BIS Rescinds Its AI Diffusion Rule and Issues Compliance Guidance Regarding Advanced Computing Items

May 21, 2025

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BIS announced its plan to rescind the Biden Administration’s Framework for Artificial Intelligence Diffusion and that, until the rule is formally revoked, it would not enforce its worldwide licensing and other requirements that required compliance on May 15, 2025.
BIS did not announce any plans to change the pre-existing controls over advanced computing items, which, for example, require licenses to ship such items to most countries in the Middle East, China, and companies worldwide if headquartered in or with a parent in China.
BIS also published:
- interpretive guidance that using or engaging in other activities involving Chinese-designed or -produced advanced computing ICs, including Huawei’s Ascend ICs, “risks violating” the Export Administration Regulations (EAR) and that parties should, before using them, confirm with the supplier that all required authorizations were, and remain, in effect;
- a policy statement that:
  - providing advanced computing items or services to infrastructure as a Service (IaaS) providers (e.g., data centers), wherever located, to train AI models for or on behalf of entities headquartered in China or other arms embargoed countries creates a red flag that prohibited weapons of mass destruction (WMD) or military-intelligence end uses are possible; and
  - a foreign company’s training of an AI model for or on behalf of companies headquartered in such countries that could support WMD or military-intelligence end uses could result in its being added to the Bis’s Entity List (Entity List); and
- compliance guidance about methods for preventing diversion of advanced computing items.
These actions signal continued scrutiny on advanced computing ICs and AI technologies as they relate to China, while signaling an apparent shift away from the Biden administration’s approach to controlling the diffusion of such technologies in or involving countries not subject to arms embargoes. BIS did not, however, announce any plans regarding what may replace the AI Diffusion Rule.

BIS Under Secretary of Commerce for Industry and Security Jeffery Kessler has instructed BIS enforcement officials not to enforce the AI Diffusion Rule pending its formal rescission. Published on January 13, 2025, the rule was effective immediately but did not require compliance until May 15, 2025. The rule:

added a control for advanced AI model weights;
created a worldwide license requirement and revised the license review policies for Export Control Classification Numbers (ECCNs) 3A090.a, 4A090.a, and corresponding .z items, including specified country allocations;
expanded the country scope of License Exception Advanced Computing Authorized (ACA);
updated the License Exception Notified Advanced Computing (NAC) notification procedures;
added new License Exceptions Artificial Intelligence Authorization (AIA), Advanced Compute Manufacturing (ACM), and Low Processing Performance (LPP);
added new red flag guidance related to AI model weights;
split the Data Center Validated End User authorization into the Universal Validated End User (UVEU) and National Validated End User (NVEU) authorizations, each with specific access, security, and other conditions;
imposed per-country limitations on the allocations of advanced computing ICs available to NVEU recipients and geographic limitations on where UVEUs could allocate their AI computing power; and
expanded the extraterritorial scope of the Advanced Computing Foreign Direct Product (FDP) Rule so that all covered advanced computing items and the newly controlled AI model weights would be subject to the EAR worldwide.

The global licensing requirement was paired with a tiered country structure. Shipments to 18 “Tier 1” countries could have occurred under a license exception if the recipients did not have headquarters or parent companies outside such countries. Shipments to “Tier 3” countries, such as China, Russia, and other embargoed countries, would have remained essentially prohibited. Shipments to or within all other countries (“Tier 2” countries) would have required a license, Validated End User (VEU) authorization, or the use of a license exception.

The Trump administration’s announced intention to not enforce and ultimately rescind the AI Diffusion Rule means that the pre-existing controls remain in effect. In the main, they require licenses to ship advanced computing items to most countries in the Middle East, China and other arms embargoed countries, and to companies anywhere that are headquartered in or have a parent company in China or another arms embargoed country. Licenses that have been issued for shipments to the Middle East and other destinations, usually contain conditions that prohibit virtual or physical access to the advanced computing items by companies in or headquartered in China or another arms embargoed country.

BIS did not announce or hint at what types of regulations it may publish to replace the AI Diffusion Rule. Based on press reports, however, the Trump administration appears to be pursuing country-by-country negotiations, such as those that took place during President Trump’s Middle East tour, with stops in the United Arab Emirates, the Kingdom of Saudi Arabia, and Qatar.

Guidance That Using Chinese Advanced Computing ICs “Risks Violating” The EAR

In addition, BIS alerted industry that Chinese advanced computing ICs, including Huawei’s Ascend ICs, were likely developed or produced in violation of the EAR. The guidance states that such ICs, referred to as “PRC 3A090 ICs,” were likely developed or produced with covered technology or software subject to the EAR or with equipment that was produced with such technology or software. This subjects the PRC 3A090 ICs to the EAR’s jurisdiction under the Advanced Computing FDP rule. There is a “high probability,” BIS wrote, that a license was required (and not granted) when:

the design files for the ICs were sent from the Peoples Republic of China (PRC) IC designer to the fab;
the ICs were sent from the fab to the seller or designer; or
when a footnoted Entity List entity (e.g., Huawei) participated in a transaction involving the ICs.

Thus, BIS advises that using, servicing, or otherwise engaging in covered activities involving PRC 3A090 ICs “risks violating” the EAR as a result of General Prohibition 10 or, more precisely, EAR section 764.2(e), which states that:

“No person may order, buy, remove, conceal, store, use, sell, loan, dispose of, transfer, transport, finance, forward, or otherwise service, in whole or in part, or conduct negotiations to facilitate such activities with respect to, any item that has been, is being, or is about to be exported, reexported, or transferred (in-country), or that is otherwise subject to the EAR, with knowledge that a violation of [the EAR] has occurred, is about to occur, or is intended to occur in connection with the item.”

The guidance advises parties intending to use, service, or take any other covered action involving a PRC 3A090 IC to confirm with the supplier that there was and remains a required authorization for (i) the designer to have sent the production technology to the fab; and (ii) the fab to have sent the ICs to the designer or other supplier. If no original authorization exists, the party seeking to engage in activities involving the PRC 3A090 IC would need to obtain authorization pursuant to EAR § 764.5(g) (i.e., a waiver of General Prohibition 10) to proceed without violating the EAR.

The guidance also states that BIS will not pursue enforcement actions against parties that obtain a PRC 3A090 IC solely for the purpose of technical analysis or evaluation (such as destructive testing) to determine the technical capabilities of an individual IC.

Policy Statement on Controls that May Apply to Advanced Computing ICs and Other Commodities Used to Train AI Models

BIS’s policy statement provides industry worldwide with the following three examples of transactions involving advanced computing and related items that could constitute violations of the EAR’s “catch-all” controls when there is “knowledge” that an AI model will be used for WMD or military-intelligence end users or end uses:

exporting, reexporting, or transferring advanced computing ICs and related items to any party, including IaaS providers (e.g., data center providers), with “knowledge” that the items will be used to train AI models for or on behalf of parties headquartered in China or other arms embargoed countries;
transferring advanced computing ICs and related items already in the possession of parties (e.g., IaaS providers) if there is “knowledge” that the items will be used to train AI models for or on behalf of such parties; and
the provision by a U.S. person of any “support” services when there is “knowledge” such activity will be used for or may assist the training of AI models for or on behalf of such parties.

BIS defines “training” broadly to include feeding large quantities of data into the model while using optimization algorithms to evaluate the quality of the program’s outputs and improve its performance.

BIS does not state that providing advanced computing items or services to IaaS providers, wherever located, to train AI models for or on behalf of entities headquartered in China or other arms embargoed countries is, per se, an EAR violation. Nonetheless, in our view, the policy statement creates a red flag that prohibited end uses related to WMD or military-intelligence end users are possible in such cases, which triggers the additional due diligence obligations in the EAR’s Know Your Customer Guidance.

Finally, the policy statement signals to foreign companies that if they train AI models that could support WMD or military-intelligence end uses for or on behalf of companies in China and other arms embargoed countries, that they could be added to the Entity List even when no EAR violation occurs. Such acts are contrary to U.S. national security or foreign policy interests.

Industry Guidance to Prevent Diversion of Advanced Computing ICs

BIS also published guidance to help industry detect and prevent diversion of advanced computing ICs and commodities containing such ICs (i.e., items classified under ECCNs 3A090.a, 4A090.a, and corresponding .z items). The guidance contains 11 examples of transactional and behavioral red flags that require additional due diligence before proceeding with an export, reexport, or transfer, including:

a customer’s not having received advanced computing items before October 2022;
a significant increase in the number of advanced computing items received in recent years;
lack of clarity about the address where advanced computing items would be used;
the absence of an online presence for the end user, or differences in the English language versions of the website;
references to parties that are not typically involved in transactions involving large volumes of advanced computing items;
parties being co-located with proscribed persons;
a data center’s inability to confirm that it has the infrastructure (e.g., power) to operate advanced computing items; and
a customer’s refusal to confirm whether the users of its services are headquartered in China.

BIS emphasizes the need for exporters to adopt robust compliance practices that go beyond surface-level screening, particularly when dealing with intermediaries or unfamiliar customers in high-risk jurisdictions, particularly those outside of closely allied countries, as well as for IaaS providers generally. Examples of due diligence actions companies should take for new or existing customers include:

evaluating whether the customer was incorporated before October 2022;
evaluating the customer’s ownership structure to determine if it is headquartered in or has an ultimate parent in China or another arms embargoed country;
evaluating whether the customer’s business is consistent with the items ordered;
notifying the parties that the advanced items are subject to export controls and will require a license or other authorization to be exported, reexported, or transferred to or within countries in Country Groups D:1, D:4 (other than Israel, but including Qatar, Saudi Arabia, and the UAE), or D:5 (e.g., China and Russia);
getting certifications describing (i) the specific end uses and end users, and (ii) the catch-all prohibitions pertaining to WMD and military-intelligence end uses and end users, particularly if a party, such as an IaaS provider, will train AI models on behalf of end users in China or other arms embargoed countries;
getting an attestation from the data center that the end user has the infrastructure to operate the advanced computing items, which could include having trusted parties conduct on-site visits to the data centers; and
evaluating whether data centers have the infrastructure to operate servers greater than 10 megawatts.

The guidance also identifies information and assurances that can help prevent the unauthorized diversion of advanced computing items. The information and assurances are not meant to necessarily replace existing customer certifications and end-use statements that exporters have already determined best mitigate diversion risk. Rather, the guidance encourages exporters to review the information and assurances and consider whether they are worth adding to existing practices and documentation to help prevent diversion.

In addition to gathering certifications regarding the items, parties, end uses, end users, and compliance obligations involved, the “due diligence best practices” include:

getting attestations that an IaaS provider will not provide access for training AI models for those headquartered in China or other arms embargoed countries; and
requiring flow-down compliance obligations to the customer’s customers and any other parties involved downstream.

Practical Implications for Exporters and Tech Companies

Assess Supply Chains for Risks of Using or Engaging in Activities Involving PRC-Designed or -Produced Advanced Computing ICs. Entities sourcing, using, servicing, or engaging in any covered activities involving integrated circuits developed or produced by Chinese design houses or fabs, or end items incorporating such integrated circuits, should, according to BIS, confirm with the supplier that there was, and remains a required authorization for (i) the designer to have sent the production technology to the fab; and (ii) the fab to have sent the ICs to the designer or other supplier.
Reassess Licensing Exposure. Companies that procure advanced computing items or engage with closed advanced AI model weights, in particular, those in former “Tier 2” countries, should reassess the applicable licensing requirement following the rescission of the AI Diffusion Rule. Companies developing or exporting advanced computing ICs or any commodities used to train AI models should scrutinize whether their activities may fall within the “catch-all” end use/user controls under Part 744 of the EAR, particularly if companies headquartered in China would be involved.
Implement Risk-Based Due Diligence Measures. Exporters should review and incorporate (with specific reference to the new guidance) BIS’s diversion indicators to assess whether modifications are required to existing compliance programs and vet counterparties rigorously, implementing particularly enhanced due diligence measures for transactions involving advanced computing ICs.

Commentary

From a policy perspective, this guidance may be part of the Trump administration’s strategy to exert leverage over other countries in bilateral negotiations over AI data center chips. In addition, by signaling that using or servicing Ascend integrated circuits risks violating U.S. export controls, the Trump administration may be seeking to compel countries to accept the U.S. Government’s security agreements to receive such integrated circuits because pivoting to Huawei-designed ICs would violate the EAR. In addition, the BIS guidance may be a precursor to further action by the U.S. Government to target Chinese hyper-scalers that have purchased and are using Huawei’s Ascend ICs. Chinese hyper-scalers that deploy Huawei Ascend ICs now appear to face greater risk of being added to BIS’s Entity List because they may be engaging in violations of EAR section 764.2(e).

Authors

Kevin J. Wolf

Partner