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Commerce Officials Talk Export Enforcement, End-Use Checks With China

U.S. officials during their trip to China this week outlined expectations for end-use checks in the country and rebuffed requests from Beijing to reduce export restrictions on advanced technology, Commerce Secretary Gina Raimondo said. While the American contingent isn’t leaving China with concrete resolutions to trade issues, she said she believes commitments from both sides to increase communication, including as part of an export control enforcement working group, were a positive first step.

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“The reality is this: This is an area that we're not always going to agree on. We may not agree very often. It will continue to be the area of the most disagreement,” Raimondo said of export controls. “But communication can only help.”

Raimondo’s comments came two days after the U.S. and China agreed to create a new group to exchange information on export control enforcement led by Matthew Axelrod, the Bureau of Industry and Security's top export enforcement official (see 2308280042). Speaking during an Aug. 30 press conference in Shanghai, Raimondo said the group met Aug. 29 for an “open dialogue” and to “reduce misunderstanding” around U.S. enforcement efforts.

U.S. officials during the meeting were “clear about how we expect end-use checks to happen and to be enabled,” Raimondo said, referencing the process by which BIS agents validate that a controlled export to China has been properly handled by the Chinese end-user. BIS earlier this month removed 27 Chinese parties from its Unverified List after it was able to successfully complete end-use checks (see 2308210015), and has said it has seen better cooperation from China recently (see Ref:2212060059] and 2306010044).

Raimondo said the main purpose of the discussion on export enforcement was to “increase transparency” about U.S. export controls. “We were able to clarify in the first meeting that we are not targeting China -- we're targeting certain behavior,” she said. “We're targeting actions and behavior which undermine U.S. national security. And we sought to begin clarifying our procedures.”

She expects U.S. and Chinese officials to have “several” more in-person meetings about export controls. “I know there will be constant informal communications, sharing information,” Raimondo said. “Overall, the goal is to increase transparency with respect to export control enforcement and to increase communication,” which reduces “miss-assessment, miscalculation and unnecessary tension.”

Raimondo also said she was asked by China to remove export restrictions on certain advanced technologies and rescind the Biden administration’s recent executive order that will eventually prohibit outbound investments in certain Chinese technology sectors (see 2308090066). Speaking to reporters on Aug. 29, Raimondo said she refused, The New York Times reported.

The Commerce secretary made similar comments during the press conference the following day, saying she “didn't pull any punches. She added: “When it comes to matters of national security, there's no negotiation.”

“Anyone who knows me knows I'm very direct. And that's how I conducted myself in these meetings,” Raimondo said. “I explained very clearly that as the commerce secretary, it's my job to both protect what we must, protect our technology, and to promote where we can.” She added that there is “no room to negotiate when it comes to protecting Americans national security, including protecting emerging technology.”

She also said she “raised the tough issues” that unfairly disadvantage U.S. companies operating in the country, such as Chinese subsidies for state-owned firms, raids on U.S. companies and intellectual property theft. “U.S. businesses want to do business here,” Raimondo said, “but they need to have a predictable regulatory environment.”

The meetings lasted “hours,” Raimondo said, adding that she stressed to Chinese officials that they need to improve the country’s business environment if they want to attract more U.S. companies. “The environment has to be predictable, there has to be a level playing field, there has to be due process, there has to be transparency,” Raimondo said. “And so my point was U.S. business needs to see some action taken to address these issues. Otherwise they will deem it as just too risky” or “uninvestable.”

Raimondo said China didn’t make any concrete promises, and the two sides didn’t resolve China’s decision in May to impose sales restrictions on products from Micron Technology, a U.S. semiconductor firm (see 2305220053, 2307070050 and (see 2306230011). “I had no expectation that on my first visit here, in my first meeting with Chinese officials, that we would suddenly have resolved specific issues, some of which have been happening for more than a decade,” she said. “I think that it would have been unrealistic to think that we would do that.”

Instead, Raimondo said she was able to “lay it on the line directly, precisely, in some detail, with respect to the challenges that U.S. industry and workers are facing.” She added that there is “appetite” among U.S. companies to do business in China, calling the market “enormous.” But they are hesitant to invest in the country.

“All I can tell you is what I hear from U.S. businesses on the ground. I hear about unfairness, arbitrary decisions, a lack of due process. Raids on their businesses that go unexplained. Tens of millions of dollars in fines for reasons that aren’t clear,” she said. “And so my point is that actions speak louder than words, and as long as that is happening on the ground, that makes it very risky for U.S. businesses to do business here.”

The U.S.-China Business Council called Raimondo’s trip “productive,” adding that the U.S. “benefits tremendously from commerce with China, the vast majority of which does not implicate national security.” The council also applauded the new “consultation mechanisms” between the two sides.

“There is more work to be done in other areas, such as market access and protecting intellectual property in China,” the group said. “We hope this trip continues to strengthen the likelihood for a meeting between presidents [Joe] Biden and Xi [Xinping] later this year.”