Microsoft: Exempt Israel from AI-chip export restrictions

In a blog post today, and first reported by “The Wall Street Journal,” Microsoft vice chair and president Brad Smith calls for Israel, India, Switzerland and other countries to be added to the list of countries exempt from the restrictions on exports of US-produced AI chips

The restrictions, known as the Diffusion Rule, are due to come into force in May, and could limit the ability of cloud computing giants such as Microsoft, Amazon and Nvidia to ship graphics processors to countries that are considered US allies but are still subject to restrictions on exports of chips used in developing AI models.

These restrictions were imposed over a month ago, in the last days of the Biden administration, as part of a plan designed to prevent the leak of advanced US technology to China, Russia, and North Korea.

The rules exempt Western countries such as Britain, France and Spain from the restrictions, but several allies of the US, among them Israel, India, Switzerland, Singapore, the UAE, and Poland are placed in an intermediate Tier Two category, the effect of which is to limit them to 50,000 AI-chips each until 2027.

On taking office, President Donald Trump refused to cancel the order, apparently for national security reasons. It is believed that the restrictions were imposed on Israel because of its failure to abide by regulations designed to prevent the leak of US technology to countries such as China. Microsoft’s call for the list of exempt countries to be expanded focuses on AI chips used for training and operating AI models.

While Nvidia objected to the move as soon as it was announced, Microsoft has only now joined the opposition to the restrictions, apparently because they will limit its ability to sell AI processing and cloud services to key countries like Israel, the UAE, India and Switzerland, since they oblige it not to export more than half of its graphics processors outside the US, and encourage it to stick mainly to the exempt countries.

Smith says that these countries will turn to China to make up the shortfall in graphics processors. “The unintended consequence of this approach is to encourage Tier Two countries to look elsewhere for AI infrastructure and services. And it’s obvious where they will be forced to turn. If left unchanged, the Diffusion Rule will become a gift to China’s rapidly expanding AI sector,” he writes.

“Stop relegating American friends and allies into a second tier that undermines their confidence in ongoing access to American products. Eliminate the quantitative caps that would interfere with a well-functioning economic market. And keep what matters most, such as the qualitative security standards and AI use restrictions that protect national security,” Smith pleads.

Published by Globes, Israel business news – en.globes.co.il – on February 27, 2025.

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