Regulatory intelligence for US exporters

More Export Controls, CFIUS Resources Needed to Counter China, Former Officials Tell Senate

The U.S. needs to expand export and investment restrictions to prevent China from acquiring advanced semiconductor equipment and other sensitive technologies, former national security officials told Congress this week. One official specifically said the Commerce Department’s Bureau of Industry and Security should impose export controls more actively. Another said the Committee on Foreign Investment in the U.S. needs more resources.

Lawmakers from both parties seemed to agree. Sen. Mark Warner, D-Va., criticized some large U.S. companies for continuing to prioritize Chinese market access over human rights concerns. BIS has imposed a number of export restrictions in recent months to prevent the Chinese government from using U.S. technology to commit human rights abuses in the Xinjiang region and Hong Kong (see 2107090027).

“I've been frustrated by the frequency by which U.S. companies, in their desire for market access in China, have frankly given up, sometimes, on those values,” Warner, chair of the Senate Intelligence Committee, said during an Aug. 4 committee hearing. “The idea that they can't miss the Chinese market means they make sacrifices going into that market that they would make in no other nation in the world.”

Sen. Marco Rubio, R-Fla., said China steals hundreds of billions of dollars of U.S. technology and intellectual property per year and conceals its ownership in companies used to buy technology startups, which can skirt some U.S. technology controls. “China is not some futuristic threat,” he said. “It's already here.”

But the U.S. can take more steps to mitigate China’s technology acquisition, said Matt Pottinger, a deputy national security adviser during the Trump administration. Pottinger said export controls should be used “more sharply” to control shipments of semiconductors and future generations of wireless and communications technology. “Commerce needs to be brought firmly into the fold,” he said. “The Bureau of Industry and Security has to be really treated and think like a national security arm of the U.S. government, not a trade promotion arm, if we're going to win on semiconductors.”

He also said BIS should continue to build on its decision last year to expand the foreign direct product rule (see 2012210044), which increased restrictions on certain foreign-made items destined to Huawei.

“We've got some companies in the United States that make great equipment for making semiconductors and they want to access the China market,” Pottinger said. “In the long run, that's going to be very bad for us, if we're giving China the means to create a coercive and wholly independent manufacturing capability.” He said the U.S. should aim to “forgo some of those short-term smaller profits now in order to grow a much larger pie after that.”

Anna Puglisi, a senior fellow at Georgetown University’s Center for Security and Emerging Technology, said crafting export controls has been made more challenging because China blurs the lines between its industry and military.

China “will use any knowledge or technology it acquires for its military,” she said in written remarks to the committee. She said this “challenges” export regulations that “build their restrictions around affiliations with a military end-user but make exceptions for civilian uses. To the Chinese leadership, every civilian use is also a potential military use.” BIS recently expanded controls over exports to military end-users and for military end-uses in China (see 2007090075).

Puglisi also said the U.S. needs to increase reporting requirements for foreign money accepted at universities, which the Chinese government can award to influence researchers or acquire technology. These donations “present a conflict of commitment where participants are often serving two different organizations, which at best introduces conflicts of interest and in some cases fraud, and other illegal activity,” Puglisi said. A provision in the Senate’s Strategic Competition Act of 2021, which was later nixed, would have expanded foreign investment screening to include foreign gifts over $1 million given to U.S. universities (see 2104270005).

Pottinger also said the CFIUS process has loopholes that allow Beijing visibility into “all of the newly emergent companies and technologies that they want to target for more in-depth scrutiny and investment and theft.” Evanina Group CEO William Evanina, a former director of the National Counterintelligence and Security Center, said Congress should appropriate more resources to foreign investment reviews. “I do think it's the right vehicle,” Evanina said of CFIUS. “There's just not enough people in that vehicle to do that work.”

Sen. Bob Casey, D-Pa., said the U.S. should also consider establishing an interagency review committee to scrutinize outbound investments that could “result in the outsourcing of critical supply chains” and make the U.S. more dependent on China. “I think if we had sort of an outbound CFIUS mechanism,” Pottinger said, “that's definitely worth exploring.”