China Select Committee Calls for Bolstering Export Controls, Investment Reviews

Congress should require the Biden administration to strengthen export controls against China and give it new tools to restrict a broader range of inbound and outbound investments, the House Select Committee on China said in a Dec. 12 report.

The 53-page bipartisan report includes almost 150 policy recommendations that aim to “reset” U.S. economic and technological relations with China amid growing tensions between the two powers. Some of the more notable recommendations say the Biden administration should adopt country-wide controls for a broader range of exported technologies, extend license requirements to subsidiaries of companies on the Entity List, and expand the jurisdiction of the Committee on Foreign Investment in the U.S.

The congressional committee specifically said the U.S. needs to “modernize” its export controls against China, which starts with Congress awarding more funding for the Bureau of Industry and Security "to ensure sufficient personnel, technology, data management, intelligence community support, and other resources for the agency to carry out its national security mission."

That funding should be paired with other “necessary reforms,” the report said, including an update to the deliberation procedures of the End User Review Committee -- the interagency group that makes decisions on Entity List additions -- and by closing a loophole that allows subsidiaries of companies on the Entity List to evade strict licensing requirements. Congress can address that loophole by extending export license requirements to subsidiaries of all foreign entities on the Entity List, the committee said, which would “address the issue of diversion.”

The select committee also suggested imposing new country-wide controls for specific technologies, regardless of the end-use or end-user, similar to the China-wide controls in place under the recently updated semiconductor-related restrictions against China (see 2310170055). BIS also should set a license review policy of denial for all exports controlled for national security reasons, the lawmakers said, and deny applications for all technology exports to Chinese firms “involved in espionage campaigns” against the U.S. That includes any licenses for Huawei and ZTE, the committee said, adding that existing licenses should be revoked.

Congress also should require the End-User Review Committee to conduct a “full top-to-bottom review” of all items listed under the Export Administration Regulations as EAR99 -- items that generally don’t require a license -- to see if they should be subject to controls, the report said. The Defense, State and Energy departments, which sit on the committee, also should be able to nominate EAR99 items to be controlled, the committee said.

Other recommendations said Congress should require the administration to “quickly establish general controls” on artificial intelligence, quantum technologies, biotechnology and other emerging technologies; require BIS to create a new cloud computing end-use rule that would potentially close a loophole used by Chinese companies to remotely access export-controlled technologies (see 2303210037 and 2312080048); negotiate expanded multilateral controls on biotechnology, quantum computing, AI and other technologies with allies; and more.

The report also said Congress should give the Committee on Foreign Investment in the U.S. greater authority to assess certain real estate transactions that could allow foreign adversaries to gather intelligence on sensitive national security sites. It should do this by giving CFIUS jurisdiction over all U.S. military facilities -- not just the ones on the list of military bases maintained by the Defense Department (see 2308220019) -- and by adding the USDA secretary as a permanent, voting member of CFIUS, the report said.

It also proposes that CFIUS receive jurisdiction over additional types of technology and over all joint ventures involving foreign adversary entities, including minority stakes. The select committee specifically said Congress should expand the definition of “critical technology” in the Foreign Investment Risk Review Modernization Act to include technologies that “directly or indirectly enable those technologies” and any technologies deemed “critical technologies” by either a majority of CFIUS member agencies or a single member agency and Treasury, the chair of CFIUS.

To address outbound investments, the report suggests restricting U.S. investment in entities tied to China’s military, critical technology sectors or human rights violations. The select committee expressed concern that “U.S. investors and average Americans have, often unwittingly, funneled vast sums of capital" to Chinese military contractors, human rights abusers or companies that pose other U.S. national security threats. It also noted that Americans invest in companies that "profit from Uyghur forced labor and enable the [Chinese Communist Party's] ongoing genocide in Xinjiang."

Congress should pass legislation to “generally prohibit” U.S. investments in Chinese companies on U.S. denied-party lists and sanctions lists, the select committee said, including the Uyghur Forced Labor Prevention Act Entity List, Treasury’s Non-Specially Designated National Chinese Military-Industrial Complex Companies List, the Commerce Department’s Military End-User List and Commerce's Entity List. That legislation also should block investments in those companies’ subsidiaries, it said.

The report also called on Congress to direct the administration to impose sanctions on China if it invades Taiwan, and said Commerce should maintain a regularly updated digital database to help small businesses conduct sanctions and export control due diligence. The database would allow companies to “search and analyze information on foreign entities that the U.S. government has sanctioned,” the committee said.

The report was the culmination of a yearlong investigation by the committee, which plans to shift its focus to turning the recommendations into legislation, said Rep. Mike Gallagher, R-Wis., the panel’s chairman, and Rep. Raja Krishnamoorthi, D-Ill., the ranking member. Some of the report's topics already are addressed in pending bills, including one that Gallagher co-introduced in July to expand CFIUS jurisdiction (see 2307180022).