Worldwide: House Foreign Affairs Committee Chairman Releases Report On 90-Day Review Of BIS And Emphasizes Need To Overhaul And Modernize US Export Control Restrictions Targeting China

On December 7, 2023, the US House of Representatives' Foreign Affairs Committee Chairman, Michael McCaul (R-TX10), released a 90-Day Review Report ("the Report") on the US Department of Commerce's Bureau of Industry & Security ("BIS"), the US agency with lead regulatory authority for most commercial and dual-use exports and technology transfers. Chairman McCaul has been an outspoken advocate for increased oversight of BIS and for enhanced US export controls on China. McCaul's Report is principally focused on BIS's role in regulating the flow of sensitive goods and technology to China and concludes that a number of specific recommended measures are needed to help stem the "flow of American technology to [Chinese Communist Party]-controlled companies."¹

The Report acknowledges that recent administrations have exerted more control over BIS, but that Congressional action is necessary for the executive branch to "fully leverage the power of export controls to protect U.S. national security[.]"² The Report is not binding on the Administration but is part of a growing and bipartisan efforts calling for further enhancements in US export controls and the broader legal framework governing US national security regulation of trade. A summary of the key findings and recommendations set out in the Report follows.

Key Findings in the Report

After summarizing the history of export controls vis-à-vis China, the Report lays out its key findings which include the following:

• "BIS overwhelmingly approves the transfer of controlled technology and approves the transfer of controlled/uncontrolled technology to companies on the Entity List . . . BIS too often makes business and commerce the priority over national security." BIS also "approves virtually all license [requests] to export controlled technology to China, and many uncontrolled technologies are in fact critical to national security."³
• "BIS is required to request input from certain interagency officials on whether an item is controlled" under the export control regime, but the Report claims that "officials familiar with process" have said that "BIS officials routinely ignore the interagency recommendations[.]"⁴
• Because BIS "can unilaterally decide that a technology does not require a license because it is . . . not on the Commerce Control List[]or falls under a license exception or No License Required for a controlled item[,]" this means that even if "other agencies . . . have concerns about a technology being transferred," they "might never have an opportunity to provide input from their subject matter experts."⁵
• The Export Control Reform Act of 2018 ("ECRA") "empower[s] BIS to perform more rigorous oversight on export controls related to China. However, BIS has not taken action to create strong regulations pursuant to ECRA."⁶
• While all items on the Commerce Control List ("CCL") have "military or national security applications . . . licenses for the export of these items to China are either approved or fall under a license exception of 'No License Required' classification."⁷
• "In 2021, the value of U.S. licensed controlled exports to China was $1.5 billion[.]" This $1.5 billion accounted for only approximately one percent "of total U.S. export to China." The Report thus alleges that "[denying] . . . these exports entirely would hardly affect the overall U.S.-China trade relationship" or the United States' economy.⁸
• "In 2019, EAR99 [articles not on the CCL] was the second highest denied category for exports to China, and EAR 99 was the most denied category for exports to PRC companies on the Entity List" for the first quarter of 2022. This fact, combined with how "all emerging and foundational technologies that have not been designated on the CCL are by definition EAR99," demonstrates that "the EAR99 category does, in fact, include items that are sensitive and are certainly not uniformly low-tech."⁹
• BIS has a presumption of denial for the export of items subject to the EAR to companies or individuals listed on the Entity List. However, this presumption only applies to "select items." The Report cites as an example how "Huawei's licensing policy is a presumption of denial only for items capable of supporting 5G," while Semiconductor Manufacturing International Corporation ("SMIC") "was subject to a presumption of denial only for items uniquely required to produce semiconductors at or below 10 nanometers."¹⁰ Furthermore, the Report alleges that "license applications for companies on the Entity List do not appear to be overwhelmingly denied—in fact it appears the opposite is happening[.]" The Report cites to BIS's approval of "$60 billion worth of licenses for Huawei and $40 billion worth of licenses for SMIC" from November 2020 through April 2021, and its approval of "more than $23 billion worth of licenses" and denial of "only 8 percent of license applications for PRC companies on the Entity List" during the first quarter of 2022.¹¹

Recommendations in the Report

To address its key findings, the Chairman and the Committee set out numerous recommendations and highlight the following in their press release:¹²

• Export Controls and Military-Civil Fusion: The Chairman and the Committee recommend that US export control officials "assume any militarily useful item transferred to China will be diverted to its military." Accordingly, BIS should adopt a "policy of denial,"¹³ ensuring the denial of licenses in every instance, regarding the export of national security controlled items to China.¹⁴ The report also recommends that BIS adopt a standardized definition of a "Chinese miliary company," noting the Chairman and Committee's concern that US technology is fueling the CCP's civil-military fusion.¹⁵
• US Agency Input: The Chairman and the Committee recommend that the approval process for licensing be reformed to include input from other agencies, including the Departments of Defense, Energy, and State, and "national security bodies."¹⁶
• Prioritizing National Security: The Chairman and the Committee recommend US export controls prioritize national security to prevent US technologies' exportation to China.¹⁷
• BIS Staffing Resources: The Chairman and the Committee recommend BIS obtain additional funding through license application fees to hire regulators with skills, such as relevant language proficiencies."¹⁸
• Technology Review: The Chairman and the Committee recommend BIS review its approach towards technologies and how they are listed in export control lists.¹⁹

Footnotes

1. https://foreignaffairs.house.gov/press-release/mccaul-releases-90-day-review-report-of-commerce-departments-bis/ [hereinafter Press Release: 90-Day Review].

2. Id. at 6.

3. Press Release: 90-Day Review.

4. 90-Day Review Report at 18.

5. Id. at 19.

6. Press Release: 90-Day Review.

7. Id.

8. 90-Day Review Report at 20.

9. Id. at 21-22.

10. Id. at 23.

11. Id. at 24.

12. Press Release: 90-Day Review.

13. Id.; 90-Day Review Report at 24-25.

14. Press Release: 90-Day Review.

15 .Press Release: 90-Day Review.

16. Press Release: 90-Day Review; 90-Day Review Report at 19.

17. Press Release: 90-Day Review.

18. Press Release: 90-Day Review.

19. Press Release: 90-Day Review.