achieving these aims requires dominance for China in high-tech fields including pharmaceutical, automotive, aerospace, semiconductor, IT, robotics, and other industries.  Presently, that dominance resides with many countries other than China.  Put another way, Made in China 2025 represents a threat to U.S. technological leadership and China cannot get there on its own.  So, it needs to acquire technology and the know-how from outside sources – and many of those sources, as the Commerce Department knows, are predominately located in the United States.

Jim McShane is a Sr. Consultant, Trade Compliance for Export Solutions -- a full-service consulting firm specializing in ITAR and EAR regulations.