U.S. Government Eases Export Control Restrictions for AI Chips Bound for Qualifying Data Centers

On September 30, 2024, the Department of Commerce’s Bureau of Industry and Security (“BIS”) announced the expansion of the Validated End User (“VEU”) program to include data centers (the “Final Rule”).[1] This expansion is intended to facilitate the quick and reliable export or reexport of items on the Commerce Control List necessary for data centers, including advanced computing items, to preapproved trusted end users while also ensuring U.S. national security through rigorous application reviews. The Final Rule also aims to recognize the advancement and benefits of artificial intelligence (“AI”).

The Final Rule accomplishes this by amending the Export Administration Regulations (“EAR”) to expand the VEU Authorization program and introduces the Data Center Validated End User Authorization (“Data Center VEU”). The Final Rule considers the dual-use nature of AI technology, which can, on the one hand, benefit sectors like healthcare and education, and on the other hand, pose significant security risks if misused by bad actors. Under the Final Rule, data centers are eligible to apply for VEU status, which, if granted, will enable them to rely on a general authorization as opposed to individual export licenses from BIS.

This Final Rule is effective upon publication in the Federal Register on October 2, 2024.

Background

AI has emerged as a transformative technology with the potential to revolutionize various sectors, including healthcare, education, finance and transportation. AI-driven innovations are enhancing productivity, enabling new business models, and addressing complex global challenges such as climate change and disease management. For instance, AI-enabled virtual learning systems can be tailored to individual student needs, bridging educational gaps in resource-limited regions. Similarly, AI can improve healthcare access through remote patient monitoring and predictive analytics.

Nonetheless, the potential risks posed by advanced AI models are significant. As BIS has noted, “Advanced AI models, trained on advanced computing integrated circuits, have the potential to diffuse dangerous capabilities by lowering the barrier to develop cyberweapons or chemical, biological, radiological, or nuclear weapons.”[2] This statement underscores the dual-use nature of AI technologies, which can be harnessed for both beneficial and harmful purposes.

The development and deployment of AI technologies are heavily reliant on the availability of advanced computing integrated circuits, known as semiconductor chips. These chips are the backbone of AI systems, providing the necessary computational power to process large datasets and execute complex algorithms. High-performance computing (“HPC”) environments, which are essential for training advanced AI models, depend on the continuous supply of these sophisticated chips.

The U.S. Department of Commerce and BIS play a crucial role in regulating the export of sensitive technologies, including advanced computing integrated circuits. These regulations are designed to ensure that such technologies do not fall into the hands of foreign adversaries who might use them to enhance their military capabilities or engage in activities contrary to U.S. interests.

In response to national security and foreign policy risks of AI, in October 2022, BIS imposed export controls on certain advanced computing semiconductor chips, transactions for supercomputing end uses, and for certain end users, in addition to controls on semiconductor manufacturing items and transactions for certain integrated circuit production end uses. One year later, BIS broadened the scope of destinations for these export controls to additional country groups and imposed global license requirements for certain end uses in select jurisdictions.[3]

Since the imposition of these controls, BIS has stated that it “determined that there could be significant benefits from authorizing the export and reexport of advanced computing integrated circuits to end users who operate data centers than implement certain security measures and satisfy other criteria.” When announcing the Final Rule, Under Secretary of Commerce for Industry and Security, Alan F. Estevez said, “BIS is committed to facilitating international AI development while mitigating risks to U.S. and global security.”[4]

BIS maintains that data centers are crucial for global AI development, and because of this, the United States is committed to facilitating development in a way that mitigates risk to U.S. national security. “AI is the quintessential dual-use technology; it is in the interest of U.S. national security to work with industry and partner governments to develop a secure global technology ecosystem,” said Assistant Secretary of Commerce for Export Administration, Thea D. Rozman Kendler.

The Final Rule

The VEU program, initially applicable to India and China, allows preapproved end users to receive certain controlled items without individual export licenses. The Final Rule extends this program to data centers, recognizing the critical role of advanced computing integrated circuits in AI development.

Data Center VEU Authorization

The Final Rule expands the VEU program to “facilitate the export or reexport of items necessary for a data center to preapproved trusted validated end users in destinations that require a license for items” that are classified under certain Export Control Classification Numbers (“ECCNs”). The Final Rule carries over much of the existing framework of the existing VEU program, but adds requirements “appropriate for a data center environment.”

• Eligible Users: The eligibility criteria for the Data Center VEU Authorization will be evaluated by considering a range of information, including but not limited to such factors as:
  • Record of exclusive engagement in appropriate end use activities;
  • Compliance with U.S. export controls;
  • The need for an on-site review prior to approval;
  • Capability of complying with the requirements of VEU authorization, and the ability to guard against both the misuse and diversion of computing resources;
  • Technology roadmap;
  • Technology control plan;
  • Agreement to on-site reviews by representatives of the U.S. Government to ensure adherence to the conditions of the VEU authorization;
  • Relationships with U.S. and foreign companies; and
  • Status of the eligible destination country’s export controls and the support and adherence to multilateral export control regimes of the government of the eligible destination.[5]
• Restrictions: Items obtained under Data Center VEU Authorizations cannot be used for any activities described in part 744 of the EAR. Eligible validated end users who obtain items under Data Center VEU Authorizations may only:
  • Use such items at the end user’s own facility located in an authorized destination.
  • Consume such items during use.
  • Reexport such items only as specifically authorized by BIS.
  • In-country transfers are not permitted unless the transfer is to a VEU-authorized location by the same VEU.[6]
• Eligible Destinations: Data Center VEU Authorizations may be used for any destination for which a license is required for ECCNs 3A090, 4A090 items, and .z items in Categories 3, 4 and 5, except for destinations in Country Groups D:5 countries, as detailed in the Annex.
• Eligible Items: All items on the Commerce Control List that require a license to the destination, excluding “600 series” items,[7] and are necessary for a data center. These items include advanced computing integrated circuits and electronic assemblies.
• Application Requirements: Applications for a General VEU Authorization or Data Center VEU Authorization must be submitted as an “advisory opinion request.”
  • These applications can be submitted by the exporter, reexporter or the end user. Except as prohibited by other sections, this advisory opinion request must include a list of items that exporters or reexporters intend to export, reexport or transfer to an eligible end user, if approved.
  • General VEU Authorizations and Data Center VEU Authorizations must include (1) the name and contact information of proposed VEU candidates; (2) an overview of the business structure, ownership and business of the VEU; (3) the list of items proposed for VEU approval, their intended end uses and a comprehensive description of the items; (4) the addresses where the items will be used; (5) if the VEU plans to reexport, the destination where it will be reexported; (6) a specification of how the VEU’s record-keeping system will ensure compliance with Section 748.15(e); and (7) a statement on letterhead of the prospective VEU acknowledging the requirements as set forth by the EAR.[8]
  • Data Center VEU must also meet additional requirements, including but not limited to (1) a description of controlled items in the data center; (2) an overview of the business activity or corporate relationships of the candidate; and (3) descriptions of the location’s facilities, personnel policies, security plans and cybersecurity plans.[9]
• Approval Process and VEU Conditions: If the request is approved, BIS will issue a response in the form of a letter that grants VEU status. Such a letter will state the items that can be exported or reexported to the VEU, as well as any conditions required of the VEU, which will be tailored to the “national security and foreign policy risks presented.” Examples of these conditions include commitment to:[10]
  • Implement physical and logical security requirements;
  • Prohibit access to individuals working for entities and/or countries of concern;
  • Prohibit access to any national working for or on behalf of a party on the Entity List;
  • Ensure inspection/onsite reviews by U.S. government officials as necessary, to determine whether VEU authorization conditions are being met; and/or
  • Not provide computing power above prohibited thresholds to entities or countries of concern.
• Certification and Reporting Requirements: Prior to an initial export or reexport under General or Data Center VEU authorizations, exporters or reexporters must obtain certifications from the validated end user regarding compliance with VEU requirements.[11] These certifications must include certain required content.[12] Certifications and all records related to VEU must be retained by exporters or reexporters in accordance with the recordkeeping requirements set forth in part 762 of the EAR.[13] Reexporters and end users for Data Center VEU Authorizations are both required to submit reports to BIS, where reexporters must do so annually, while the end users for Data Center VEU Authorizations must do so semi-annually.[14]

Conclusion

The expansion of the VEU program to include Data Center VEU Authorization reflects BIS’s commitment to facilitating responsible international AI development while minimizing national security risks. The Final Rule ensures that advanced computing integrated circuits can be deployed in trusted environments, promoting technological advancements and addressing global challenges.

Eligible data centers should closely review the requirements of the Final Rule and submit an appropriate application.

This Final Rule is effective upon publication in the Federal Register on October 2, 2024.

» Download the PDF to view an annex to this memorandum

[1]       15 CFR §748, available here.

[2]       Id.

[3]       See Paul, Weiss, Department of Commerce Tightens Restrictions on the Export of Advanced Computing Chips and Semiconductor Manufacturing Equipment to China (Oct. 20, 2023), available here.

[4]       See U.S. Dep’t of Commerce, Commerce Updates Validated End User (VEU) Program for Eligible Data Centers to Bolster U.S. National Security, Promote Export Control Compliance (Sept. 30, 2024), available here.

[5]       See 15 CFR § 748.15(a)(3).

[6]       See 15 CFR § 748.15(d).

[7]       The “600 series” items refer to a specific subset of items within the Commerce Control List (CCL) that are subject to EAR. These items are designated with Export Control Classification Numbers (ECCNs) that include the number “6” in the third position of the ECCN (e.g., 9A610, 3A611). These items are primarily military items or items that have significant military applications.

[8]       Supplement No. 8 to Part 748.

[9]       Id.

[10]     See Final Rule at 7.

[11]     See 15 C.F.R. § 748.15(e).

[12]     See Annex.

[13]     See Id.

[14]     See 15 C.F.R. § 748.15(f)(i) & (ii).

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