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Improved Export Controls, CFIUS Requirements Needed to Counter China Tech, US Panel Says

The U.S. needs to immediately modernize export controls and foreign investment screening mechanisms to counter Chinese technology advancement, a U.S. commission told Congress. The members of the National Security Commission on Artificial Intelligence, building off a report it released earlier this month, told lawmakers March 12 that the U.S. is in danger of ceding technology leadership over artificial intelligence if it doesn’t devote more resources to innovation and create a clearer national technology strategy.

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“The government is not organized nor resourced to win the technology competition against a committed competitor,” Eric Schmidt, chairman of the commission and the former CEO of Google, told the House Armed Services Committee. “The government isn't quite ready for this fight.”

The Biden administration has said technology competition with China is a priority and has called China a strategic competitor, specifically in high-tech industries (see 2101190060). In its report, the commission urged Congress and the administration to pursue that priority by improving its export control regimes and expanding disclosure requirements for foreign investment screening (see 2103030057). If the U.S. doesn’t act quickly, the commissioners said, it may soon cede technology leadership.

The U.S. can improve and expand several existing tools to counter China, including export restrictions and the jurisdiction of the Committee on Foreign Investment in the U.S., commissioner Gilman Louie said. Louie, co-founder of Alsop Louie Partners, a venture capital firm, said the U.S. should modernize those regimes to better protect dual-use technologies.

“Competitors are making every effort to steal our technology, research and intellectual property,” he said. Although CFIUS is “fundamentally a voluntary series of regulations,” he said, it should “no longer be voluntary.” “If you’re taking money from potential adversaries or competitors like China and Russia,” Louie said, “it needs to be disclosed.”

He also said industry is constantly left guessing about whether to disclose their investments to CFIUS. Although the committee’s jurisdiction was expanded last year to cover transactions that involve critical technologies, some companies and lawmakers feel those technologies have not been adequately defined by the Treasury and Commerce departments (see 2010020055).

“We've been waiting for years now in the technology community for the list of the critical technologies,” Louie said. “We need to make it clear that these kinds of technologies, like AI, like microelectronics, like quantum computing,” need to be disclosed “if you're taking direct foreign investment or indirect investments from these nation-states.” The White House didn’t comment.

He also said CFIUS should consider revising its filing requirements to make the process less complicated, which may dissuade disclosures. The U.S. also should conduct more outreach with technology companies to educate them about CFIUS requirements. “I think we should take a look at the filing requirements, particularly for venture capital, and to make sure that people are well educated in the regulatory regime,” Louie said. “The good news is most tech companies and early startups use very competent law firms, and having the law firms be a partner in this matter is going to be really critical for us to be able to not only protect the technologies, but quite frankly protect those entrepreneurs' technologies. ”

Schmidt proposed more action from the White House, saying it should establish a technology competitiveness council that would report to the vice president. He also said the U.S. needs a microelectronics strategy to outcompete China in advanced semiconductor manufacturing and to support U.S. companies. “We need a national AI research infrastructure so more than the top five companies have the resources to innovate,” Schmidt said.