August 21, 2020
U.S. Export Control Reforms and China: Issues for Congress
Over the past two years, the U.S. government has
Administration Regulations (EAR, 15 C.F.R. 730 et seq),
reformed—through legislation, regulation, and licensing
which includes the Commerce Control List (CCL). The
practices—the export control system that regulates dual-use
EAR sets licensing policy for specific destinations, end-use,
exports (goods and technology that have both civilian and
and end-user controls. On the CCL, national security (NS)
military uses). These changes largely aim to address
controlled items are on the Wassenaar Arrangement’s
concerns about China’s attempts to seek global civilian and
multilateral control list. The EAR presumes denial for
military leadership in advanced and emerging technologies
license applications of NS items that would make a direct
through coordinated industrial policies. Some of these
and significant contribution to China’s military. Separate
reforms have prompted U.S. business concerns because
programs and statutes control nuclear materials and
they tighten technology trade with China, which is a
technology and International Traffic in Arms Regulations
growing market for many firms. Other reforms—such as
(ITAR) defense articles and services. The United States has
setting emerging technology controls, expanding controls
prohibited arms sales to China since 1989. Congress has
on existing technologies of concern, and reforming the
mandated a policy of denial for exports of satellites and
licensing process—are ongoing. Congress has an important
space equipment to China. See CRS Report R41916, The
role in overseeing the reforms it legislated and shaping the
U.S. Export Control System and the Export Control Reform
evolving U.S. export control regime.
Initiative, by Ian F. Fergusson and Paul K. Kerr.
China’s Industrial Policies
Figure 1. U.S. Exports to China in 2019
Tightened controls respond to China’s ambitious state-led
Export Authorizations by U.S. Regulatory Authority
industrial efforts, such as its Made in China 2025 (MIC
2025), that intend to create competitive advantages for
China in strategic industries, in part by obtaining
technology and expertise from U.S. and foreign firms. MIC
2025 aims to make China a leader in emerging technologies
important to future commercial, government, and military
systems and capabilities. Priority sectors include advanced
manufacturing, aerospace, artificial intelligence,
information technology, new materials, robotics, and
semiconductors. U.S. policy makers have expressed
concern and sought to counter MIC 2025 because they say
Source: CRS with data from U.S. Customs and Border Protection
it generally incentivizes technology transfer, licensing, and
Note: EAR99 items are subject to the EAR, but not currently
joint venture requirements; state-directed technology and
control ed; ECCN, Export Control Classification Number, refers to
intellectual property (IP) theft; and government-funded
items on the CCL. NLR - no license required
acquisitions of U.S. companies in strategic sectors. Many
U.S. Licensing Approach
Members of Congress are also concerned about China’s
Currently, a relatively small amount of U.S. trade is
military-civil fusion program, which seeks to leverage MIC
controlled and most controlled technology is approved for
2025 technological advancements for military development,
export under a license. In 2019, $500 million (0.5%) of
including gains achieved through business ties in advanced
U.S. exports to China required a BIS license. Of the $106.6
and dual-use technologies. Some experts contend that
China’s
billion in total U.S exports, $104.7 billion required no
approach blurs commercial and military
license. While $1.7 billion in trade required a license, $1.2
distinctions and challenges a core tenet of the U.S. export
billion was exempted from the license requirement. (See
control regime that assumes clear distinctions between
Figure 1.) BIS has removed licensing requirements for
military and civilian end use and end users. See CRS In
much of U.S. technology trade to China over time as
Focus IF10964, “Made in China 2025” Industrial Policies:
technologies have become more widely available and in
Issues for Congress, by Karen M. Sutter.
response to business pressures to pursue market
U.S. Dual-Use Export Controls
opportunities in China. Although most items on the CCL
require a license for export to China, in practice, BIS has
The Export Control Reform Act of 2018 (ECRA) (P.L. 115-
until recently waived license requirements for national
232) restored legislative authority to the President for the
security-controlled items destined for civilian end-use in
control of dual-use exports for national security and foreign
sectors including aerospace, microelectronics, and
policy reasons. The Bureau of Industry and Security (BIS)
semiconductors. China’s technology policies often require
of the Department of Commerce (USDOC) administers
joint ventures and partnerships in which the Chinese side
dual-use export controls and chairs an interagency process
controls the technology and IP. Many Chinese partners for
that includes the Departments of Defense (DOD), State, and
U.S. firms are government-controlled entities, increasing
Energy. BIS administers these controls through the Export
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U.S. Export Control Reforms and China: Issues for Congress
the possibility that U.S. technology could be advancing
Kong to mainland China. With the U.S. government
China’s government and military capabilities.
decision to no longer treat Hong Kong separately from
China (E.O. 13936), BIS also may tighten U.S. exports to
Surveillance and Crime Controls
Hong Kong.
ECRA defined dual-use explicitly to include law-
enforcement applications. Crime control equipment requires
ECRA also required the President to establish an
a license for export to China, but does not carry a
interagency process to establish new controls on emerging
presumption of denial. U.S. government and congressional
technologies and other critical technologies of concern—
concern about China’s human rights abuses against Muslim
including through a review of the CCL—and regulate their
minorities in China’s Xinjiang region and other surveillance
release to foreign persons. ECRA stipulated that, at a
have prompted tighter U.S. scrutiny of exports to China of
minimum, exports of such technology to China would
surveillance and crime control and detection technologies.
require a license. In October 2018, BIS launched a rule-
making process, but has only issued a few determinations
BIS Entity List
thus far to establish new controls over emerging
The Trump Administration has used the BIS Entity List
technologies. BIS has drafted an approach for foundational
(EL) to restrict dual-use trade with China by placing several
technologies that is under review. The absence of new
Chinese state-tied technology firms of concern (e.g., ZTE,
technology controls arguably impedes not only ECRA
Huawei, and Fujian Jinhua) on the list. The EL identifies
implementation but also congressional reforms that
persons involved, or with the potential to be involved, in
expanded the authority of the Committee on Foreign
activities contrary to U.S. national security or foreign policy
Investment in the United States (CFIUS) to review Chinese
interests. BIS typically requires a license for U.S. shipments
and other foreign investments in critical and emerging
of EAR items to those listed. BIS presumes denial for some
technologies below a traditional threshold of foreign control
parties, but still can approve licenses on a case-by-case
(Title XVII, P.L. 115-232). CFIUS can only act against
basis. BIS has allowed a temporary general license
noncontrolling foreign investments if the technologies
authorizing some transactions with Huawei that it is now
involved in the transaction are controlled.
rescinding. BIS has also amended rules that restrict
Huawei’s ability to acquire chips from any source using
ECRA reformed the U.S. government’s decision-making
U.S.-controlled equipment. Some industry groups have
process and strengthened national security perspectives. It
criticized unilateral controls, preferring to advance controls
introduced a role for the Director of National Intelligence to
multilaterally, to avoid advantaging foreign competitors and
assess risks and required BIS to coordinate with DOD on
fostering workarounds. In this instance, however, U.S.
commodity classifications, which determine when a license
semiconductor design, software, and equipment play a
is required. ECRA called for a review of the interagency
critical role in China’s development. In June 2020, DOD
dispute resolution process, which some have criticized as
released a list of 20 Chinese military firms operating in the
allowing BIS to determine the outcome of appeals for
United States under reporting requirements established in
licensing decisions on China. ECRA also expanded
the Strom Thurmond National Defense Authorization Act
licensing authority to consider the effects of a particular
for FY1999 (P.L. 105-261). Ten of the listed firms are not
license on the U.S. industrial base, arguably broadening
on the EL and others are only partially listed, raising
national security considerations in licensing decisions.
questions about the EL’s comprehensiveness and its ability
to differentiate military and civilian end-use within the
Issues for Congress
same Chinese corporate structure. The recent extension of
Several issues are before Congress for possible oversight
an export licensing requirement to military end-users in
and examination, including:
China, in addition to military end-uses, arguably heightens
The status of ECRA implementation and areas of
the need for a comprehensive EL.
potential concern and whether the pace and scope of
ECRA-Reforms
action and reforms are sufficient.
The global context of dual-use controls and practices by
ECRA called for tightening U.S. licensing practices. It
key U.S. trading partners to determine if more
included requirements to reform foreign availability
multilateral controls and reforms should be pursued.
determinations by focusing more on quality in ascertaining
The status of the interagency process to create controls
to what extent a global alternative is comparable to a U.S.
in emerging and foundational technologies and related
technology. Foreign availability determinations can justify
reforms in classification determinations and licensing
decisions on specific and general controls in an effort to
decision-making, including for escalated cases.
avoid undermining U.S. industry competitiveness. ECRA
Closer scrutiny of China-related licensing decisions,
also clarified that U.S. controls apply to re-exports
justifications, waivers, and exceptions.
regardless of the structure of the underlying transaction,
Potential enhanced reporting that is more frequent and
including identification and consideration of any foreign
regularized (e.g., quarterly) to provide more detail on
participant to a license with significant ownership interest.
licensing reforms in practice including information on
This requirement increases scrutiny of China’s joint
ultimate end-users and firms tied to China’s military-
ventures and other collaboration. In response to these
civilian fusion programs and pilot zones.
reforms, the Administration has proposed to cancel the
license exemption for civilian end-users for NS items,
Ian F. Fergusson, Specialist in International Trade and
require more detail on ultimate end-users, and require a
Finance
second U.S. license for technology re-exports from Hong
Karen M. Sutter, Specialist in Asian Trade and Finance
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U.S. Export Control Reforms and China: Issues for Congress
IF11627
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