US Chip Company Receives 4-Year BIS License to Avoid Shutdown, Continue China Exports

December 20, 2022 by Ian Cohen|Top News

The Bureau of Industry and Security granted an export license for U.S. chip company Nexcel Electronic Technology (NETI) after the company told BIS that new restrictions on China would force NETI to shut down and fire all its employees. NETI, which provides certain semiconductor services to Chinese companies, was granted a four-year license to continue its operations, the company’s lawyer and trade consultant told Export Compliance Daily.

The company was told by a BIS licensing officer that the regulations weren't intended to capture NETI's services, said Beth Pride, president of BPE Global, a trade consultant hired by NETI to assist with the license. "BIS worded this [regulation] in such a broad way that the licensing officers" didn't realize the restrictions didn't apply, Pride said in a brief interview Dec. 19. "If BIS licensing officers had no idea of the impact of the" new restrictions, "how should" industry? Pride said.

She added that the new regulations are especially complicated to decipher for smaller businesses. "This is a big, big issue," Pride said. "I do truly believe it was unintentional, but it was massive," she said, adding that NETI was prepared to go out of business.

Pride said NETI applied for a license Oct. 31 and received it from BIS on Dec. 11. Raymond Brinson, NETI's lawyer, said the company has “no further issues” with the export controls.

A BIS spokesperson said the agency doesn’t comment on company-specific licensing decisions, but said BIS is reviewing public comments on the October controls, due Jan. 31 (see 2212050068), to determine if they need to be updated or if BIS should issue additional guidance. Companies and some industry lawyers have struggled to grasp what they say is a complex set of regulations, and many are still awaiting clearer government guidance on how and whether their activities are covered (see 2211010042).

NETI, which said it provides design and engineering services for certain “crystal pullers” to customers in China, submitted a letter to BIS last month, saying the agency’s sweeping October export restrictions would “have a catastrophic impact” on NETI and would “result in the shutdown of the company and the termination of all of the company's employees.” In the letter, NETI said its “entire business operations are negatively affected” by the October rule, which introduced a host of new licensing requirements designed to restrict China’s ability to acquire advanced computing chips and manufacture advanced semiconductors (see 2210070049).

NETI specifically said it provides design services for crystal pullers controlled under Export Control Classification Number 3B991.b.1.c, an ECCN captured by the new restrictions. “Because all of NETI's services and products are for the ‘development’ and ‘production’ in the PRC of 36991 crystal pullers -- NETI's entire operation now requires an export license, and the current BIS policy is one of denial,” the company said in the letter.

At the time it sent the letter, NETI said the “financial impact of these new regulations” is “massive,” adding that it told its engineering team to “cease all operations.” It also said its supply chain team “has no work because all exports have been put on hold.” The company predicted it would have to close within “one- and one-half weeks” if it didn’t receive a license. The company eventually received the license, which Pride said allows NETI to “export anything to this one end-user” in China.

In the letter, NETI also said it was unsure whether one of its separate, existing licenses was still effective, but has since received clarity on the issue. The company said it has a “valid” export license to sell “2B230 (NP1-controlled) items to an end user in China for the end use of ‘development’ or ‘production’ in [China] of equipment classified under 3D991,” but said it was uncertain if the license was still valid under the October restrictions, which prohibit those exports. The company eventually received “confirmation” from BIS that its license is valid, but not until several weeks after the restrictions were issued. “This resulted in 27 days of delayed sales and immeasurable customer satisfaction concerns,” NETI said.