Updated January 15, 2021
U.S. Export Control Reforms and China: Issues for Congress
Over the past two years, the U.S. government has
EAR sets licensing policy for specific destinations, end use,
reformed—through legislation, regulation, and licensing
and end user controls. On the CCL, national security (NS)
practices—the export control system that regulates dual-use
controlled items are on the Wassenaar Arrangement’s
exports (goods and technology that have both civilian and
multilateral control list. The EAR presumes denial for
military uses). These changes largely aim to address
license applications of NS items that would make a direct
concerns about China’s attempts to seek global civilian and
and significant contribution to China’s military. Separate
military leadership in advanced and emerging technologies
programs and statutes control nuclear materials and
through coordinated industrial policies. Some of these
technology and International Traffic in Arms Regulations
reforms have prompted U.S. business concerns because
(ITAR) defense articles and services. The United States has
they tighten technology trade with China, which is a
prohibited arms sales to China since 1989. Congress has
growing market for many firms. Other reforms—such as
mandated a policy of denial for exports of satellites and
setting emerging technology controls, expanding controls
space equipment to China. See CRS Report R41916, The
on existing technologies of concern, and reforming the
U.S. Export Control System and the Export Control Reform
licensing process—are ongoing. Congress has an important
Initiative, by Ian F. Fergusson and Paul K. Kerr.
role in overseeing the reforms it legislated and shaping the
Figure 1. U.S. Exports to China in 2019
evolving U.S. export control regime.
Export Authorizations by U.S. Regulatory Authority
China’s Industrial Policies
Tightened controls respond to China’s ambitious state-led
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,
Source: CRS with data from U.S. Customs and Border Protection.
information technology, new materials, robotics, and
Note: EAR99 items are subject to the EAR, but not currently
semiconductors. U.S. policy makers have expressed
control ed; ECCN, Export Control Classification Number, refers to
concern and sought to counter MIC 2025 because they say
items on the CCL. NLR - no license required.
it generally incentivizes technology transfer, licensing, and
U.S. Licensing Approach
joint venture requirements; state-directed technology and
Currently, a relatively small amount of U.S. trade is
intellectual property (IP) theft; and government-funded
controlled and most controlled technology is approved for
acquisitions of U.S. companies in strategic sectors. Many
export under a license. In 2019, $500 million (0.5%) of
Members of Congress are also concerned about China’s
U.S. exports to China required a BIS license. Of the $106.6
military-civil fusion program, which seeks to leverage MIC
billion in total U.S exports to China, $104.7 billion required
2025 technological advancements for military development,
no license. While $1.7 billion in trade required a license,
including gains achieved through business ties in advanced
$1.2 billion was exempted from the license requirement.
and dual-use technologies. Some experts contend that
(See Figure 1.) BIS has removed licensing requirements for
China’s approach blurs commercial and military
much of U.S. technology trade to China over time as
distinctions and challenges a core tenet of the U.S. export
technologies have become more widely available and in
control regime that assumes clear distinctions between
response to business pressures to pursue market
military and civilian end use and end users. See CRS In
opportunities in China. Although most items on the CCL
Focus IF10964, “Made in China 2025” Industrial Policies:
require a license for export to China, in practice, BIS has
Issues for Congress, by Karen M. Sutter.
until recently waived license requirements for national
U.S. Dual-Use Export Controls
security-controlled items destined for civilian end use in
The Export Control Reform Act of 2018 (ECRA) (P.L. 115-
sectors including aerospace, microelectronics, and
232) restored legislative authority to the President for the
semiconductors. China’s technology policies often require
control of dual-use exports for national security and foreign
joint ventures and partnerships in which the Chinese side
policy reasons. The Bureau of Industry and Security (BIS)
controls the technology and IP. Many Chinese partners for
of the Department of Commerce (USDOC) administers
U.S. firms are government-controlled entities, increasing
dual-use export controls and chairs an interagency process
the possibility that U.S. technology could be advancing
that includes the Departments of Defense (DOD), State, and
China’s government and military capabilities.
Energy. BIS administers these controls through the Export
Surveillance and Crime Controls
Administration Regulations (EAR, 15 C.F.R. 730 et seq.),
ECRA defined dual-use explicitly to include law-
which includes the Commerce Control List (CCL). The
enforcement applications. Crime control equipment requires
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U.S. Export Control Reforms and China: Issues for Congress
a license for export to China, but does not carry a
ventures and other collaboration. In response to these
presumption of denial. U.S. government and congressional
reforms, the Administration has proposed to cancel the
concern about China’s human rights abuses against Muslim
license exemption for civilian end users for NS items and
minorities in China’s Xinjiang region and other surveillance
require more detail on ultimate end users With the U.S.
have prompted tighter U.S. scrutiny of exports to China of
government decision to no longer treat Hong Kong
surveillance and crime control and detection technologies.
separately from China, BIS is imposing licensing conditions
BIS Entity List
for U.S. exports to Hong Kong and reexports from Hong
The Trump Administration has used the BIS Entity List
Kong to mainland China.
(EL) to restrict dual-use trade with China by placing certain
Chinese state-tied firms of concern on the list. The EL
ECRA required the President to establish an interagency
identifies persons involved, or with the potential to be
process to establish new controls on emerging technologies
involved, in activities contrary to U.S. national security or
and critical technologies of concern—including through a
foreign policy interests. BIS typically requires a license for
review of the CCL—and regulate their release to foreign
U.S. shipments of EAR items to those listed. BIS presumes
persons. ECRA stipulated that, at a minimum, exports of
denial for some parties, but can approve licenses on a case-
such technology to China would require a license. In
by-case basis. For example, BIS can still review and
October 2018, BIS launched a rulemaking process, but has
approve some licenses for exports to Huawei. BIS amended
only issued a few determinations thus far to establish new
rules that restrict Huawei’s ability to acquire chips from any
controls over emerging technologies. BIS has drafted an
source using U.S.-controlled equipment. Some industry
approach for foundational technologies that is under review.
groups have criticized unilateral controls, preferring to
The lack of new technology identification arguably impedes
advance controls multilaterally, to avoid advantaging
not only ECRA implementation but also congressional
foreign competitors and fostering workarounds. In this
reforms that expanded the authority of the Committee on
instance, U.S. semiconductor design, software, and
Foreign Investment in the United States (CFIUS) to review
equipment play a critical role in China’s development.
Chinese and other foreign investments in critical and
emerging technologies below a traditional threshold of
Since June 2020, DOD has identified 44 Chinese military
foreign control. CFIUS can only act against non-controlling
firms operating in the United States under reporting
foreign investments if the technologies involved in the
requirements established in the Strom Thurmond National
transaction are controlled. ECRA reformed the U.S.
Defense Authorization Act for FY1999 (P.L. 105-261).
government’s decisionmaking process and strengthened
Since August 2020, BIS has added five of these firms to the
national security perspectives. It introduced a role for the
EL: Semiconductor Manufacturing International
Director of National Intelligence to assess risks and
Corporation (SMIC), two state shipbuilding firms, a
required BIS to coordinate with DOD on commodity
military construction firm, and CNOOC. The presumptions
classifications, which determine when a license is required.
of denial for SMIC applies to semiconductor technology
ECRA called for a review of the interagency dispute
below 10 nanometers and for CNOOC appear to exclude
resolution process, which some have criticized as allowing
most aspects of the oil and gas business, effectively
BIS to determine the outcome of appeals for licensing
excluding current U.S. trade from the restriction. Chinese
decisions on China. ECRA also expanded licensing
semiconductor equipment firm AMEC was added to the
authority to consider the effects of a particular license on
DOD list in January 2021 but is a validated end user for
the U.S. industrial base, arguably broadening national
BIS, receiving preferential licensing treatment. The
security considerations in licensing decisions.
extension of export licensing requirements to military end
Issues for Congress
users (MEU) in China, in addition to military end uses, led
Issues before Congress for possible oversight include:
BIS in December 2020 to create a MEU list that includes 58
The status of ECRA implementation and whether the pace and
PRC entities subject to a presumption of denial for certain
scope of action and reforms are sufficient.
items but not for the full CCL. Twenty-one of the DOD-
The global context of dual-use controls and practices by key
listed firms are not on the EL and others are only partially
U.S. trading partners to determine if more multilateral controls
listed. The MEU is non-exhaustive, and omits most DOD-
and reforms should be pursued.
listed firms. This may cause some to question the breadth of
The status of the interagency process to create controls in
the EL and the MEU list and BIS’ ability to differentiate
emerging and foundational technologies and related reforms in
military and civilian activities within Chinese companies.
classification determinations and licensing decision-making,
ECRA Reforms
including for escalated cases.
ECRA called for tightening U.S. licensing practices. It
Closer scrutiny of China-related licensing decisions,
included requirements to reform foreign availability
justifications, waivers, and exceptions.
determinations by focusing more on quality in ascertaining
More frequent and regularized reporting to allow oversight of
to what extent a global alternative is comparable to a U.S.
licensing reforms in practice, including licensing to parties on
technology. Foreign availability determinations can justify
the EL, MEU, and the DOD lists or tied to China’s military-
decisions on specific and general controls in an effort to
civilian fusion programs.
avoid undermining U.S. industry competitiveness. ECRA
also clarified that U.S. controls apply to reexports
Ian F. Fergusson, Specialist in International Trade and
regardless of the structure of the underlying transaction,
Finance
including identification and consideration of any foreign
Karen M. Sutter, Specialist in Asian Trade and Finance
participant to a license with significant ownership interest.
This requirement increases scrutiny of China’s joint
IF11627
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U.S. Export Control Reforms and China: Issues for Congress
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https://crsreports.congress.gov | IF11627 · VERSION 4 · UPDATED