Further Restrictions on Foreign Sales to Huawei, China Would Have Chilling Effect on US Semiconductor Industry, SIA President Says

Discussions within the Commerce Department to expand U.S. export control jurisdiction over foreign exports to Huawei and beyond would have a chilling effect on the U.S. semiconductor industry, said John Neuffer, president of the Semiconductor Industry Association. Neuffer said current U.S. export restrictions on Huawei are already hurting the industry’s ability to sell to China -- which represents about 35% of U.S. semiconductor sales -- and more restrictions would further alienate Chinese customers who are weary of being added to Commerce’s Entity List. “Some of them are afraid they’re next,” Neuffer said during a Feb. 18 panel hosted by the Information Technology and Innovation Foundation.

Neuffer said the semiconductor industry remains uncertain about the U.S.’s approach toward Huawei and China. Neuffer warned the administration against further reforms of the U.S. export control system as Commerce considers expanding the de minimis and Direct Product rules to cover a broader array of foreign sales containing U.S. goods (see 2002050047). “We think that’s not necessary,” Neuffer said, adding that the U.S. shouldn’t place controls on non-sensitive products with no national security nexus, such as semiconductor chips for cell phones. The restrictions would have the effect of limiting exports of U.S. chip-making equipment, according to a Feb. 17 report from The Wall Street Journal.

“There have been some confused waters for us in terms of understanding exactly what the U.S. government intends on doing with Huawei and the China market generally,” Neuffer said, adding that the SIA hopes the administration and Congress more thoughtfully consider “the actions that are being taken against Huawei and what they mean for the broader U.S.-China trade relationship.”

Neuffer said the U.S. should view the Japan-South Korea trade dispute (see 1912160011) as a “cautionary tale” of incorrectly and unilaterally applying export controls. Last year, Japan restricted exports to South Korea for chemicals needed to make high-tech goods such as computer chips, but Neuffer said South Korea has rebounded by sourcing from other countries, which has hurt Japanese exporters. “This is the same drama that’s playing out with us and China,” he said. In order for U.S. controls to be effective, they must be proposed multilaterally and must consider whether target countries can source the goods elsewhere, Neuffer said. “It’s absolutely essential that when you’re contemplating export controls on our technology, you’re thinking about foreign availability.”

Other panelists also argued in favor of multilateral controls against China, especially as Commerce attempts to restrict sales of emerging and foundational technologies. The controls have been plagued by delays (see 2002040057), specifically within the Bureau of Industry and Security's effort toward foundational technologies, which has not yet resulted in an advance notice of proposed rulemaking.

“We haven't really heard a peep out of Commerce on foundational technologies, and here we are more than a year and a half after enactment of [the Export Control Reform Act],” said David Hanke, a trade lawyer with Arent Fox and a former Senate staffer and architect of the Foreign Investment Risk Review Modernization Act (see 2002110042). Hanke said the delay has been “disappointing” because the national security risks that the controls were created to target are “ongoing” and have “not been addressed using that authority.” Commerce should be focused on releasing the ANPR, Hanke said, stressing that it doesn’t need to be a “copious list” of foundational technologies. “They really got to get on the ball,” he said. “They need to shape the debate and they need to get to work.” Commerce officials have said the task has proved more “intellectually challenging” (see 1911050052) than efforts to restrict emerging technologies, which has contributed to the delay.

Kevin Wolf, a trade lawyer with Akin Gump and one of the leading architects of ECRA as Commerce’s former assistant secretary for export administration, said he has “no idea” whether Commerce will release emerging or foundational technology controls this year, as the agency has predicted (see 1912160032). “It’s really hard,” Wolf said during the panel. “Finding what meets those standards is a really difficult exercise.”

Commerce may also be considering an alternate route to controlling the technologies, Wolf said, such as waiting to propose them at multilateral regimes to guarantee collaboration with allied countries. This will ensure that “the U.S. is not left alone in imposing controls on particular technologies,” Wolf said. The controls are currently being discussed and formulated within interagency “sprint” groups (see 1912130055).

Wolf said the U.S. should place more of an emphasis on achieving multilateral controls through regimes like the Wassenaar Arrangement. While Wassenaar is an “unwieldy organization” because it requires consensus from 43 member states -- all with different priorities and concerns -- to make changes to its export control list, there are measures the U.S. can propose to gain more effective controls, Wolf said. He advocated for “small batch” multilateralism, in which the Wassenaar Arrangement creates “sub groups” of members to discuss controls in a specific sector that only applies to certain members.

“Not all 43 of those Wassenaar members have a semiconductor industry,” Wolf said. “So perhaps you'd need only six or eight to come to a common semiconductor strategy rather than all 43.” Wolf said the administration has considered this idea. “My recommendation to the administration would be to put a lot more resources and time into that effort,” he said.