If a Chinese foundry, using only Chinese equipment, produced a chip for Huawei, the U.S. could impose draconian sanctions according to the latest rules from the U.S. Commerce Department. Thet’s the plain meaning of the order:

If an entity … produces or develops an integrated circuit design utilizing specified Category 3, 4, or 5 “technology” or “software” such as Electronic Design Automation software … that foreign-produced integrated circuit design is subject to the EAR.

such item is a direct product of “software” or “technology” produced or developed by an entity … the design for the integrated circuit was produced or developed from “software” or “technology”… whether or not such design is subject to the EAR, then that foreign-produced integrated circuit is subject to the EAR.

(Full text below)

For years, nearly all advanced chips have been designed with a handful of U.S.-controlled Electronic Design Automation (EDA) software programs, mostly Cadence & Synopsys. That includes all of Huawei’s 7 nm & 5 nm chips and most of the chips Huawei has designed for years.

Today’s advanced chips have 5 billion and 15 billion transistors. I don’t have the words to describe the complexity of designing chips with billions of transistors. It requires the most advanced software.

In addition, a 5G SOC, an advanced AI chip like Huawei Ascend, or a competitive microprocessor like Kunpeng requires at least hundreds of engineers. Sometimes thousands are involved. Extraordinary software is required to coordinate the work of such a large team, verify and test the design, and ensure security.

China is advancing rapidly in EDA. Empyrean software is used by Nvidia & Xilinx. There is a great deal of university research. Hebei’s Amedac is applying AI to design. Synopsys is an investor.

Cadence’s revered CEO, Lip-Bu Tan, is also a venture capitalist in China. He’s scheduled to speak in June at Semicon China about China’s lead in 5G. Lip-Bu is aware the Chinese pose a threat to Cadence’s business.

“We are monitoring closely. …from Synopsys and Cadence we grew 25, 30 years of simulating and providing — able to provide a full flow and the most advanced nodes. But clearly, we don’t underestimate that because clearly they get a lot of government funding. And so, we keep a very close eye on that. And not only from their progress and also from their recruitment point of view and make sure that our team is committed with us and then we can continue driving the R&D China, Beijing, Shanghai side.Clearly [Chinese EDA companies] get a lot of government funding.

I’d love to hear, on or off the record, from anyone current on EDA in China. I know the government is ready with $megabillions if it can find the right projects.

Export Administration Regulations: Amendments to General Prohibition Three (Foreign-Produced Direct Product Rule) and the Entity List

This Rule document was issued by the Bureau of Industry and Security (BIS)For related information, Open Docket FolderActionInterim final rule; request for comments.SummaryThis rule amends General Prohibition Three, also known as the foreign-produced direct product rule, by exercising existing authority under the Export Control Reform Act of 2018 (ECRA), to impose a new control over certain foreign-produced items, when there is knowledge that such items are destined to a designated entity on the Entity List. A foreign-produced item is subject to the new control if the entity for which the item is destined has a footnote 1 designation in the Entity List. This rule also applies this new control to Huawei Technologies Co., Ltd. (Huawei) and its non-U.S. affiliates listed as entities. The Bureau of Industry and Security (BIS) is requesting comments on the impact of this rule.DatesEffective date: This rule is effective May 15, 2020.Comment date: Submit comments on or before July 14, 2020.AddressesYou may submit comments, identified by docket number BIS 2020-0011 or RIN 0694-AH99, through the Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.All filers using the portal should use the name of the person or entity submitting comments as the name of their files, in accordance with the instructions below. Anyone submitting business confidential information should clearly identify the business confidential portion at the time of submission, file a statement justifying nondisclosure and referencing the specific legal authority claimed, and provide a non-confidential version of the submission.For comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters “BC.” Any page containing business confidential information must be clearly marked “BUSINESS CONFIDENTIAL” on the top of that page. The corresponding non-confidential version of those comments must be clearly marked “PUBLIC.” The file name of the non-confidential version should begin with the character “P.” The “BC” and “P” should be followed by the name of the person or entity submitting the comments or rebuttal comments. All filers should name their files using the name of the person or entity submitting the comments. Any submissions with file names that do not begin with a “BC” or “P” will be assumed to be public and will be made publicly available through http://www.regulations.gov.For Further Information ContactSharron Cook, Senior Export Policy Analyst, Regulatory Policy Division, Office of Exporter Services, Bureau of Industry and Security, Department of Commerce, Phone: (949) 660-0144 or (408) 998-8806 or email your inquiry to: ECDOEXS@bis.doc.gov.Supplementary InformationBackground“Subject to the EAR” is a term used in the Export Administration Regulations (15 CFR parts 730 through 774) (EAR) to describe those items and activities over which BIS exercises regulatory jurisdiction under the EAR. All U.S.-origin items, wherever located, may be subject to the EAR. In addition, foreign-produced items are subject to the EAR (1) if they contain a certain percentage of controlled U.S.-origin content (the de minimis rules, see § 734.4 of the EAR), or (2) if the foreign-produced item is subject to § 736.2(b)(3) of the EAR (the foreign-produced direct product rule). Section 736.2(b) of the EAR includes ten general prohibitions that describe certain exports, reexports, transfers (in-country), and other conduct, subject to the EAR. General Prohibition Three of § 736.2(b) continues to apply to foreign-produced items controlled for national security reasons, 9×515 items, or “600 series” items and has three criteria: The reason for control or classification of the U.S. “technology” or “software”; the foreign-produced item’s reason for control or classification; and the destination country of the foreign-produced item, under paragraphs § 736.2(b)(3)(i) through (iv).Applicability of General Prohibition Three to Huawei and Its Non-U.S. Affiliates on the Entity ListThe new rule maintains the scope and criteria of General Prohibition Three and exercises existing authority under ECRA (50 U.S.C. 4801-4852) by imposing a new control through new § 736.2(b)(3)(vi). This new control applies to foreign-produced items based on the following two criteria: (1) The reason for control or classification of the U.S. “technology” or “software”; and (2) when there is knowledge that the foreign-produced item is destined to a designated entity listed on the Entity List under Supplement No. 4 to Part 744. Whether a foreign-produced item is subject to the new control under paragraph (b)(3)(vi) will be set forth in the Entity List of the entity for which the item is destined in Supplement No. 4 to Part 744.This rule creates a footnote 1 to Supplement No. 4 to Part 744 of the EAR (Entity List) that, when added to an entity on the Entity List, imposes a control on the direct product of “technology” or “software” subject to the EAR, and specified in Export Control Classification Numbers (ECCN) 3E001, 3E002, 3E003, 4E001, 5E001, 3D001, 4D001, or 5D001; “technology” subject to the EAR and specified in ECCN 3E991, 4E992, 4E993, or 5E991; or “software” subject to the EAR and specified in ECCN 3D991, 4D993, 4D994, or 5D991 of the Commerce Control List (CCL) in Supplement No. 1 to part 774 of the EAR produced or developed by an entity with a footnote 1 designation on the Entity List. For example, if an entity with a footnote 1 designation on the Entity List produces or develops an integrated circuit design utilizing specified Category 3, 4 or 5 “technology” or “software” such as Electronic Design Automation software, whether the “technology” or “software” is U.S.-origin or foreign-produced and made subject to the EAR pursuant to the de minimis or foreign-produced direct product rule, that foreign-produced integrated circuit design is subject to the EAR.Footnote 1 of the Entity List also applies a control to any foreign-produced item (1) that is the direct product of a plant or major component of a plant located outside the United States when the plant or major component of a plant itself is a direct product of U.S.-origin “technology” or “software” specified in Export Control Classification Number (ECCN) 3E001, 3E002, 3E003, 4E001, 5E001, 3D001, 4D001, or 5D001; U.S.-origin “technology” specified in ECCNs 3E991, 4E992, 4E993, or 5E991; or U.S.-origin “software” specified in ECCNs 3D991, 4D993, 4D994, or 5D991; and (2) such item is a direct product of “software” or “technology” produced or developed by an entity with a footnote 1 designation on the Entity List.For purposes of this control, a note to paragraph (b)(1) of footnote 1 in Supplement No. 4 to Part 744 of the EAR clarifies that a major component of a plant located outside the United States means equipment that is essential to the “production” of an item to meet the specifications of any design produced or developed by designated entities, including testing equipment. For example, if a foreign company produces integrated circuits outside the United States in a foundry containing U.S.-origin or foreign-produced equipment (which itself is a direct product of U.S.- origin “technology” or “software” in specified Category 3, 4, or 5 ECCNs) that is essential to the “production” of the integrated circuit to meet the specifications of their design, including testing equipment (i.e., a major component of a plant), and the design for the integrated circuit was produced or developed from “software” or “technology” by an entity specified in footnote 1 to the Entity List, whether or not such design is subject to the EAR, then that foreign-produced integrated circuit is subject to the EAR.On May 16, 2019, Huawei and sixty-eight of its non-U.S. affiliates were added to the Entity List, Supplement No. 4 to part 744 of the EAR (84 FR 22961, May 21, 2019). On August 19, 2019, BIS added forty-six additional non-U.S. affiliates of Huawei to the Entity List (84 FR 43493, August 21, 2019). Huawei and its U.S. affiliates were added to the Entity List because they pose a significant risk of involvement in activities contrary to the national security or foreign policy interests of the United States.This rule amends General Prohibition Three (foreign-produced direct product rule) by adding § 736.2(b)(3)(vi) to address specific national security and foreign policy concerns. The paragraph prohibits the reexport, export from abroad, or transfer (in-country) without a license, of certain foreign-produced items when there is knowledge that the item is destined to an entity with a footnote 1 designation on the Entity List.This new rule is warranted to promote the national security and foreign policy interests of the United States, consistent with the mandate of ECRA.Conforming Change for Huawei and Its Non-U.S. Affiliates Listed on the Entity ListThis interim final rule revises ninety-three entries, which list Huawei and its 114 non-U.S. affiliates, on the Entity List. Specifically, BIS is modifying the existing ninety-three entries for Huawei and its 114 non-U.S. affiliates by changing the text in the Licensing Requirement column for these entries from “For all Items subject to the EAR (See § 744.11 of the EAR).” to “For all items subject to the EAR. (See §§ 736.2(b)(3)(vi) 1 and 744.11 of the EAR.)”.Request for CommentsBIS welcomes comments on the impact of this rule. Instructions for the submission of comments, including comments that contain business confidential information, are found in the ADDRESSES section of this final rule.Savings ClauseShipments of foreign-produced items identified in paragraph (a) to footnote 1 in Supplement No. 4 of Part 744 of the EAR that are subject to § 736.2(b)(3)(vi) that are now subject to the EAR and require a license that were on dock for loading, on lighter, laden aboard an exporting or transferring carrier, or en route aboard a carrier to a port of export or to the consignee/end-user, on May 15, 2020, pursuant to actual orders for exports, reexports and transfers (in-country) to a foreign destination or to the consignee/end-user, may proceed to that destination under the previous license exception eligibility or without a license.Shipments of foreign-produced items identified in paragraph (b) to footnote 1 in Supplement No. 4 of Part 744 of the EAR that are subject to § 736.2(b)(3)(vi) and started “production” prior to May 15, 2020, are not subject to § 736.2(b)(3)(vi) of the EAR and may proceed as not being subject to the EAR, if applicable, or under the previous license exception eligibility or without a license so long as they have been exported, reexported or transferred (in-country) before September 14, 2020. Any such items not exported from abroad, reexported or transferred (in-country) before midnight on September 14, 2020, will be subject to § 736.2(b)(3)(vi) of the EAR and require a license in accordance with this interim final rule and other provisions of the EAR.Export Control Reform Act of 2018On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included ECRA. ECRA provides the legal basis for BIS’s principal authorities and serves as the authority under which BIS issues this rule. As set forth in Section 1768 of ECRA, all delegations, rules, regulations, orders, determinations, licenses, or other forms of administrative action that were made, issued, conducted, or allowed to become effective under the Export Administration Act of 1979 (previously, 50 U.S.C. 4601 et seq.) (as in effect prior to August 13, 2018 and as continued in effect pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.)) or the Export Administration Regulations, and were in effect as of August 13, 2018, shall continue in effect according to their terms until modified, superseded, set aside, or revoked under the authority of ECRA.Rulemaking Requirements1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This final rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Although this rule is a significant regulatory action, it is a regulation where the analysis demonstrates that the primary, direct benefit is national security and is, thus, exempt from the provisions of Executive Order 13771.2. Notwithstanding any other provision of law, no person is required to respond to or be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This final regulation involves a collection currently approved by OMB under BIS control number 0694-0088, Simplified Network Application Processing System which includes, among other things, license applications, and carries a burden estimate of 42.5 minutes for a manual or electronic submission for a total burden estimate of 31,878 hours. Total burden hours associated with the PRA and OMB control number 0694-0088 are expected to minimally increase and have a limited impact on the existing estimates as a result of this rule.3. This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.4. Pursuant to section 1762 of ECRA, this action is exempt from the Administrative Procedure Act (5 U.S.C. 553) requirements, including prior notice and the opportunity for public comment.5. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., are not applicable. Accordingly, no regulatory flexibility analysis is required, and none has been prepared.List of SubjectsAdministrative practice and procedure, Advisory committees, Exports, Reporting and recordkeeping requirements, Strategic and critical materials.Administrative practice and procedure, Exports, Reporting and recordkeeping requirements.General Prohibitions.Exports, Reporting and recordkeeping requirements, Terrorism.Accordingly, parts 730, 732, 736, and 744 of the Export Administration Regulations (15 CFR parts 730 through 774) are amended as follows:Part 730 AmendedRegulatory Text1. The authority citation for part 730 is revised to read as follows:Authority:50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; 10 U.S.C. 8720; 10 U.S.C. 8730(e); 22 U.S.C. 287c; 22 U.S.C. 2151 note; 22 U.S.C. 3201 et seq.; 22 U.S.C. 6004; 42 U.S.C. 2139a; 15 U.S.C. 1824; 50 U.S.C. 4305; 22 U.S.C. 7201 et seq.; 22 U.S.C. 7210; E.O. 11912, 41 FR 15825, 3 CFR, 1976 Comp., p. 114; E.O. 12002, 42 FR 35623, 3 CFR, 1977 Comp., p. 133; E.O. 12058, 43 FR 20947, 3 CFR, 1978 Comp., p. 179; E.O. 12214, 45 FR 29783, 3 CFR, 1980 Comp., p. 256; E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp., p. 608; E.O. 12854, 58 FR 36587, 3 CFR, 1993 Comp., p. 179; E.O. 12918, 59 FR 28205, 3 CFR, 1994 Comp., p. 899; E.O. 12938, 59 FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 12981, 60 FR 62981, 3 CFR, 1995 Comp., p. 419; E.O. 13020, 61 FR 54079, 3 CFR, 1996 Comp., p. 219; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13224, 66 FR 49079, 3 CFR, 2001 Comp., p. 786; E.O. 13338, 69 FR 26751, 3 CFR, 2004 Comp., p 168; E.O. 13637, 78 FR 16129, 3 CFR, 2014 Comp., p. 223; Notice of September 19, 2019, 83 FR 47799 (September 20, 2019); Notice of November 12, 2019, 84 FR 61817 (November 13, 2019); Notice of May 8, 2019, 84 FR 20537 (May 10, 2019).2. Section 730.5 is amended by revising paragraph (b) to read as follows:§ 730.5 Coverage of more than exports.* * * * *(b) Foreign products. In some cases, exports from abroad, reexports or transfers (in-country) of items produced outside of the United States are subject to the EAR when they contain more than the de minimis amount of controlled U.S.-origin content as specified in § 734.4 of the EAR or when they are the direct product of specified “technology,” “software,” or a “plant or major component of a plant” as specified in § 736.2(b)(3) of the EAR.* * * * *Part 732 AmendedRegulatory Text3. The authority citation for part 732 is revised to read as follows:Authority:50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783.4. Section 732.3 is amended by revising paragraph (f) to read as follows:§ 732.3 Steps regarding the ten general prohibitions.* * * * *(f) Step 11: Foreign-produced direct product rule—General Prohibition Three. Foreign-produced items located outside the U.S. that are the direct product of “technology” or “software” subject to the EAR or produced by a plant or major component of a plant located outside the United States that is a direct product of U.S.-origin “technology” or “software” subject to the EAR, whether made in the U.S. or a foreign country, may be subject to the EAR if they meet the conditions of General Prohibition Three in § 736.2(b)(3). Direct products that are subject to the EAR may require a license to be exported from abroad, transferred (in-country), or reexported to specified countries or end users. If your foreign item meets the conditions of the foreign-produced direct product rule (General Prohibition Three), then your export from abroad, transfer (in-country), or reexport is subject to the EAR. You should next consider the steps regarding all other general prohibitions, license exceptions, and other requirements. If your item does not meet the conditions of General Prohibition Three, then your export from abroad, transfer (in-country), or reexport is not subject to the EAR. You have completed the steps necessary to determine whether your transaction is subject to the EAR, and you may skip the remaining steps.* * * * *Part 736 AmendedRegulatory Text5. The authority citation for part 736 is revised to read as follows:Authority:50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; E.O. 12938, 59 FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 13020, 61 FR 54079, 3 CFR, 1996 Comp., p. 219; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13338, 69 FR 26751, 3 CFR, 2004 Comp., p. 168; Notice of November 12, 2019, 84 FR 61817 (November 13, 2019); Notice of May 8, 2019, 84 FR 20537 (May 10, 2019).6. Section 736.2 is amended by:a. Revising the paragraph (b)(3) subject heading;b. Redesignating paragraph (b)(3)(vi) as paragraph (b)(3)(vii);c. Adding new paragraph (b)(3)(vi); andd. Revising newly redesignated paragraph (b)(3)(vii).The revisions and addition read as follows:§ 736.2 General Prohibitions and Determination of Applicability.* * * * *(b) * * *(3) General Prohibition Three—Foreign-produced direct product of specified “technology” and “software” (Foreign-Produced Direct Product Rule). * * ** * * * *(vi) Criteria for prohibition relating to parties on Entity List. You may not reexport, export from abroad, or transfer (in-country) without a license or license exception any foreign-produced item controlled under footnote 1 of Supplement No. 4 to part 744 (“Entity List”) when there is “knowledge” that the foreign-produced item is destined to any entity with a footnote 1 designation in the license requirement column of the Entity List.(vii) License exceptions. All license exceptions described in part 740 of the EAR are available for foreign-produced items that are subject to the EAR pursuant to paragraphs (b)(3)(i) through (v) of this section if all terms and conditions of the pertinent license exception terms and conditions are met and the restrictions in § 740.2 do not apply. For foreign-produced items that are subject to the EAR pursuant to paragraph (b)(3)(vi) of this section, license exceptions are available only as set forth in part 740 of the EAR pursuant to § 744.11(a), i.e., the license requirement column for the entity, if all terms and conditions of the pertinent license exception are met and the restrictions in § 740.2 do not apply.* * * * *Part 744 Amended