U.S.-Japan Export Controls and Recent Developments in Practice – Part 1: The Importance of Export Control Regulations and Recent Developments-

Importance of Export Control Regulations

Osawa

Today, we will discuss U.S.-Japan export control regulations, whose importance has significantly grown in recent years, and which have led to an increase in the number of inquiries to our firm, in light of recent legislative amendments and policy developments. Toward the end, we will also touch on the best practices for export control systems and customer management. But first, let us revisit why export control regulations are important for Japanese companies.

Isaji

I believe it is self-evident that, for Japanese companies, compliance with Japan’s Foreign Exchange and Foreign Trade Act (FEFTA) is essential. However, given the current international climate and recent developments in practice, could you elaborate on why such compliance has become even more important?

Osawa

Japan’s export control regulations are obviously important regulations that Japanese companies must comply with as part of their compliance obligations. However, in light of successive global conflicts, such as Russian-Ukraine situation and tensions in the Middle East, the possibility of exported goods, technology, or software being diverted to military use is no longer theoretical; it poses a tangible threat to international security. As a result, it is more important than ever to be mindful of the purpose of export control regulations and to work to ensure appropriate compliance.
In addition, if violations are discovered, and they are considered egregious, violators could face criminal or administrative sanctions under the FEFTA and public disclosure of enforcement actions, which could halt a company’s distribution networks and supply chains and cause considerable reputational harm. Even for relatively minor violations, violators must submit a “report” to METI, investigate the root causes of the violations, and give an undertaking to prevent recurrence. In order to ensure effective recurrence prevention, it is essential to conduct a detailed root cause analysis of the violation taking into account their specific circumstances and to formulate recurrence prevention measures that directly address such root causes. My impression is that officials at METI also carefully review the root cause analysis of violations and proposed recurrence prevention measures detailed in the “report” on a case-by-case basis. Therefore, even for minor violations, it is not acceptable to merely rely on general or theoretical root cause analyses and recurrence prevention measures. If a violation occurs, companies bear a heavy burden, from conducting fact-finding investigations to formulating recurrence prevention measures. In order to avoid such situations, companies should maintain strict compliance with export control regulations on an ongoing basis.
Conversely, for Japanese companies, particularly those that do not export goods or technology from the U.S., it may not be readily apparent why they need to be aware of the U.S. Export Administration Regulations (EAR). Under what circumstances do the “EAR” become an issue for Japanese companies?

Isaji

The items subject to the EAR are generally categorized into the following five categories. Among these, items (3), (4), and (5) are recurring issues and can be particularly challenging for non-U.S. companies, including Japanese companies, as they allow for the “extraterritorial application” of U.S. law on the ground that products or items manufactured outside the U.S. have a certain connection to U.S.-origin technology and software. EAR is an exceptionally broad export control regulation even by global standards because it explicitly allows for the extraterritorial application of U.S. law. As a result, non-U.S. companies often find themselves unexpectedly subject to its jurisdiction.

［Categories of Items Subject to the EAR］

Osawa

Even if a Japanese company manufactures an item in Japan, if the manufacturing process for such item incorporates U.S.-origin products, technology, or software, it may be subject to the EAR. Is this correct?

Isaji

Yes, exactly. Even when exporting items subject to the EAR from a country other than the U.S., or transferring them within a non-U.S. country, an export license under the EAR may still be required if certain conditions are met. As a result, the compliance burden for implementing such transactions can increase significantly.

Osawa

I see. Many may not realize that even a product manufactured and sold entirely in Japan may still require a U.S. export license if it is subject to the EAR.

Isaji

Yes, for Japanese companies, this issue can be difficult to spot since the transaction appears to be entirely domestic. Moreover, determining whether an export license is ultimately required calls for a comprehensive assessment, including: (1) the classification of the item involved; (2) the ultimate destination of the item; (3) the ultimate end-user of the item; (4) the ultimate end-use of the item; and (5) the activities in which the counterparty and ultimate end-user are engaged. In order to establish an export control system for the EAR, companies need to put in place mechanisms to efficiently gather and share this information internally.

Osawa

Understood. In Japan, violations of export control regulations under the FEFTA can lead to criminal penalties or administrative sanctions. In practice, violators often face relatively strict measures. How does this compare to the approach in the U.S.?

Isaji

Violations of the EAR can result in extremely severe penalties. Specifically, depending on the severity of the violation, penalties may include: criminal fines of up to USD 1 million per violation and/or imprisonment of up to 20 years; civil penalties of up to around USD 350,000 or twice the value of the transaction, whichever is greater; administrative sanctions, such as export bans for a specified period of time or revocation of previously issued export licenses; and in cases of egregious or serious violations, the violator may be placed on a restricted party list. Once a company or individual is placed on one of these restricted party lists, transactions with U.S. persons or entities are generally prohibited, effectively barring them from any U.S.-related business activities. This can have a devastating impact on businesses with significant ties to the U.S. As a result, EAR violations should be considered a particularly high-risk category of regulatory compliance.

Osawa

Are there any cases of non-U.S. companies facing enforcement actions for transactions conducted outside the U.S.?

Isaji

Yes. The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce publishes an annual report summarizing enforcement actions against companies and individuals that have faced administrative or criminal penalties for EAR violations, and multiple cases involving non-U.S. companies have been reported. Fortunately, in recent years, there have been no publicly disclosed enforcement actions specifically targeting Japanese companies. That said, the Toshiba Machine CoCom violation case remains a landmark example involving a Japanese company, and its ramifications are still widely discussed, particularly the astronomical amount of 3 trillion yen in damages that the U.S. government sought at that time.

Recent Regulatory Developments

Osawa

While countries participating in the international export control regimes share a certain degree of commonality in their export controls, my impression is that their frameworks and the exact scope of their regulations often differ. With countries steadily tightening their export control regulatory regimes, keeping up with the latest legislation in each country that affects their business and ensuring timely compliance already places a considerable burden on Japanese companies. Moreover, in recent years, companies have also been struggling with the increasingly short timeframes between the announcements of the introduction of amendments of regulations and their subsequent enforcement and effective dates. In particular, the U.S. frequently amends the scope of regulated items.

Isaji

Since October 2022, the U.S. has amended its export control regulations annually, primarily to tighten export controls on semiconductors and deep-tech, such as artificial intelligence (AI) and advanced computing bound for China. Specifically: (1) the interim rules published on October 7, 2022, expanded the scope of the EAR to cover transactions related to integrated circuits for advanced computing, certain semiconductor manufacturing equipment, and supercomputers; (2) the interim rules published on October 17, 2023, clarified and further tightened regulations covering advanced computing and semiconductor manufacturing equipment, with the aim of preventing circumvention of the regulations in October 2022 rule under (1) and enhancing the effectiveness of EAR controls; and (3) the interim rules published on December 2, 2024 introduced regulations restricting production capabilities for advanced-node semiconductors intended for artificial intelligence (AI) or advanced computing applications. As you can see, major updates are being rolled out annually.

Osawa

Japan has also made repeated amendments to the scope of its so-called List-Controlled items. Among the more notable recent amendments was the addition of 23 high-performance semiconductor manufacturing equipment items, which was announced on March 31, 2023, and came into effect on July 23 of that year. Subsequent amendments have included the addition of technologies essential for designing or manufacturing complementary metal oxide semiconductor (CMOS) integrated circuits, scanning electron microscopes used for imaging semiconductor devices and integrated circuits, and quantum computers, which became effective on September 8, 2024.

Isaji

Regulatory tightening also extends beyond controlled items to include end-user and end-use controls. The U.S. maintains an Entity List under the EAR that identifies individuals, corporations, and organizations deemed to be engaged in activities contrary to U.S. national security and foreign policy. The Entity List is frequently updated, with the recent update on December 2, 2024, adding 140 new entities. Given its implication for customer management, an issue we will discuss later, ongoing monitoring of these updates is essential.

Osawa

METI also publishes an “End User List” as a reference tool to enhance the effectiveness of Japan’s so-called Catch-All controls. This list provides information on foreign companies and other entities suspected of involvement in the development of weapons of mass destruction and other such activities. On January 31, 2025, METI amended this list to add 42 foreign companies and other entities. In addition, that same day, METI published a draft amendment relating to the review of the Catch-All regulations, including the addition of “End-User requirements” to conventional weapons Catch-All controls, and the addition of “inform requirements” to exports to Group A countries. A public comment period ran until March 1, 2025. The final amendment and the detailed implementation schedule are expected to be announced in the near future, taking into account the results of the public comment period. Although the draft amendment proposal was announced after the Ishiba administration took office in October 2024, it is consistent with the trajectory outlined in the April 2024 interim report of the Subcommittee on Security Export Control under the Industrial Structure Council’s Subcommittee on Trade. Therefore, it does not necessarily represent a distinct “Ishiba-style” policy. Conversely, in the U.S., my sense is that President Trump, who took office on January 20, 2025, has been rolling out a series of unmistakably “Trump-style” policies. How have these developments affected export controls?

Isaji

As you mentioned, President Trump has been issuing executive orders that completely roll back many of the policies implemented under the Biden administration. However, in the area of export controls, it is expected that the tightened export controls on China, which have been in place, will remain in effect. We can expect China to escalate its countermeasures against U.S. export controls. In addition to the regulatory changes, we can expect even stricter enforcement of the EAR going forward. For instance, in January 2025, a Chinese company announced the launch of “DeepSeek,” a generative AI, and it is notable that the company is said to have succeeded in developing a low-cost, advanced generative AI without using cutting-edge semiconductors made in the U.S. However, in the U.S., there are ongoing investigations into whether NVIDIA’s advanced semiconductors were supplied to DeepSeek via a Southeast Asian intermediary company. This has led to calls for more rigorous enforcement activities and regulatory implementation by the BIS, as the recent tightening of export controls on trade with China is still insufficient.

Osawa

As we have discussed, even just focusing on Japanese and U.S. export controls, we see frequent and significant amendments. What steps can companies take to keep up to date with the latest developments in export control regulations?

Isaji

For updates on U.S. regulations, the Japan External Trade Organization (JETRO) publishes business briefs that provide useful, timely information. These briefs are typically released within a day or two of the official announcements from U.S. authorities, allowing companies to quickly grasp the key points of regulatory updates. For more detailed information, companies may consult the various explanatory materials published by the Center for Information on Security Trade Controls (CISTEC). These resources provide detailed explanations of the updates in Japanese, making them invaluable for Japanese companies. In addition, Japanese law firms, including NO&T, also regularly issue client alerts on updates to export control regulations. By combining and leveraging these resources, companies can stay well-informed of the latest EAR-related developments.

Osawa

METI provides comprehensive resources on its website in relation to the latest information on Japan’s export control regulations. Additionally, the explanatory materials published by CISTEC are also highly useful and cost-effective sources of information. Similar to the U.S., newsletters and other publications from Japanese law firms can also serve as sources of information.
We occasionally receive requests from clients to provide regular updates on import/export regulations in the countries where they do business, and in such cases, we often collaborate as necessary with our other offices and locations to provide timely responses.
One key point that companies should keep in mind when gathering information is that collection alone should not be seen as the ultimate goal. If the information collected is not analyzed, assessed, and where appropriate, incorporated into operational measures (or used to inform management decisions, depending on its content), its value will be greatly diminished. The real value of the information gathered comes from companies identifying the underlying background factors or issues that may not be readily apparent, examining and analyzing the potential impact on their specific business operations, and translating those results into actionable measures. In the area of export controls, many companies have traditionally handled these matters internally. However, with the rapid tightening and growing complexity of export control regulations in recent years, it may be advisable to also leverage external resources that specialize in gathering, organizing, and analyzing this information, such as consultants or lawyers with extensive experience and expertise from secondments to regulatory authorities or advising on similar matters.

Isaji

The EAR has become increasingly detailed and complex over the years. When incorporating the latest amendments into their internal operations and procedures, companies cannot rely solely on the information resources I mentioned earlier but must also review the original text of the EAR itself. For example, even a single license exception may come with highly detailed and specific conditions. Said that, the original text of the EAR is not always clear. Therefore, in such cases, consulting external legal counsel may be necessary.