- Semiconductors are the only commodity that are as ubiquitous and as heavily regulated.
- Semiconductors are unique: nothing so common is as tightly controlled, and nothing so tightly controlled is as common.
- But this puts the industry in an extremely complex position.
- Other industries may ask . . . are we next?
You’d be forgiven for thinking this Global Trade Law Blog has become a Semiconductors News Blog, with all the recent updates we have published on semiconductor regulations in the past year or two. And yes, we concede the point. We have a lot of semiconductor clients, and there is a lot to update them on.
However, we may not have sufficiently explored the question(s) of why: Why are semiconductors so important? And, for the rest of us, why should other industries take note?
We came across some answers in a recent conversation with a client.
An astute question. Over lunch, counsel for a global semiconductor client asked, “What other industries are as regulated as ours?” After a moment’s pause, I suggested, “The financial industry?” thinking of the complex web of AML and sanctions regulations we help our banking and finance clients face.
“No, no,” my client pressed, “what industry that makes things? What other commodity is regulated like semiconductors? Who else has this kind of compliance burden?” And, as we thought it through, we came to a simple but somewhat revelatory conclusion:
No other industry in the world is regulated like semiconductors. The reason that semiconductor regulations are unique is that no other commodity is as omnipresent and as critical to national security.
Semiconductors are everywhere. In your office, or living room, or car there are dozens, maybe hundreds, of semiconductors in operation. They are the lifeblood of contemporary technology. You’re probably aware they are in the phone, tablet, or computer you’re using to read this, but they’re also in the office coffee machine, your LED lightbulbs, and the keys you use to start your car or enter your building.
Sure, plenty of other commodities may be as ubiquitous (the pens, papers, and chairs that are also likely in the room) but none of those commodities are regulated at anywhere near the level of semiconductors.
Semiconductors Are at the Heart of a Global Struggle
There are items that are as heavily controlled as semiconductors (think nuclear, chemical, or biological dual-use items), but you don’t see many of those items in your office.
As we have noted in this blog, at conference talks, and on TV interviews, the United States and China view themselves as engaged in a global struggle for technological dominance—and that struggle now plays out in the arena of the semiconductor industry. The U.S. has focused its “Technological Containment” efforts on semiconductors, issuing wave after wave of regulations on integrated circuits, as well as on the technology and equipment to make them. At the same time, the U.S. government is promoting investment in semiconductors (with the CHIPS Act) because it understands semiconductors are a key element for the security and resilience of the U.S. supply chain.
Further, U.S. regulators view semiconductors as a pinch point for regulating technologies that depend on high-end processing power, such as AI. Where it may be difficult to draw a line and say “well, ChatGPT is not so advanced that we need to control its export, but maybe Q* is”—and, of course, by the time you draw that line, another, better, faster, intelligent-er  AI would already have been developed. Instead, the U.S. government focuses on keeping the powerful chips that enable advanced AI out of the hands of parties it views as adversaries.
As a result, semiconductors are subject to some of the most extraterritorial—have you seen the the export restrictions on U.S.-person activity or the Foreign Direct Product Rule?—and restrictive export controls in the EAR. In fact, with a 0% de minimis level, applicable to some foreign made semiconductor manufacturing equipment, the controls are as restrictive as some found in the ITAR!
A Look Outside: What Other Industries May Learn
So for semiconductors, nothing so common is as tightly controlled, and nothing so tightly controlled is as common. Further, no design or production industry is as heavily regulated. But could they be?
While no other industry finds itself at the same confluence of ubiquity and restriction as new technologies develop and proliferate, other industries might find themselves at this unenviable crossroads. The key signals to look for are technology that (1) is (or could be) adopted for a wide variety of uses but that also (2) may drive future foreign policy or national security threats.
AI is the obvious answer which, as discussed above, is currently difficult to regulate and is currently approached through semiconductor regulation, but there will likely be others. We will be watching for them and, of course, reporting on them here.
 Or, if you do, we work in wildly different office environments.
 One hopes that the AI disruption does not diminish our capacity for, or joy in, making up words.
 Answers on a postcard if you can identify one!
 Though we did get one 0Y521 category controlling geospatial imagery software for training a deep learning neural networks to automate the analysis of geospatial imagery and point clouds.