Renewing 1-Year China Chip Waivers Will Undermine Export Control Effort, Expert Says

The Bureau of Industry and Security shouldn’t renew the one-year authorizations it gave to certain foreign chip companies as part of its Oct. 7 China chip controls unless the agency makes “significant” changes to the restrictions when it finalizes the controls in the coming months, said Derek Scissors, a China policy expert with the American Enterprise Institute. Scissors said extending the licenses beyond their October expiration would “undermine” the Biden administration’s goal of denying China advanced semiconductor technology and unfairly advantage foreign companies over U.S. firms.

“You can't say, ‘we're controlling semiconductor exports to China except for the biggest semiconductor producer and the biggest company in terms of aggregate revenue that operates in the semiconductor space,’” Scissors said during a July 26 event hosted by AEI. “The pro for extending these licenses is unclear to me. I really don't see it.”

BIS gave the licenses to South Korea’s Samsung, SK Hynix and others last year to allow them to continue certain chip operations in China and help them avoid significant business disruptions caused by the new export controls (see 2210310044 and 2210120002). A BIS official earlier this year said the agency was speaking to the companies about potentially extending the authorizations but hadn’t yet made a final decision (see 2302240008).

Scissors said the only way the administration can justify extending the licenses is if BIS makes changes to the October restrictions when the agency publishes the final version of the controls. The administration is reportedly considering modifying the rule to control a broader set of artificial intelligence-related chips (see 2306290048 and 2210070049), and Scissors said companies may need “time to adjust” to those new license requirements.

“But if we were to, for whatever reason, keep the interim rule exactly as is,” he said, “it would really undermine the administration's position to extend the licenses again.” Commerce Secretary Gina Raimondo said this week she has no timetable for when the final version of the rule will be released (see 2307260071).

Rob Atkinson, president of the Information Technology and Innovation Foundation, disagreed with Scissors and said the administration should be more cautious, adding that the U.S. could damage its domestic chip ecosystem if it alienates Samsung and other foreign chip firms. “Samsung has a choice. They don't have to come here. TSMC has a choice. SK Hynix has a choice,” Atkinson said during the event. “If we basically say to those companies, ‘you can never invest another dollar in China,’” they may choose not to invest in the U.S.

“I can see them saying … ‘if that's the condition of us putting a fab here, we'll take the China market, because the China market is going to be much bigger and it's critical for our growth,’” Atkinson said.

Scissors called Atkinson’s argument “the big lie that is being sold by the semiconductor industry.” If foreign chip firms spurn the U.S. and choose to continue their China activities, they will have “three years where they're going to be able to make a lot of money selling to the Chinese, and then they're going to be driven out by Chinese firms,” he said.

Scissors also said continuing to extend licenses for foreign chip firms will frustrate American semiconductor companies. “If I'm an American company, I'd say ‘What? Wait, we're giving foreigners another license?’” He said U.S. chip company Nvidia is the “obvious example” of a firm that would be impacted.

“You can't be giving out licenses again. They're not temporary at that point. They're giant holes,” Scissors said. “And just like anything else, if you have a rule and create a giant hole, all it's going to do is shift the way the rule is broken.”

He also dismissed a suggestion that extending the licenses will help the U.S. maintain good diplomatic relationships with South Korea, Taiwan and others. “At some point you have to say to your allies, ‘it's an important national security issue,’” adding that the “diplomatic balance has to be secondary.”

Scissors said the Biden administration has given allies enough time to adjust to the controls. “There's no way anyone can accuse the Biden administration of not consulting sufficiently with our allies,” he said. “You can't say, ‘we have a rule that's really important to our national security,’ and at the same time say, ‘but we don't want to upset our allies, so they get to keep doing whatever they want.’”

“Either you need to tell the allies time's up, or you're really not treating this as an important national security issue,” Scissors said. “Those are the only two options.”