Updated January 14, 2021
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
military-civil fusion program, which seeks to leverage MIC
Currently, a relatively small amount of U.S. trade is
2025 technological advancements for military development,
controlled and most controlled technology is approved for
including gains achieved through business ties in advanced
export under a license. In 2019, $500 million (0.5%) of
and dual-use technologies. Some experts contend that
U.S. exports to China required a BIS license. Of the $106.6
China’s approach blurs commercial and military
billion in total U.S exports to China, $104.7 billion required
distinctions and challenges a core tenet of the U.S. export
no license. While $1.7 billion in trade required a license,
control regime that assumes clear distinctions between
$1.2 billion was exempted from the license requirement.
military and civilian end use and end users. See CRS In
(See Figure 1.) BIS has removed licensing requirements for
Focus IF10964, “Made in China 2025” Industrial Policies:
much of U.S. technology trade to China over time as
Issues for Congress, by Karen M. Sutter.
technologies have become more widely available and in
response to business pressures to pursue market
U.S. Dual-Use Export Controls
opportunities in China. Although most items on the CCL
The Export Control Reform Act of 2018 (ECRA) (P.L. 115-
require a license for export to China, in practice, BIS has
232) restored legislative authority to the President for the
until recently waived license requirements for national
control of dual-use exports for national security and foreign
security-controlled items destined for civilian end-use in
policy reasons. The Bureau of Industry and Security (BIS)
sectors including aerospace, microelectronics, and
of the Department of Commerce (USDOC) administers
semiconductors. China’s technology policies often require
dual-use export controls and chairs an interagency process
joint ventures and partnerships in which the Chinese side
that includes the Departments of Defense (DOD), State, and
controls the technology and IP. Many Chinese partners for
Energy. BIS administers these controls through the Export
U.S. firms are government-controlled entities, increasing
https://crsreports.congress.gov
U.S. Export Control Reforms and China: Issues for Congress
the possibility that U.S. technology could be advancing
This requirement increases scrutiny of China’s joint
China’s government and military capabilities.
ventures and other collaboration. In response to these
reforms, the Administration has proposed to cancel the
Surveillance and Crime Controls
license exemption for civilian end-users for NS items and
ECRA defined dual-use explicitly to include law-
require more detail on ultimate end-users With the U.S.
enforcement applications. Crime control equipment requires
government decision to no longer treat Hong Kong
a license for export to China, but does not carry a
separately from China (E.O. 13936), BIS is imposing
presumption of denial. U.S. government and congressional
licensing requirements for U.S. exports to Hong Kong and
concern about China’s human rights abuses against Muslim
re-exports from Hong Kong to mainland China.
minorities in China’s Xinjiang region and other surveillance
have prompted tighter U.S. scrutiny of exports to China of
ECRA required the President to establish an interagency
surveillance and crime control and detection technologies.
process to establish new controls on emerging technologies
BIS Entity List
and critical technologies of concern—including through a
The Trump Administration has used the BIS Entity List
review of the CCL—and regulate their release to foreign
(EL) to restrict dual-use trade with China by placing certain
persons. ECRA stipulated that, at a minimum, exports of
Chinese state-tied firms of concern on the list. The EL
such technology to China would require a license. In
identifies persons involved, or with the potential to be
October 2018, BIS launched a rule-making process, but has
involved, in activities contrary to U.S. national security or
only issued a few determinations thus far to establish new
foreign policy interests. BIS typically requires a license for
controls over emerging technologies. BIS has drafted an
U.S. shipments of EAR items to those listed. BIS presumes
approach for foundational technologies that is under review.
denial for some parties, but can approve licenses on a case-
The absence of new technology controls arguably impedes
by-case basis. For example, BIS can still review and
not only ECRA implementation but also congressional
approve some licenses for exports to Huawei. BIS amended
reforms that expanded the authority of the Committee on
rules that restrict Huawei’s ability to acquire chips from any
Foreign Investment in the United States (CFIUS) to review
source using U.S.-controlled equipment. Some industry
Chinese and other foreign investments in critical and
groups have criticized unilateral controls, preferring to
emerging technologies below a traditional threshold of
advance controls multilaterally, to avoid advantaging
foreign control (Title XVII, P.L. 115-232). CFIUS can only
foreign competitors and fostering workarounds. In this
act against non-controlling foreign investments if the
instance, U.S. semiconductor design, software, and
technologies involved in the transaction are controlled.
equipment play a critical role in China’s development.
Since June 2020, DOD has identified 35 Chinese military
ECRA reformed the U.S. government’s decision-making
firms operating in the United States under reporting
process and strengthened national security perspectives. It
requirements established in the Strom Thurmond National
introduced a role for the Director of National Intelligence to
Defense Authorization Act for FY1999 (P.L. 105-261).
assess risks and required BIS to coordinate with DOD on
Since August 2020, BIS has added four of these firms to the
commodity classifications, which determine when a license
EL: Semiconductor Manufacturing International
is required. ECRA called for a review of the interagency
Corporation (SMIC), two state shipbuilding firms, and a
dispute resolution process, which some have criticized as
military construction firm. The presumption of denial for
allowing BIS to determine the outcome of appeals for
SMIC applies to semiconductor technology below 10
licensing decisions on China. ECRA also expanded
nanometers, excluding current U.S. trade from the
licensing authority to consider the effects of a particular
restriction. The extension of export licensing requirements
license on the U.S. industrial base, arguably broadening
to military end-users (MEU) in China, in addition to
national security considerations in licensing decisions.
military end-uses, led BIS in December 2020 to create a
Issues for Congress
MEU list that includes 58 PRC entities subject to a
presumption of denial for certain items but not for the full
Issues before Congress for possible oversight include:
CCL. Twenty-one of the DOD-listed firms are not on the
The status of ECRA implementation and whether the
EL and others are only partially listed. The MEU is non-
pace and scope of action and reforms are sufficient.
exhaustive, and omits most DOD-listed firms. This may
The global context of dual-use controls and practices by
cause some to question the comprehensiveness of the EL
key U.S. trading partners to determine if more
and the MEU list and BIS’ ability to differentiate military
multilateral controls and reforms should be pursued.
and civilian activities within Chinese corporate structures.
The status of the interagency process to create controls
ECRA-Reforms
in emerging and foundational technologies and related
ECRA called for tightening U.S. licensing practices. It
reforms in classification determinations and licensing
included requirements to reform foreign availability
decision-making, including for escalated cases.
determinations by focusing more on quality in ascertaining
Closer scrutiny of China-related licensing decisions,
to what extent a global alternative is comparable to a U.S.
justifications, waivers, and exceptions.
technology. Foreign availability determinations can justify
Potential enhanced reporting that is more frequent and
decisions on specific and general controls in an effort to
regularized (e.g., quarterly) to allow oversight of
avoid undermining U.S. industry competitiveness. ECRA
licensing reforms in practice, including licensing to
also clarified that U.S. controls apply to re-exports
parties on the EL and the DOD and MEU lists or tied to
regardless of the structure of the underlying transaction,
China’s military-civilian fusion programs more broadly.
including identification and consideration of any foreign
participant to a license with significant ownership interest.
https://crsreports.congress.gov
U.S. Export Control Reforms and China: Issues for Congress
Karen M. Sutter, Specialist in Asian Trade and Finance
Ian F. Fergusson, Specialist in International Trade and
IF11627
Finance
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