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Congressional Panel Calls for Assessment of Chip Controls, Single Export Licensing System

Congress should order a review of U.S. semiconductor export controls against China and ask the administration to create a public database of entities connected to China’s military, which would help U.S. companies with their compliance practices, a congressional commission said this week. The bipartisan commission also said Congress should explore the idea of a single export licensing system to streamline export requirements overseen by both the Commerce and State departments.

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The recommendations, outlined by the U.S.-China Economic and Security Review Commission in its annual report released this week, were issued alongside warnings that China is continuing to invest in civil-military fusion strategies that threaten U.S. national security and technology leadership. Although the administration has held various meetings with Chinese officials in an attempt to ease tensions, including one scheduled for this week between President Joe Biden and Chinese President Xi Jinping (see 2311130044), the commission said Beijing views diplomacy with the U.S. “primarily as a tool for forestalling and delaying U.S. pressure over a period of years while China moves ever further down the path of developing its own economic, military and technological capabilities.”

“Beijing, in a continuing and deepening effort to challenge the existing international order, seeks to create a new one that will be aligned against the United States and its democratic allies in Europe, Asia, and elsewhere,” the commission said.

The 753-page report covers a range of China-related issues the commission said the U.S. should be monitoring, and among them is Beijing’s pursuit of advanced semiconductor capabilities. The commission said Congress should ask for an annual 180-day “evaluation” by the Government Accountability Office of the effectiveness of the administration’s chip export controls against China.

This review -- which would likely cover the Bureau of Industry and Security's Oct. 7, 2022, controls (see 2302020034) as well as the updated restrictions released last month (see 2310170055) -- should assess how effective the measures have been in preventing China from acquiring or developing the capacity to manufacture advanced semiconductors, the report said. GAO also should examine how well the U.S. has been able to convince other allies to impose similar controls and whether China is successfully working around the restrictions, either through export control evasion tactics or by “developing its own indigenous capabilities.”

The commission also said Congress should establish an interagency group, headed by the Office of the Director of National Intelligence, to create a public database to assist industry and academia with their due diligence practices. Tracing connections between military end users in China and their “seemingly civilian affiliates” can be “especially challenging,” the report said in a section on export controls, noting that “obtaining information is difficult” in the country. The commission added that the Chinese government’s recent restrictions on foreign access to domestic corporate registry databases and its “crackdown on due diligence firms compounds this challenge.”

But a U.S. government-run database could help companies, universities and others do due diligence on potential business or academic partners in China, the commission said. The database could allow users to identify how China’s military, United Front Work Department, intelligence agencies and security agencies may be linked to certain Chinese companies, investment firms and research institutes.

The commission also recommended Congress study whether the U.S. should move to a single export licensing system, which would integrate dual-use export controls overseen by BIS with the U.S. Munitions List restrictions maintained by the State Department’s Directorate of Defense Trade Controls. The idea, floated to the commission earlier this year by former acting BIS undersecretary Cordell Hull (see 2304130030), seeks to address inefficiencies in both export licensing and enforcement.

Congress should hold hearings to find out whether a single licensing system could improve enforcement against specific end users in China and other countries with “poor transparency into corporate ownership," the commission said. Lawmakers should also examine the potential commercial impact of combining the two licensing systems, including how it could reduce compliance burdens on companies and which technologies would be included in the combined system.

Congress also would need to consider how a single system would combine the “appropriate technical expertise” needed to scope evolving controls on dual-use emerging and foundational technologies for items controlled across the USML and the Commerce Control List, the commission said. Lawmakers would need to determine where the system would be housed, how to ensure coordination among the agencies involved and how Congress can give the government “appropriate information and authorities” to continue pushing for multilateral adoption of those controls.