BIS Needs Revamp to Protect Sensitive Technology, Rep. McCaul Says

The Bureau of Industry and Security needs to overhaul its export control policies to stem the flow of U.S. national security technology that is fueling China’s military modernization, House Foreign Affairs Committee Chairman Michael McCaul, R-Texas, said in a report marking the end of a 90-day review of the agency (see 2210030068).

If the U.S. “wants to effectively address China, then change must occur at BIS,” the report said.

McCaul said BIS tends to prioritize business promotion over national security concerns, and it approves most requests to transfer controlled dual-use technology to Chinese companies, including even those on the Entity List. Given China’s track record of violating international agreements, those companies then presumably share that technology with China’s defense sector despite making commitments not to do so, the report said.

Although Congress passed the Export Control Reform Act to improve BIS’s ability to prevent the diversion of U.S. technology to China’s military, BIS has not aggressively or proactively used it, McCaul said. Instead, he sees BIS as mainly reactive, such as when it put in place export controls on advanced semiconductors and supercomputers only after discovering that China had used U.S. technology to develop hypersonic weapons.

“A statutory requirement in ECRA Section 1759 to review controlled items based on [China’s Military-Civil Fusion Strategy] apparently achieved nothing, because no new controls have been issued,” the report says. “A statutory requirement in ECRA 1758 to identify emerging and foundational technology has resulted in zero foundational technology controls.”

BIS in 2022 stopped categorizing new technology controls as either emerging or foundational (see 2205200017), and has since released a range of restrictions under what it now calls Section 1758 controls.

In the report, McCaul said the agency should institute a license review policy of denial for all national security-controlled items to China. Denying licensed controlled exports to China, which totaled $1.5 billion in 2021, or about 1% of total U.S. exports to China, “would hardly affect the overall U.S.-China trade relationship or the United States’ $23 trillion economy, but it would better support U.S. national security and blunt [China's] military ambitions,” the report says.

The document, which is more than 60 pages long, also calls for giving national security agencies a larger say in the export licensing process; amending ECRA to allow BIS to charge fees for licenses to enhance its enforcement efforts; and pursuing agreements with allies to control artificial intelligence, biotechnology, quantum computing and semiconductors. For example, if the U.S. and a handful of allies “fully restricted China’s access to semiconductor architecture, electronic design automation software, machine tools, and fabrication facilities -- foundational technologies -- then China’s silicon ambitions may become prohibitively costly and time-intensive.”

In a statement, a Commerce spokesperson defended BIS’s record, saying “export controls are a strategic national security tool that BIS is constantly assessing and updating. The spokesperson added that the Biden administration has "been thoughtful and vigorous in its expansion and application of controls on key enabling technologies to" China, including for semiconductors and chip tools, "as well as by adding over 1,100 entities to the Entity List, including over 300 in the PRC."

The agency "looks forward to reviewing Chairman McCaul’s report and recommendations and working with his team and other key members of Congress to achieve our shared national security objectives.”

Two Commerce officials -- Assistant Secretary for Export Enforcement Matthew Axelrod and Assistant Secretary for Export Administration Thea Kendler -- are scheduled to testify before McCaul’s committee on Dec. 12. The following day, the committee plans to mark up several bills that are designed to address issues raised in McCaul’s report. Four bills had been posted on the committee’s website as of Dec. 7, and more are expected to be added.

The report’s release came two days after three House Republicans, including McCaul, issued a statement saying that BIS must strengthen its export controls before they will support calls to increase the agency’s budget (see 2312060072).