(Bloomberg) -- A key Republican is attacking the Commerce Department for undermining national security by prioritizing trade with China over tough enforcement of export controls aimed at containing its geopolitical rival.
House Foreign Affairs Committee Chairman Michael McCaul criticized the Commerce Department’s Bureau of Industry and Security in a 61-page report that detailed a sweeping range of shortcomings. It argued BIS has too readily approved the export of sensitive technologies to Chinese companies, prioritized US companies’ business interests and moved reluctantly to penalize companies found in violation of American regulations.
The Texas Republican said that BIS failed to take sufficient action against companies like Seagate Technology, Synopsys Inc. and Semiconductor Manufacturing International Corp. following alleged violations of US export controls. BIS has fined Seagate, is investigating Synopsys and hasn’t weighed in on whether SMIC broke any laws.
“If the United States is determined to outcompete China, the fossilized licensing bureaucracy that oversees export controls must break free from its post-Cold War, free trade mentality,” the report reads. “It must regain its raison d’etre in identifying and controlling technology and being the vanguard of strategic competition.”
In a statement, the department said BIS is constantly assessing export controls as a strategic national security tool and is reviewing McCaul’s report and recommendations.
BIS is instrumental to US efforts to curb China’s tech rise and prevent its military from accessing advanced technology. It issued export controls on artificial intelligence accelerators in October last year, ahead of OpenAI’s ChatGPT making those chips the most sought-after commodity in tech. This year, it escalated those measures to make it even harder for Chinese firms to obtain the hardware required to develop advanced AI models — a move that McCaul cheered.
Still, McCaul took aim at many aspects of BIS governance, including how the agency considers input from other national security bodies when approving licenses for the sale of controlled technology — and its high rates of approval of those sales to China and to blacklisted firms like SMIC and Huawei Technologies Co. Those two companies released a surprisingly advanced made-in-China mobile processor this year, manufactured at a technology level that sanctions were meant to keep out of China’s reach.
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The report calls for BIS to expand the types of technologies and companies it controls; adopt a clear, near-blanket denial policy for shipments of controlled technology to China; and renegotiate terms with the Asian country to allow better visibility into how licensed technology is being used.
McCaul also says that Congress should develop new standards for prosecuting export-control violators, mandate regular reports from BIS about its licensing decisions and allow BIS to charge fees on certain licenses to generate money for enforcement.
The House Foreign Affairs Committee is slated to debate several BIS-related bills next week, including measures to increase transparency and make intellectual property theft a basis for blacklisting.
Export controls, which restrict the shipment of certain advanced technologies to China and other countries of concern, have emerged as one of Washington’s favored tools to counter Beijing’s technological rise.
Controls take the form of both countrywide curbs, like those targeting semiconductor shipments to China, as well as individual company sanctions, like what the US has imposed against Huawei since 2019. Under Biden, BIS has added more than 300 Chinese entities to its trade-restriction list, formally known as the entity list, meaning that shipping to those businesses requires a US government license.
But Republicans like McCaul have pressured the Biden administration to take a harsher approach to the world’s second-largest economy, especially after Huawei’s August debut of the Mate 60 smartphone.
When asked about the Huawei phone during congressional testimony in October, Commerce Secretary Gina Raimondo said that BIS, which is investigating the phone’s processor, needs more resources to enforce its controls. She reiterated that request at the Reagan National Defense Forum in Simi Valley, California, on Saturday: “I have a $200 million budget,” she said. “That’s like the cost of a few fighter jets. Come on.”
But according to McCaul — plus China Select Committee Chairman Mike Gallagher and Republican Conference Chair Elise Stefanik — shortcomings at BIS are “not a matter of money, but political will.” Additional resources, they said in a Tuesday joint statement, are contingent on BIS “being reformed into a true national security agency.”
McCaul recommended several specific reforms in his report, including an overhaul of the licensing process to allow for more input from representatives of the departments of Defense, State and Energy, which sit on an approval committee chaired by BIS.
The report calls for a majority vote system, rather than BIS having the final say. While members who disagree with BIS can escalate license review to the assistant secretary, secretary or even presidential level, the report says, five-day turnaround requirements mean that few decisions are escalated in practice. That risks national-security concerns from other agencies being drowned out by BIS, which is part of a department also responsible for trade promotion, the report warns.
BIS also routinely fails to sanction large parts of China’s “military and surveillance ecosystem,” the report says, pointing to companies like AI firm SenseTime Group Inc., which managed to sidestep sanctions that restricted only one of its subsidiaries, and chipmaker Yangtze Memory Technologies Co., which BIS blacklisted in 2022 after more than a year of pressure from McCaul and other China hawks.
BIS should invest in databases that help identify companies with links to China’s military, McCaul recommended, and adopt a rule from the Treasury Department that sanctions companies that are at least 50% owned by blocked parties.
(Adds BIS comment in fifth paragraph)
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