Bureau Of Industry And Security

During the past two decades, technology transfer from America and its allies has helped accelerate adversaries’ technological and weapons capabilities. This technology transfer on a massive scale has occurred because of adversaries’ exploitation of the U.S.’s open economy and education system through both commercial transactions and university and government research programs.

Examples include the People’s Republic of China’s dramatic leaps forward in semiconductor design and fabrication, battery energy storage, nuclear weapons capabilities, artificial intel- ligence, space and aerospace engineering, and hypersonic weapons deployment. At the same time, the U.S. has systematically failed to protect critical assets. Rather than promulgate policies to better prevent technology transfer, the U.S. government has either ignored the problem or, worse, from 2008 through 2016 instituted a government-wide “Export Control Reform” process to loosen the Export Administration Regulations (EAR) governing exports of dual-use items to facilitate technology transfer to adversaries, either directly or indirectly through third-country transfers.

Those reforms still present in the Department of Commerce’s EAR must be reversed. The United States needs stronger rules to protect technology transfer to adversaries while promoting technology integration and interoperability with allies. Further, U.S. export control regulations should be utilized to prevent theft of personally identifiable information and to encourage U.S. companies to shift production out of China and further diversify their supply chains to better advance U.S. national security interests.

For all the below recommendations, BIS needs to move unilaterally while it works with allies to implement complementary export control policies. Waiting to act until allies are ready to move in lockstep is not an option while America’s national security is at risk.

Emerging and Foundational Technologies. The Export Control Reform Act of 2018 (ECRA) gave BIS permanent statutory authority to regulate exports of dual-use items (goods, software, and technology). ECRA also mandated that BIS regulate exports of emerging and foundational technologies.

Although the scope of such technologies is vast, to date BIS has only controlled just over 40 of these technologies. This does not meet the clear statutory intent of Congress that ECRA be leveraged to ensure that the United States maintains a technological advantage in technologies bearing upon national security interests.

Currently, BIS self-identifies technologies that merit control under the EAR with minimal input from other federal agencies. This mechanism should be improved. BIS should create an open, transparent rulemaking process by which any industry participant, private entity, or branch of the government may, at any time, submit nominations for emerging/foundational technologies for control. Then, on a quarterly basis, BIS should make public such recommendations (while holding the identity of the submitter confidential) for public input, followed by an explanation about its ultimate decision to control or not control the items, its reasons, the level of controls applied (stringent or permissive), and the relevant Export Control Classification Number (ECCN) under the Commerce Control List. Commerce should also institute a mechanism whereby its decisions can be challenged, including on a confidential basis.

Licensing Procedures: Adjudication and Transparency. Currently, if the Departments of Defense, State, Commerce, and Energy disagree on an export license decision, the disagreement may be escalated to the Operating Commit- tee—and subsequently to the Advisory Committee on Export Policy led by BIS’s Assistant Secretary for Export Administration. The Assistant Secretary does not need to lead the dispute resolution, and this process should be revised by giving lead authority to BIS’s Under Secretary, who is better able to account for diverging views. Moreover, BIS’s authority to overrule other agency votes should be changed.

Each agency should have one equal vote and, if a licensing dispute remains unresolved, the final decision should be elevated to the National Security Advisor and the Secretaries of Defense, State, Commerce, and Energy.

Additionally, to improve congressional oversight of BIS’s license adjudication process, BIS should provide specific congressional committees with data from the Automated Export System on a quarterly basis. Electronic files should contain U.S. exporter by name; product description (e.g., harmonized system code and ECCN/U. S. Munitions List designation); end user and destination country; and when a license was required, whether the license was granted or denied. BIS cur- rently denies just 1.2 percent of export licenses. These data reporting requirements can help Congress better determine whether BIS is adequately protecting national security through appropriate use of export controls or whether additional direction from Congress is required.

Improve End-Use Checks. The integrity of the export control system may be validated only through adequate end-use checks. BIS must deny export licenses to countries that do not permit adequate end-use checks (e.g., China/Russia) by U.S. authorities. BIS should also strengthen the forensic audit capabilities of its

Export Enforcement officers through improved and frequent training so they are able to detect export-control violations. EAR Revisions. The U.S. Government needs a new export control moderniza- tion effort to tighten the EAR policies governing licenses to countries of concern, including China and Russia (specifically, revise and/or reverse the 2008 through 2016 policies).

When authoritarian governments explain what they plan to do, believe them unless hard evidence demonstrates otherwise. Case in point: China’s and Russia’s stated civil–military fusion policies demand central government command-and-control style systems in which every private entity serves the interests of the state and is forced to provide technology, services, capacity, and data to the central govern- ment and the military. Through this structure, commercial activities are routinely weaponized by authoritarian regimes that repeatedly identify the U.S. as an enemy. Accordingly, U.S. export control policies must be updated to reflect these realities and the associated threats to national security. Key priorities for EAR modernization for countries of concern should be:

• Eliminating the “specially designed” licensing loophole;
• Eliminating license exceptions;
• Broadening foreign direct product rules;
• Reducing the de minimis threshold from 25 percent to 10 percent—or 0 percent for critical technologies;
• Tightening the deemed export rules to prevent technology transfer to foreign nationals from countries of concern;
• Tightening the definition of “fundamental research” to address exploitation of the open U.S. university system by authoritarian governments through funding, students and researchers, and recruitment;
• Eliminating license exceptions for sharing technology with controlled entities/countries through standards-setting “activities” and bodies
• Improving regulations regarding published information for technology transfers.

Redesignating China and Russia to more highly prohibitive export licensing groups (country groups D or E);

The next few years will prove or disprove the assertion that the U.S. stands on the precipice of a Cold War with China. Many believe that a Cold War has already begun; if so, then strategic decoupling from China is necessary and, fundamentally, any exports of goods, software, and technology to countries of concern, whether directly or indirectly, should be prohibited or controlled in the absence of good cause (e.g., humanitarian and medical aid, food aid).

Entity List and Sanctions. There are currently just over 500 Chinese and over 500 Russian companies on the Department of Commerce’s Entity List, which reg- ulates exports of controlled and uncontrolled items to designated entities. Given China’s Civil–Military Fusion Strategy and Russia’s massive war efforts facili- tated by a broad range of the Russian economy, BIS must add more entities to the Entity List and apply a license review “policy of denial” that prohibits exports to these entities.

Entity List parties that violate export controls should be placed on the BIS Denied Persons List (and thereby lose export privileges) and, if the violations are significant enough, they should also be sanctioned by the Department of Treasury. Data Transfer and Apps Used for Surveillance. Department of Commerce leadership should work across government agencies to address privacy and data concerns arising out of “big tech” from national security and export control per- spectives. In particular, they should draft and implement an executive order (EO) based on the International Emergency Economic Powers Act, which expands export control authority beyond ECRA’s scope (goods, software, technology) to regulate and restrict exports of U.S. persons’ data to countries of concern.

The EO should establish a framework for the types of personal data subject to export controls and licensing policy by country, and the BIS should implement the EO through regulations.

BIS should additionally designate app providers (such as WeChat and Byte­Dance/TikTok) known for undermining U.S. national security through data collection, surveillance, and influence operations, to the Entity List. This listing would prevent app users from program updates, which would quickly make these apps non-operational in the United States.