BIS Revokes VEU Authorizations for Foreign-Owned Chip Factories in China

On August 29, the US Department of Commerce’s Bureau of Industry and Security (BIS) published a Federal Register notice announcing that, effective December 31, it will revoke the Validated End-User (VEU) authorizations of three Korean-owned semiconductor fabrication plants based in China: Intel Semiconductor (Dalian) Ltd., Samsung China Semiconductor Co. Ltd, and SK hynix Semiconductor (China) Ltd. (SK hynix acquired Intel’s Dalian facility earlier this year). Although not named in the announcement, Taiwan Semiconductor Manufacturing Co. (TSMC) also announced that its Nanjing site will lose its VEU designation on the same date. BIS’ accompanying press release claims that the VEU authorizations were a “Biden-era loophole” for “foreign-owned semiconductor fabs” (SK hynix acquired Intel’s facility in Dalian earlier this year).

Under 15 C.F.R. § 748.15, VEUs are vetted by BIS and authorized to receive exports, reexports, or transfers (in-country) of eligible items subject to the Export Administration Regulations (EAR) at specified destinations without an otherwise-required license. The four affected fabs relied on their VEU status to receive semiconductor manufacturing equipment, materials, technology, and software from the United States. The Samsung and SK hynix facilities have enjoyed especially broad authorizations under the VEU program since 2023, when the Biden Administration approved shipments of all items subject to the EAR except for certain “extreme ultraviolet” equipment. Intel Semiconductor (Dalian) Ltd.’s VEU approval extended to a narrower range of items. The VEU designation for TSMC, which was never publicized, reportedly allowed exports of key semiconductor manufacturing equipment and technology to its Nanjing factory, which produces 16-nanometer and other mature node semiconductors.

The parent companies (and the affected fabs’ suppliers) now have the next four months to apply for and secure export licenses to continue shipping controlled items in order to support their manufacturing operations in China. BIS estimated in the August 29 Federal Register notice that the revocation of the three VEU authorizations will result in an increase of more than 1,000 export license applications annually. Notably, this figure does not include license applications that would be submitted by TSMC as a result of the loss of its VEU authorization. BIS announced that it “intends to grant export license applications to allow former VEU participants to operate their existing fabs in China.” However, given current licensing delays at BIS, it is unclear whether the agency will be able to issue approvals so as to avoid manufacturing disruption. Further, BIS has stated that it does not “intend to grant licenses to expand capacity or upgrade technology” at semiconductor fabs in China, meaning that the facilities will be able to maintain existing operations at best.

The revocation measure means that companies supplying items to the authorized facilities should begin preparing now by determining which items will require a license after December 31 and submitting those license applications as soon as possible.  

Additional research and writing from Gamin Kim and John Bingel, paralegals in ArentFox Schiff’s Washington, DC, office.