Regulatory intelligence for US exporters

Lawmakers Call for Swift Update to China Chip Controls to Address Export Control ‘Failure’

The Biden administration needs to soon update its China-related chip export controls and apply “full blocking sanctions” to Huawei and China’s Semiconductor Manufacturing International Corp., top House Republicans recently said in a letter to National Security Adviser Jake Sullivan. Those measures and others will address what the lawmakers said has been a ”failure” by the administration and the Bureau of Industry and Security to properly enforce the Oct. 7 chip restrictions, which placed new license requirements on a host of chip-related exports and activities involving China.

The letter, signed by House Foreign Affairs Committee Chair Michael McCaul, R-Texas, and Mike Gallagher, R-Wis., said the recent successes of SMIC and other Chinese companies shows the “policy of the White House is not being followed by BIS.” They said the U.S. “bureaucracy that writes policies, adjudicates licenses, and identifies technology” is “failing export controls.”

“The October 7 rules and SMIC’s growing capabilities reveal a stagnant, obscured bureaucracy that does not understand China’s industrial policy, does not understand China’s military goals, and does not understand technology at all -- and does not have the will to act,” the lawmakers said. “After years of oversight and continued pressure from the Congress, BIS still appears more inclined to listen and respond to the industries it regulates than elected law-makers.”

They called SMIC a “case study” that “exemplifies the series of staggering policy compromises by BIS.” They said BIS de-controlled certain chip production tools, including lithography machines, for export to SMIC in 2015 and applied a “loophole-riddled licensing policy” for the company’s entity listing in 2020, adding the agency “has been enabling SMIC’s rise for more than a decade.” BIS’ “lack of resolve has led to SMIC being more advanced than any current U.S.-based foundry,” McCaul and Gallagher said.

“Regrettably, BIS made its ineffective licensing policy despite Congress pointing out each loophole and insufficiency in its policy,” the letter said. “These mistakes are pushing the United States toward a national security crisis.”

They said BIS can “correct the series of missteps” by issuing a final version of its Oct. 7 rule that eliminates “workarounds” for advanced semiconductor and tool exports to China, including stopping Chinese companies from skirting the restrictions through certain rental agreements with cloud providers (see 2303210037 and 2305160092).

The agency should also stop “granting exemptions” to a policy change it announced last year that allows it to transfer a party from the Unverified List to the more restricted Entity List if the agency is unable to conduct an end-use check on that party within 60 days of their placement on the UVL (see 2210070006). McCaul and Gallagher said BIS removed 27 entities from the UVL in August (see 2308210015) “despite these firms having spent a collective average of 728 days on the UVL without action.”

The lawmakers also called for financial sanctions to be applied against SMIC and Huawei, “which would cut them off completely from U.S. technology and the U.S. financial system.” Lawmakers have previously called for sanctions against the companies (see 2309150020).

The letter added that Congress has “provided significant resources and information to BIS to accelerate export control actions,” but BIS’ “inaction persists.” They asked for answers to several oversight questions, including whether any agencies objected to the Oct. 7 rules before they were implemented and whether any member of the End-User Review Committee formally raised concerns about the Commerce Department’s licensing policy toward SMIC. They also asked for a classified briefing on the administration's intelligence surrounding Huawei’s recent chip advancements (see 2309120005 and 2309150020).

“If export controls are a national security tool and strategic asset, they must be used,” the letter said. “BIS has a narrowing opportunity to act and constrain the [Chinese Communist Party] military before the moment is lost.” Spokespeople for the White House and BIS didn’t respond to our requests for comment.