The U.S. Must Use Its Export Controls

David Rader  & Adam Chan

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Secretary Gina Raimondo made a recent plea to Congress to increase Commerce’s budget to “build a more muscular” department. The secretary’s request to increase her budget will likely fall on deaf ears, though, at least until the department chooses to use its existing resources to achieve its stated mission.

A recent report by the Congressional Research Service revealed that the Bureau of Industry and Security (BIS) within the Department of Commerce approved 97.9 percent of the items on the Commerce Control List (CCL) for export to China without a license. Separately, Congress reported that BIS denied only 2.2 percent of software and technology exports to China in 2020. The House Foreign Affairs Committee recently uncovered that in 2022, BIS approved more than $23 billion worth of licenses of U.S. technology to blacklisted Chinese entities. In total, only 8 percent of licenses to blacklisted entities were denied by export control authorities during the same period. Supplies to Huawei and Semiconductor Manufacturing International Corporation (SMIC)—perhaps the two most prominent high-tech national champions in the People’s Republic of China (PRC)—alone received over $100 billion in export license approvals, despite being on the Entity List of blacklisted companies.

The alarming numbers coming out of the Commerce Department quickly show that this is not a matter of insufficient budget. After all, granting an export license costs as much as denying one. Rather, there is a problem of poor decision-making by departmental leadership, which has either deliberately or wittingly allowed for the sale of restricted goods and technologies to our adversaries. Increasing BIS’ budget is not the solution to the problem of Commerce giving away technology to blacklisted entities supporting military-civil fusion in China.

It is critical for America to maintain its global leadership and technological superiority over its adversaries. To do so, we must protect its leading capabilities at all costs, including through the robust use of export control authorities to address national security risks arising from vulnerabilities in trade and economics. If the Commerce Department continues its current policy of virtual non-enforcement, America’s technology overmatch and military dominance may be doomed as adversarial nations like China go into overdrive to achieve tech parity.

If the PRC continues to close the technological gap with the United States, its technological advances, coupled with its centrally planned and funded industrial policy, will quickly erode any semblance of American military and technological dominance in the Indo-Pacific should conflict arise.

Broadly, we should strive to decouple from the PRC in high-tech industries strategically. Narrowly, we should not be aiding our foremost military and geopolitical adversary’s high-tech advancement by approving the sale of restricted items to it.

Unfortunately, the secretary’s attempts to garner congressional support to expand BIS’ budget are not an adequate response to the challenge. Below are five alternative, feasible policy recommendations that aim to address the shortcomings of export control policy execution in the United States at present. Implementing such recommendations would not require a doubled budget.

First, the federal government should enact a policy of “Presumption of Denial” for export licenses to adversaries. Countries such as the PRC, Russia, Iran, North Korea, and sub-nation terrorist organizations are consistently identified as the primary U.S. adversaries. These adversaries aim to erode our military dominance, inflict harm upon our nation and citizens, and use any means necessary to acquire the tools of our competitive advantage—for use by both civilians and the military.

Furthermore, nominally private companies in countries like China are used and required to assist with military modernization. Any nation deemed a U.S. adversary should have the status of “presumption of denial” with regard to export licenses. This determination means that any listed entity based in the adversary country or under the control of an entity based in a foreign adversary would be denied a license unless the entity can provide “clear and convincing evidence” that the exported products would not harm U.S. national security or is a matter of such importance that it surpasses national security concerns. An example of the latter would be medical technology used to relieve human suffering being shipped to Russia. This exception would be modeled on the standards for exceptions to sanctions and the rebuttable presumption employed in the Uyghur Forced Labor Prevention Act, which puts the onus on companies importing goods from Xinjiang to prove that their goods were not made with forced labor. Notably, this change would reduce the BIS workload because fewer Chinese firms would even bother applying for a license.

Second, the United States should create a “Rapid Export Controls Listing” for emerging and critical technologies. A key challenge to enacting a robust and purposeful export controls regime is keeping pace with the rate at which technology develops and matures. Sometimes, a technology will reach maturity and be exportable faster than policymakers can react. For such circumstances, there should be a “Rapid Export Controls Listing,” which creates preliminary license requirements for an entire segment of technology. At the same time, the export controls authorities seek to understand the technology better and enact meaningful export controls to protect the technology from reaching adversaries. For example, if there is a breakthrough in quantum computing at a Silicon Valley company, quantum computing should be listed under the Rapid Export Controls Listing until it is determined whether the technology at issue is critical to national security. Without this, the market and capital will move too quickly for authorities to adequately protect U.S. interests while also ensuring the free flow of goods, ideas, people, and capital.

Third, the U.S. government should consolidate its export control policy into a single office. The federal government currently maintains three distinct export control regimes—the Commerce Department-run Export Administration Regulations (EAR), the State Department-run International Traffic in Arms Regulations (ITAR), and the Treasury Department-run Foreign Assets Control Regulations (FACR). The Departments of Defense, Energy, and Justice, as well as other federal agencies, also have unique export control authorities. This broad range of authorities, missions, and departmental cultures creates disparities in the export controls regulatory regime in both execution and enforcement. These regulatory frameworks were created before the United States encountered a dedicated adversary that used all the instruments of national power to compete. To rectify this looming but unaddressed threat, Congress should consider combining all export control authorities into a single office within the Executive Office of the President or at a sub-office in the President’s National Economic Council. This office would be charged with taking a holistic approach to export control policy well-suited for an era of strategic competition. This consolidation would also cut costs because it would create efficiencies in export control enforcement.

Fourth, the United States should press its allies and partners, starting with its allies and partners in Europe and Asia, to align their export-controlled items and regimes to ours to maintain special status. One of the primary ways for the United States to maximize the effectiveness of its export controls is to ensure allies and partners adopt similar rules. For example, the recent escalation of export controls against the PRC semiconductor industry is far more effective because the Japanese and Dutch (countries with leading semiconductor equipment makers) have adopted similar restrictions. However, this agreement was conducted through ad hoc diplomacy and was much to the chagrin of Tokyo and The Hague. The United States should adopt a formalized approach to coordinate export controls with allies and partners by offering carrots to incentivize alignment. These carrots could include easing trade barriers, ITAR exemptions, or even inclusion with NTIB.

Finally, the United States should automatically include all subsidiaries of entities on the Entity List. Currently, when a company is added to the Entity List, the main export control blacklist, its subsidiaries are not necessarily added as well. This limits their impact. For example, the Commerce Department recently added PRC server and cloud computing company Inspur to the Entity List to cut off the flow of U.S. semiconductor technology. However, Inspur’s subsidiaries remain unlicensed, allowing its subsidiaries to stockpile components. Indeed, Inspur Electronic Information Industry Co., Inspur’s largest publicly traded subsidiary, seems to have avoided being added to the Entity List by changing its address from an address identical to its parent company to one merely in the same postal code. The Commerce Department should not have to play subsidiary whack-a-mole. When an entity is added to the Entity List, all of its subsidiaries should also be added

While a couple of these proposals might marginally increase costs, others would reduce them. For example, implementing a Presumption of Denial would reduce BIS’s workload, as most firms would forgo even submitting license applications to BIS, and consolidating export control policy into a single office would create efficiencies. Regardless of the appropriate budget for BIS, a blank check for more funding is clearly not the answer.

Export control authorities are failing to prevent our leading critical and dual-use technologies from being shipped directly or indirectly to our adversaries. The federal government must push Commerce to use its existing authority to modify policies and counter PRC activities. In other words, the department must think strategically about its existing tools rather than pumping air into a wobbly tire, hoping to fix the problem simply with more money.