Export Controls, CFIUS Approach Need Modernization to Protect Sensitive Tech, US Commission Says

The U.S. needs to modernize its approach to export controls and expand disclosure requirements for foreign investment screening to maintain its technology dominance over China, a U.S. national security commission said in a report this week. The commission called current U.S. export controls outdated, urged the Commerce Department to more quickly control emerging and foundational technologies, and said the Committee on Foreign Investment in the U.S. should review a broader set of transactions to protect sensitive technologies.

The report, issued by the National Security Commission on Artificial Intelligence, was critical of several U.S. agencies tasked with imposing export restrictions and screening investments, which the commission said don’t do enough to protect AI technologies. “U.S. regulatory capacity has not kept pace with technical developments, as the Departments of Commerce, Treasury, and State all lack sufficient technical and analytical capacity to effectively design and efficiently enforce technology protection policies on dual-use emerging technologies,” the commission said.

Advanced semiconductor manufacturing equipment is at the forefront of AI-related technologies that should be restricted, the commission said, but the U.S. isn’t effectively controlling that equipment. “Current export controls and investment screening tools were designed for a different era,” the report said, “when the distinction between civil and military technologies was clearer.” China continues to blur that distinction with a civil-military fusion strategy that U.S. lawmakers, officials and think tanks said is designed to steal U.S. technology and dominate the global semiconductor industry.

Although Congress passed the Export Control Reform Act and the Foreign Investment Risk Review Modernization Act in 2018, giving both Commerce and Treasury greater authority to prevent China from accessing critical U.S. technologies, both have yet to be fully implemented, the commission said. “Implementation of key aspects of both laws remains unfinished,” the report said, “hindering enforcement and confounding the affected industries.” As a result, policymakers are presented with a “difficult” choice, the commission said: “under-protection, which will give competitors unacceptable levels of access to sensitive technologies, and over-protection, which has the potential to stifle innovation and harm overall U.S. competitiveness.”

The commission isn’t the first to criticize Commerce and the Bureau of Industry and Security for its rollout of emerging and foundational technology controls. Trade groups and technology companies have urged BIS to move faster, saying the wait is leading to uncertainty (see 1911070014). The House’s Republican-led China Task Force said the process has been slow and threatened to take the responsibility under ECRA away from BIS (see 2010010020).

Although BIS hasn’t yet issued a foundational technology control (see 2008260045), agency officials have pointed to its roughly 40 emerging technology controls as a sign of progress and said the process is “intellectually challenging” (see 1910290062). Officials and other industry representatives have also said they prefer BIS to take their time on controls rather than hastily restrict technology exports, which could backfire on industry and harm U.S. competitiveness (see 2012230069).

Although the commission said Commerce should move faster, it made a similar point, saying “improperly defined controls could inadvertently restrict the export of significant numbers of commercial products and cause substantial harm to the U.S. technology industry.” The commissioners said Commerce should focus its controls on “sophisticated” semiconductor manufacturing equipment and align those policies with other countries with high-end chip manufacturers, such as the Netherlands and Japan. BIS didn't comment.

The commission also called on the U.S. to expand CFIUS’s jurisdiction beyond the authorities it was granted last year by FIRRMA to review transactions involving critical technologies (see 2001140060). CFIUS should increase its disclosure requirements for investments in sensitive technologies by Chinese and Russian firms, the commission said, and Congress should mandate reviews for all investments originating from “countries of special concern. CFIUS should also define a set of sensitive technologies that -- if present in an investment -- will require a review.

CFIUS “only requires firms to disclose investments when the U.S. firm produces an export-controlled good -- which very few AI firms do,” the commission said. “De-linking investment screening from export controls acknowledges that these two tools can and should be applied in different ways, permitting more expansive investment screening while maintaining targeted export controls focused on choke points.” Treasury didn’t comment.

The commission also said it’s concerned that officials at Commerce, Treasury and State don’t have enough technology experts to craft effective controls. All three agencies should “ensure they have sufficient quantities of technically proficient personnel focused on technology protection policies and better utilize external advisory boards staffed with technical experts in designing policies.”