Former US Officials: BIS 50% Rule 'Unworkable,' Could Be Reversed
A former State Department analyst on export control and sanctions evasion under President Joe Biden and a former National Security Council director for China under President George W. Bush agreed that the Bureau of Industry and Security's 50% rule was not fully thought through before its announcement.
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"I just see a massive amount of miscommunication on the export control issues," said Philip Luck, the former deputy chief economist in the State Department. Luck said on a podcast hosted by his employer, the Center for Strategic and International Studies, that China saw the expansion of the BIS Entity List to cover subsidiaries (see 2510030041 and 2509290017) as a significant escalation.
Dennis Wilder, the former NSC director now at Georgetown University, said that the new BIS rule "really upset" the Chinese, but has also engendered massive pushback from companies that need to comply. He said U.S. firms are "just flummoxed" by the new restrictions.
He asked, "How do they do due diligence on 10,000 Chinese entities? It's impossible. I have no idea why the administration thought this was a good idea, but it's totally unworkable." One open-source intelligence software firm said it has identified more than 20,000 Chinese entities that are subject to U.S. export restrictions as a result of the new rule (see 2510210013).
Luck agreed, saying analysts can argue about whether the 50% rule was "good or bad," but he said it appears to be a significant "burden on industry."
"Industry really doesn't like it, and they're pushing pretty hard," Luck added. "We may see a reversal even if it wasn't initially meant to be a bargaining chip" in trade talks with China.
Wilder suggested that President Donald Trump may not have been fully aware of the impact of the 50% rule. "I don't know that Trump knows everything his bureaucracy is doing, or whether he understands even the implications of some of these things," he said. Trump "may sign off on things, [Commerce Secretary Howard] Lutnick may tell him something, and he says fine. But, some of the things that go on among, if I will, the China hawks -- it's not clear that Trump really is totally in control of these things." If the 50% rule and its potential impacts had "actually been explained to Trump in detail, I'm not sure he would have signed off at this moment on something like this."
Luck and Wilder talked about how Donald Trump was the first president to offer to roll back export controls actions as part of a larger negotiation about trade and tariffs (see 2506120061). Luck said national security-related export controls have traditionally been kept separate from trade talks. "They're much more transactional in this administration," he said. "They're just one of many chips to be sort of played with here."
Although some have focused on the message that sends about the legitimacy of export controls, Luck focused on how that affects allies' decisions to impose similar restrictions. He said unilateral export controls "do not work."
But, he said, when everyone is unsure whether announced controls will tighten or loosen, "it makes multilateral cooperation almost impossible. If they're going to go out on a limb, [allies] don't know if you're going to saw it off behind them because you got a better deal. That's the biggest problem with this approach."
Luck also referred to press reports that the administration is "considering some really severe export controls on software that would be really escalatory."