Republican China Task Force Criticizes BIS's Implementation of ECRA; BIS Previews Upcoming Controls

The administration should increase export controls and sanctions pressure on China, place more scrutiny on Chinese foreign direct investment and push for the modernization of multilateral export regimes, the House’s Republican-led China Task Force said in a Sept. 30 report. It urged the administration to act quickly, saying China and other U.S. “adversaries” are flouting international export control laws and undermining U.S. technology industries.

The task force also criticized the Bureau of Industry and Security for being too slow to roll out a substantial list of emerging and foundational technologies. Although the Commerce Department has issued some emerging technology controls, it has not yet issued restrictions on foundational technologies (see 2008260045) despite Congress mandating those controls in the Export Control Reform Act in 2018 (see 2003300039). Not only does the “absence of this control list” impede the implementation of ECRA, the task force said, but it also has affected the Committee on Foreign Investment in the U.S., which is charged with screening foreign investments that involve emerging and foundational technologies (see 2008240017). Until BIS issues more controls on those technologies, the task force argued, CFIUS does not have a sufficient set of technologies to target.

The task force threatened to take the responsibility of implementing ECRA away from BIS. “If [the Commerce Department’s] Bureau of Industry and Security is unable to make substantial and measurable progress in fulfilling this requirement,” the report said, “Congress should consider whether a different bureau or department can better fulfill this statutory obligation.”

A BIS spokesperson pointed to the agency's work on emerging technologies over the last two years, saying in an Oct. 1 email that BIS has issued controls on “31 specific technologies.” Twenty-four of those 31 controls were issued on a range of precursor chemicals as part of a June notice (see 2006160034). The spokesperson said BIS plans to publish six more emerging technology controls in the “third quarter” of this year. Those controls will target “hybrid additive manufacturing/computer numerically controlled tools,” certain computational lithography software designed for the fabrication of extreme ultraviolet masks, technology for finishing wafers for 5nm production, forensics tools that “circumvent authentication or authorization controls on a computer and extract raw data,” software for “monitoring and analysis of communications and metadata acquired from a telecommunications service provider via a handover interface,” and “sub-orbital aircraft.”

The task force praised other BIS moves to increase license requirements for military end-users in China (see 2007090075) and for shipments to Huawei (see 2008170029). It called the measures “necessary responses to [People's Republic of China (PRC)] policies that intentionally attempt to evade or violate the Export Control Reform Act” and Export Administration Regulations, and said they will give the U.S. “greater visibility into how dual-use technology is being sought by an opaque and amorphous PRC industrial complex.”

BIS should go further, the task force said, and designate all entities on two lists the Defense Department released earlier this year that identified companies with ties to the Chinese military (see 2008300001 and 2004270027). Those entities should be added to the Entity List under a license policy of presumption of denial, the report said, and the Commerce and Defense departments should work together on a “mechanism to ensure all future iterations” of the list are added to the Entity List.

The report also urged the Commerce and State departments to “reexamine all export licenses” issued to entities in Hong Kong before Commerce suspended license exceptions to the region in July (see 2006300050). “Preexisting licenses for the export of sensitive technology to Hong Kong remain in effect and should be reexamined following the expansion of the [Chinese Communist Party’s (CCP's)] police state into Hong Kong.” In addition, the report called on Congress to pass a bill that would “substantially reduce the global availability of critical technologies” to arms-embargoed countries.

The administration should consider a host of other actions to improve its export restrictions, the report said, including updating its policy on end-use and end-user agreements in China “to recognize that the recipient of any technology will have no ability to refuse diversion” to China’s military “no matter what it has promised its business partner.” The U.S. government “should presume that any dual-use item that is exported to the PRC can and will be diverted to the [People’s Liberation Army],” the report said.

The U.S. should also “aggressively expand end-use and end-user controls on PRC entities” involved in supporting China’s social credit system and other mass surveillance systems by reevaluating current technology controls and licensing policies.

The administration can also look beyond its borders to improve export controls, the report said. The group was highly critical of the multilateral Wassenaar Arrangement, saying it is “too cumbersome to keep pace with rapidly evolving technological innovations.” Trade experts have called for modernization of such multilateral regimes (see 2009290042), which the task force said China is exploiting via “inconsistent licensing policies” among member states.

This is particularly a problem among cutting-edge technologies, the report said, such as semiconductors, aerospace and aviation equipment, quantum computing and artificial intelligence. “U.S. adversaries are systematically diverting technology and evading export control laws to achieve military and economic superiority,” the task force said, and multilateral regimes are “ill-equipped” to prevent critical technologies from being sent to arms-embargoed countries. “Wassenaar is slow-moving and its licensing standards are inconsistent,” the report said. “As a result, the U.S. may apply a rigid control on a technology, only to have other Wassenaar members fail to constrain their exporters in any meaningful way.”

The report also touched on CFIUS, saying Congress should “fully fund” the committee's operations both to increase scrutiny of foreign investment in the U.S. and to increase outreach with allies to convince them to do the same. “Investment and acquisition of U.S. and international companies is part of a multi-decade CCP strategy to control the commanding heights of critical technologies,” the report said. The administration should create a CFIUS “blacklist” to “focus” on Chinese entities and other countries of concern, the task force added. The list would “require heightened scrutiny for investments.”

The U.S. can also increase sanctions authorities and designations to target China, the report said. The Treasury Department should create a “dedicated team” to focus on China sanctions, similar to the agency’s teams dedicated to Iran and North Korea. The team should include members with “expertise in policy, enforcement and compliance, licensing, and regulations, and have a sufficient number of Mandarin speakers to implement existing” sanctions. “While the case for imposing additional sanctions on the PRC is overwhelming … responding to CCP directed efforts requires thoughtful and strategic use of sanctions,” the report said.