U.S. Implements Worldwide Export Controls on AI Chips and AI Weights – Potential Implications on International Corporate Transactions
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Développement en droit 17 janvier 2025 17 janvier 2025
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Amérique du Nord
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Corporate & Advisory - Regulatory Risk
On January 13, 2025, the United States Bureau of Industry and Security of the Department of Commerce issued an interim final rule “Framework for Artificial Intelligence Diffusion” (the “Worldwide Controls”), which regulate the export of U.S. origin AI chips and AI model weights on a worldwide basis.
Particulars of the Worldwide Controls – Three Tier System
The Worldwide Controls will be rolled out in phases, with the first set of rules taking effect in 120 days and the remaining rules taking effect in one year. The Worldwide Controls create a three tier system regulating the export of advanced U.S. origin AI chips and non-public AI model weights on a worldwide basis. There is also a new “foreign direct product rule” for AI model weights that would apply even if they are created outside of the U.S., but use U.S. origin technology.
A summary of the three tiers and their controls is below:
Tier |
Standard of Review |
Validated End User Program |
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1: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Republic of Korea, Spain, Sweden, Taiwan, and the United Kingdom |
AI Chips: Presumption of approval
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Universal Validated End User (UVEU) Program: A single license to construct data centers with advanced AI chips around the world, provided that at least 75% of computing power needs to be in Tier 1 states and no more than 7% may be in any other non-Tier 1 state. U.S. headquartered UVEUs must keep at least 50% of their computing power in the U.S. |
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2: Any jurisdiction that is not a Tier 1 or 3 jurisdiction, including India, Middle East, Southeast Asia (including Singapore) and Eastern Europe |
AI Chips: Presumption of approval up to a country limit of around 50,000 advanced AI chips / per year, which may be doubled per a separate agreement between the U.S. and the relevant Tier 2 state. Above such threshold, presumption of denial.
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National Validated End User (NVEU) Program: A separate license to build data centers in the locations set forth in the application, with the advanced AI chips used to build them not counting towards the country limits. A license approval requires verifiable physical and cyber security commitments and undertakings not to use the AI chips to violate human rights (as defined by the U.S.) |
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3: Country Group D:5 jurisdictions plus Macau, including the PRC (including Hong Kong), Russia, Venezuela |
AI Chips: Presumption of denial
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N/A |
The Worldwide Controls introduce several novel concepts in U.S. export controls, including regional and country limits on the housing of computing power, which may be intended to deny computing power access to entities headquartered in Tier 3 states. The introduction of security protocols and human rights undertakings also create an incentive for neutral states to “take sides” with respect to their AI architecture. The recent BIS requirement for G42 of the UAE to effectively divest from Chinese technology in exchange for accessing advanced U.S. AI chips in its partnership with Microsoft, could be a preview of future decision-making by BIS.
Potential Implications on International Corporate Transactions
For the past 30 years, international private equity and venture capital investors have largely adopted a global, market based approach to their investment decisions. That is to say, they invest anywhere in the world where they see opportunity, with the two principal places being the United States and China. The advent of rules such as the Worldwide Controls, alongside other restrictive measures such as “reverse CFIUS”, creates new regulatory hurdles for these investors both in terms of what they can do, and in terms of what their potential investee companies can do.
These U.S. restrictions may be relevant even if an investee company has no U.S. business and the potential investors have no U.S. LPs. For example, if an investee company is based in Singapore or the Middle East, but develops or uses AI, then the Worldwide Controls will be relevant because they will impact whether it can access the advanced AI chips and AI model weights that are essential to be at the forefront of AI development.
These dynamics require investors and investee companies, whether they have a U.S. nexus or not, to stay on top of U.S. regulatory developments that are increasingly having an extra-territorial effect.
For more information on how we can help you with U.S. corporate and compliance matters, please contact Charles Wu at Charles.Wu@clydeco.com
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