Lawmakers to Push for Export Control, Sanctions List Harmonization

The Biden administration should be doing more to harmonize its export controls and sanctions lists to more effectively penalize foreign companies that should be subject to strict trade restrictions, lawmakers said this week. Several Republicans suggested they plan to pursue legislation to mandate that the Bureau of Industry and Security’s Entity List be aligned with sanctions lists maintained by the Treasury Department, and at least one lawmaker said BIS should already have taken steps to formally do so.

Rep. Andy Barr, R-Ky., called the lack of coordination between the Entity List and Treasury’s Chinese Military-Industrial Complex Companies (CMIC) List a “big problem.” Speaking during a March 28 House Foreign Affairs Committee hearing, Barr said the House’s Select Committee on China, the Foreign Affairs Committee and the Financial Services Committee, which he chairs, soon will be “looking at this.” Rep. Michael McCaul, R-Texas, chair of the Foreign Affairs Committee, said his committee also plans to work “very diligently on that.”

“Restrictions on capital flows to China should be aligned with our export controls regime,” Barr said, “and limited to capturing outbound investments that circumvent the spirit of existing export control rules.”

Barr’s comments came as the administration considers a new executive order on outbound investment restrictions (see 2301270034, 2301190024 and 2301120035) and as technology security experts said the administration should place investment restrictions on certain companies on the Entity List (see 2302030023)

BIS Undersecretary Alan Estevez said U.S. investors should be “looking at all those lists” before proceeding with transactions, adding that his agency coordinates closely with the Defense Department, which maintains a list of companies affiliated with China’s military. He said DOD “can always propose” a company be placed on the Entity List. “We actually have pretty excellent coordination going on right now,” Estevez said.

Barr disagreed. “I'm not sure we do,” he said, specifically referencing the CMIC list, which places certain restrictions on U.S. investments in listed Chinese companies with ties to the military (see 2106030067). Those companies aren’t “aligned, frankly, with your Entity List, and certainly not with some of these other lists: the Military End User List, the Unverified List, even,” he said.

Barr said the U.S. needs better “list coordination.” If the U.S. is “worried about companies that are on this Entity List, but American investors are financing, unwittingly financing, these same companies, that's a problem,” he said. “That is a gap that we have that we need to fix.”

Lawmakers made similar points during a hearing with Estevez in July, when the undersecretary said BIS was working to better harmonize the Entity List with lists maintained by other agencies, including DOD. At the time, Estevez said the agency needs to be cautious before adding more companies to ensure it can prove the designation in a federal court (see 2207190057).

But the House Foreign Affairs Committee “consulted many lawyers and legal experts about this issue,” said Rep. Young Kim, R-Calif, and the committee was told BIS faces “minimal” legal risks. She said the agency needs to only meet a “very low bar” to justify an entity listing, adding that the committee found “only” two recent cases in which BIS was sued over a listing, and both times the agency won.

“I'm not a lawyer. So I'm not going to give you the legal foundation that my lawyers happily articulate to me all the time when I'm saying, ‘Why can’t we put this person on the list?’” Estevez said. He added that “we are not the [People’s Republic of China]. We don't make it up. We actually follow a process and we live by the rule of law.”

Kim said “it sounds like to me it's more like a political concern than a legal one,” but Estevez said there is “zero political concern.”

Estevez also was questioned about BIS licensing decisions for exports to China. From January to March 2022, BIS denied 8% of license applications and approved more than $23 billion worth of applications for items destined to Chinese companies on the Entity List, McCaul said, referencing data he said was provided by the agency. A spokesperson for McCaul said the lawmaker plans to release the data "in the next few days."

Estevez stressed that the Entity List is “not a blanket embargo” and certain lower-level technologies can be sent to both Huawei and SMIC. But he said “all those things are under assessment.”

McCaul released similar data in 2021 that showed BIS approved more than a combined $100 billion worth of export licenses for shipments to Huawei and Chinese top chipmaker SMIC during a six-month period from 2020 to 2021 (see 2110210073). At the time, BIS said those statistics lacked context, particularly because they didn’t reflect pending applications set to be denied, which would have significantly lowered the percentage of approved applications for both companies (see 2110220037). BIS also noted that many companies don’t apply for a license if they expect to be denied.

McCaul said the agency’s latest data shows BIS “continues to grant licenses that allow critical U.S. technology to be sold to our adversaries -- even those it’s designated as threats to national security.” He said he is “ready to work with the administration and with the Democrats on this panel to strengthen our export controls system where needed. And why I launched a 90-day review of BIS,” referring to the committee's oversight effort of the agency’s export control procedures (see 2301300052, 2301190055 and 2210030068).

In written testimony, Estevez said BIS in FY 2022 approved about 70% of license applications involving China and denied or returned about 30% without action. He also said license applications involving China took an average processing time of about 77 days, “significantly longer” than the average processing time of about 40 days for all cases. “Approvals of any licenses involving the PRC are not loopholes in our controls,” Estevez said.

Rep. Gregory Meeks of New York, the committee’s top Democrat, said BIS may need more funding. “BIS may need additional resources for all the work that we're telling them that they need to do,” he said. “So maybe we can talk about that at some point.”