The Department of Commerce’s Bureau of Industry and Security (BIS) is taking the necessary measures to address export controls and safeguard national security in semiconductor exports amid compliance challenges, a new government audit has found.
A Dec. 2 report released by the Government Accountability Office (GAO) following an 11-month performance audit found that the Department of Commerce’s bureau charged with regulating dual-use exports – items with both civilian and military applications – has tackled compliance challenges faced by domestic industries under its three semiconductor export rules, particularly those targeting China.
The first rule was published in October 2022 – with two updates following in October 2023 – imposing item-based controls, end-use controls to prevent certain technologies from supporting Chinese supercomputers or advanced semiconductor production, and new export licensing requirements for Americans developing advanced semiconductors. They also expanded restrictions on Chinese organizations, requiring additional licenses for exports.
“BIS has reported that the PRC [People’s Republic of China] could use advanced semiconductors for advanced computing to modernize its military, develop nuclear weapons, and conduct espionage,” says GAO. “A senior BIS official also noted the PRC has set a goal to overtake the U.S. and its allies by, among other things, dominating the AI and semiconductor sectors.”
A new set of export controls released on the same day as GAO’s report, includes further restrictions on semiconductor manufacturing equipment and software tools.
To “minimize supply-chain disruptions,” BIS introduced three exceptions to the rules, including allowing semiconductor exports to Macau and embargoed countries after BIS review; permitting specific items to approved destinations without BIS approval, excluding China and Macau; and enabling semiconductors and related equipment exports to countries with U.S.-aligned export rules.
Since the rule’s implementation, BIS has received 66 applications for its notified advanced computing exception, according to the report.
However, GAO found that industries faced significant challenges in complying with the rules, including their breadth, clarity, complexity, and cost. Other issues encountered were related to inadequate industry coordination and international coordination – resulting from a lack of uniform adoption of similar export control rules by foreign partners, leading to a loss of competitiveness.
Companies also said they had inadequate time to implement regulations and were concerned about competitive loss and supply chain challenges, driven by unclear complex regulations and costly research and development.
To comply, companies updated and maintained compliance programs, self-reported potential violations, hired legal counsel, redesigned semiconductors to continue exporting, and, in some cases, ceased business with potentially non-compliant partners.
BIS has since taken steps to balance national security with economic concerns. According to GAO, these steps include clarifying rules through public comment and industry research, answering frequently asked questions after rules’ publication, revising licensing processes and rules’ language, and soliciting industry feedback. BIS also plans periodic updates to align with advancing technologies and improve clarity.
“Some private sector representatives we interviewed noted that over time BIS has made improvements in how it has addressed compliance challenges,” the report says. “They suggested Commerce could take additional steps, such as returning to proposed rulemaking (rather than interim final rules), answering questions about interpretation of the rules in a timely manner, and increasing engagement with companies prior to the publishing of new rules.”
GAO said it plans to release two more reports examining BIS’s enforcement of export controls and engagement with key foreign partners and reviewing the bureau’s processes and resources to control exports.
