BIS Not Drafting New Huawei Rule, Seeing Drop in China License Applications, Official Says

The Bureau of Industry and Security doesn't have a draft rule in place to increase export licensing requirements for Huawei despite rumors this year that new restrictions for the Chinese technology company were imminent, said Thea Kendler, BIS assistant secretary for export administration. Kendler also said the agency has seen a sharp decline in China-related license applications, is spending more time reviewing those applications and is prioritizing reviews of artificial intelligence items, quantum computing technology and biotechnology for new export controls.

Kendler, testifying before the Senate Banking Committee this week, said BIS does “not have a draft rule in place at this time” on Huawei, including one that would revoke existing license applications for the company. The Financial Times in January reported the administration notified companies it would no longer approve license applications for technology shipments to Huawei and was moving toward a “total ban” on U.S. sales to the company (see 2301310009).

Although no draft rule is in place, Kendler said BIS is examining its existing controls “very closely” and is conducting a “deep analysis of this issue.” Sen. Bill Hagerty, R-Tenn., criticized BIS and the Biden administration for not moving forward with the rule, citing concerns voiced by other lawmakers that the State Department pushed back on new export controls on China to try to limit damage to the U.S.-China relationship (see 2305240041).

Hagerty said he wants more information on what types of exports BIS is approving to China, adding he sent a letter to Commerce Secretary Gina Raimondo May 30 requesting BIS licensing data for shipments to China’s aerospace sector. He also criticized the Biden administration for not placing enough Chinese companies on the Entity List and for continuing to approve exports to Chinese state-owned defense companies, including the Aviation Industry Corporation of China, China Aerospace Science and Industry Corp., and China Aerospace Science and Technology.

“I am very concerned to see this administration basically back off and kowtow, just so they can obtain high level meetings with officials in China,” said Hagerty, who interrupted Kendler several times as she tried to respond to his comments. “This makes no sense. We should be speaking from a position of strength, not weakness, and this backing off is absolutely unacceptable.” Kendler began to say “we have not backed off” but was again interrupted by Hagerty when he ceded his remaining questioning time back to the committee chair.

Kendler touched on export licensing statistics in her written testimony, saying BIS saw a 26.2% drop in Chinese-related license applications from calendar year 2021 to 2022, attributing the decline to exporters that “generally do not waste time or resources applying for licenses they know will be denied” or will take a long time. She also said license applications involving China made up about 13% of all applications received by the agency last year, and BIS denied or returned-without-action about 26% of those requests.

BIS also spent “a lot more time scrutinizing these applications,” saying the agency took an average of 90 days in 2022 when reviewing China-related applications, more than double the 43 days it spent reviewing non-China license applications. The 90 days were also an increase over the average of 76 days BIS spent reviewing China license applications in 2021, Kendler said.

“BIS with its interagency colleagues is taking the time to ensure that [People’s Republic of China] licenses are carefully reviewed,” she said. “We prioritize comprehensive review of relevant open source and intelligence information over speed.”

Kendler also said the agency is “focused on aggressively and appropriately using our tools to contend with the long-term strategic competition” posed by China. “To that end,” she said, “we have prioritized a review of export controls related to quantum, the bioeconomy, and artificial intelligence,” echoing comments made by Undersecretary Alan Estevez last year, who said BIS likely will impose new controls on AI software and quantum information science items at some point (see 2210270047).

She specifically pointed to AI capabilities, including supercomputing uses powered by advanced semiconductors, which can “improve the speed and accuracy of military decision-making, planning, and logistics.” AI technology can also be used for “cognitive electronic warfare, radar, signals intelligence, and jamming,” Kendler said, and to support facial recognition surveillance systems used to violate human rights. “Advanced semiconductors are key to developing advanced weapon systems, exascale supercomputing capabilities, and AI capabilities.”

The agency’s October China chip controls (see 2210070049), which were designed to tackle some of these issues, “already are having an impact” on China, Kendler said. She said China is “surging resources” into its chip sector as a result, but Beijing “knows that money alone cannot solve its problem.” China’s “sole” semiconductor lithography equipment manufacturer, Shanghai Micro Electronics Equipment Group, “hasn’t made any major advancements since achieving the generations-earlier 90nm equipment, in part due to the difficulties of obtaining components and servicing from abroad,” partly caused by its addition to the Entity List in December, Kendler said.

“Although our measures have restricted the PRC’s ability to indigenously produce advanced semiconductors, we know that the PRC is looking for ways to continue accessing these high-end chips,” she said. BIS continues to “review open source and classified information to address circumvention attempts, to track the impact of our controls, and to be proactive and nimble.”