BIS Seeing ‘Better' End-Use Checks in China, Expects No Big Changes to Oct. Chip Rule, Estevez Says
China has been more receptive to U.S. end-use checks on Chinese entities as a result of a Commerce Department policy change from October, Bureau of Industry and Security Undersecretary Alan Estevez said this week. Estevez also said he doesn’t expect any significant revisions to BIS’s most recent chip restrictions on China, and warned that a Chinese invasion of Taiwan would spark new, strict U.S. export controls that would cause U.S. companies to lose “billions” of dollars in Chinese business.
Estevez said BIS has seen a recent “change in attitude” from China’s Ministry of Commerce in allowing agency officials to conduct checks on certain entities receiving controlled U.S. technology. The change comes about two months after BIS added a range of Chinese companies to its Unverified List -- including chip maker Yangtze Memory Technologies Co. -- and introduced a new policy that allows the agency to move companies from the UVL to the more restrictive Entity List if BIS is unable to conduct an end-use check on those entities within 60 days (see 2210070006).
“The goal” of the rule “was to drive better behavior from countries that were not allowing these checks,” Estevez said during a Dec. 6 event hosted by the Center for Strategic and International Studies. Former BIS officials say MOFCOM has historically stymied U.S. efforts to complete end-use checks (see 2211170069). “We are seeing better behavior,” Estevez said.
He declined to say whether BIS has so far been able to conduct an end-use check on “any particular company” or the results of those checks, “because that will go through due process and due order.” But “I will say that MOFCOM has been more forthcoming,” Estevez said. “It’s not the first time we've seen such a change of attitude, so it depends on how long that sustains on whether we've accomplished our goal there.”
Along with the UVL and Entity List rule, BIS in October also published a sweeping set of export restrictions on a range of advanced computing semiconductor chips, semiconductor manufacturing products and other items destined to China, as well as certain U.S. persons activities in China (see 2210070049). Some in the chip industry have struggled to decipher what they have called an unprecedented and complex set of regulations, and have asked BIS to issue more guidance on the rule.
Estevez said the agency is working on minor updates to the rule, including “clarifying some language.” He said the agency has specifically been asked to better “articulate what a high-end fab is.” But he also stressed that industry shouldn’t expect any major revisions. “Frankly, I do not see any massive changes coming,” Estevez said. “There are some tweaks that we need to do … and we'll try to accommodate as best we can on that.”
He also disagreed with assessments that the rules caught some U.S. allies by surprise (see 2211290062). “We don’t think we blindsided people,” Estevez said. “We actually did talk to people in advance, including companies.” He also suggested he was sympathetic to comments recently made by the Netherlands' foreign trade minister, who said last month the country will seek to impose export controls “on our own terms” and hasn’t reached a deal with the U.S. to impose similar export restrictions on China (see 2211210035).
“I don't expect any other country to say, ‘hey, we're gonna come in and let the United States dictate our policies and our plans,’” Estevez said. But “these countries or allies share our values” and “we're forthcoming with them on what those threats are from our perspective.” He said the U.S.’s discussions with allies, including efforts to convince them to also impose export restrictions on advanced semiconductor equipment, have been “very, very positive.”
Estevez in October said he was confident the U.S. will soon convince allies to adopt the controls (see 2210270047) and said this week he still feels that way. “It’s a work in progress,” he said. “I have full confidence that we're going to reach agreement.” He declined to say when that agreement will be reached.
Estevez also touched on a potential U.S. response to a Chinese invasion of Taiwan, which experts say could spark a dramatic set of Western sanctions and trade restrictions against China (see 2211230039). He said the U.S.’s response toward Beijing would be similar to the U.S.’s response to Russia for invading Ukraine earlier this year, which included a broad set of export controls that forced whole technology industries to withdraw from the country.
“There are companies, U.S. companies, who walked away from billions of dollars of assets in Russia,” Estevez said. “If Xi Jinping lines up force on the Taiwan Strait and starts moving across that strait, or it looks like he's going to start moving across those straits, companies are going to lose billions of dollars of assets in China.”
He said U.S. companies “need to be thinking about what they're doing in China” and “who they're doing business with.” He added: “I personally advise it’s probably not a good idea, but I can't tell the company what to do. That's the beauty of America.”
Estevez said he wasn't making an argument for decoupling from China. “I'm allowing China, with U.S. technology, to build a commercial airplane,” he said. But “if China decides they want to go to war with Taiwan, I'm sorry, GE is not going to be able to sell that engine to China. That's just the way it's going to work out.” He said “that is not a decoupling argument, that's an argument for China to change its behavior.”
Estevez also made a brief pitch for more resources for BIS, saying an investment in BIS is “a good return on investment in national security.” During the event, CSIS experts presented a Dec. 5 report that argues for better technology to improve the agency’s export enforcement efforts.
BIS should implement a system that allows for the “automatic alerting of changes that would affect the validity of a previously approved export license,” said Gregory Allen, a senior fellow with CSIS’s Strategic Technologies Program. Under this system, for example, BIS would be alerted if a non-Russian company operating with an approved export license is acquired by a Russian-owned entity, Allen said.
Another tool would “provide entity resolution capabilities to establish that different entities are likely related,” he said. This would allow BIS to automatically detect whether a “purported Eastern European tractor manufacturer has the same phone number as a supplier of engines” to Russia’s military.
“Ultimately, the export control enforcement of the United States comes down to a few hundred men and women in the Bureau of Industry and Security overseeing hundreds of billions of dollars in trade transactions,” Allen said. “And for them to operate at the necessary speed and scale for U.S. national security, they need technology that gives them the productivity and power that will allow them to do their jobs effectively.”
Estevez said BIS can “certainly” use more employees and more resources. “When I got there, one of the first things I said is, ‘woah, we need some automated tools.’” But he also said BIS agents aren’t “alone,” adding that the agency works on export enforcement efforts with CBP, the FBI and others.
“I'd be thrilled, though, to get some more capability in there, in both manpower and automated capability,” he said, “because I think that would really help us do it even better than we're doing it.”