Ian Cohen

The Commerce Department's Bureau of Industry and Security could consider ways to speed up its emerging and foundational technology control effort, a congressional commission on China was told Wednesday. Acting BIS Undersecretary Jeremy Pelter acknowledged criticism the agency is moving too slowly implementing the 2018 Export Control Reform Act and defended the work BIS has done and said the agency doesn’t plan to change course. “I take your criticism to heart,” Pelter told the U.S.-China Economic and Security Review Commission (USCESRC), which published a report in June saying the Commerce Department “failed” to carry out its export control responsibilities over emerging and foundational technologies. If a technology is widely available, “and we're simply doing a unilateral control,” China will get the technology from elsewhere, “our industry will be harmed, and we will have gained nothing,” he said. How many years should Congress need to wait for action on foundational technology, asked Commissioner Derek Scissors of the American Enterprise Institute. Commissioner Michael Wessel, appointed to the USCESRC by House Speaker Nancy Pelosi, D-Calif., said BIS’ multilateral strategy has been “exceptionally slow.” Pelter pointed to the new EU-U.S. Trade and Technology Council, which is holding its first export control working group this month. "For too long, the U.S. position on digital trade has been to promote continued laissez faire," said Sen. Mark Warner, D-Va., in a statement Thursday as the council was launched. That's "even as we saw the downsides of this approach to technology governance," he added.

The Commerce Department's Bureau of Industry and Security is “very busy” working to implement semiconductor supply chain recommendations from the White House in June stemming from President Joe Biden’s Feb. 24 executive order on the chips shortage and other supply-chain issues, said Sahar Hafeez, a senior BIS adviser. The agency is studying closer federal collaboration with industry on semiconductor demand and supply and is reviewing how export controls and investment restrictions might exacerbate supply-chain problems, Hafeez told an Information Systems Technical Advisory Committee meeting Wednesday. Perhaps the most immediate priority for Commerce is pushing Congress to pass and fund the Chips Act, she said. The bill, which would provide funding and incentives for U.S. semiconductor R&D and manufacturing, has been funded by the Senate but hasn't been approved in the House (see 2107220005). “We're laser focused on the House, and we encourage you all to help us get that across the finish line,” Hafeez told the ISTAC. She said Commerce is “cautiously optimistic” the House will approve funding. Though the global chip shortage has persisted for months, it still remains unclear to BIS which chips are most severely affected, Hafeez said. She said “mature node chips” are being “severely impacted,” but the shortage is affecting newer nodes as well, she said: “We've been trying to get more clarity. I don't know if it exists, That's an issue that we're grappling with -- the lack of transparency.”

The Commerce Department is unsure if Wassenaar Arrangement stakeholders can meet in person this year, after the 2020 plenary was canceled, potentially creating more uncertainty about the group’s next batch of multilateral export control proposals, said Bureau of Industry and Security's Hillary Hess. Wassenaar is “putting in a lot of effort” on holding physical meetings, but the process has been “very difficult,” she told a Regulations and Procedures Technical Advisory Committee meeting. “I've heard that they will try to figure out a way to do it virtually or hybrid or something,” said Hess, BIS regulatory policy director: “I have not heard that they were successful in figuring out” in-person meetings. Tuesday's virtual meeting also heard tech industry concerns (see 2106090054).

Commerce Department Bureau of Industry and Security rules and procedures raise technology concerns, the department's Regulations and Procedures Technical Advisory Committee meeting (see 2106090049) was told. The industry is especially concerned by BIS rules on military uses, said Tina Termei, an Amazon lawyer speaking on behalf of CompTIA members. The rules impose “unreasonable” obligations on companies that may not have the expertise and resources to do necessary due diligence, Termei said Tuesday. “Unlike the United States government that has these resources, that's not what these companies do,” Termei said: “They're not investigators, they are not experts on the complicated world of” military intelligence. She urged BIS to consider making its military end-user list “exhaustive”: “This way, everybody will have the same rule book, which means people and companies can actually follow it. They'll have the list, and they can comply.” Termei said CompTIA members complain about lengthy licensing times. Average license processing in FY 2020 was 23 days, a BIS spokesperson told us. "Each license application is evaluated on its own merits and decisions are made on the merits." Officials didn't comment Wednesday on the other tech concerns.

The Commerce Department is focused on gaining support for President Joe Biden’s jobs plan, which includes increased funding for the semiconductor industry, Secretary Gina Raimondo said: The administration also is reviewing China policies. “We are right now undergoing a whole-of-government review,” Raimondo told Commerce’s Advisory Committee on Supply Chain Competitiveness. “It's fair to say there may be changes, but it's early for me to say what the changes might be.” Regardless of policy changes, she said Thursday, Commerce will look to hold China accountable for unfair trade actions. Legislators and others are watching how that affects Chinese telecom gearmakers (see 2104080006).

Commerce Secretary Gina Raimondo suggested her agency has no plans to remove Huawei from the Entity List and said Wednesday she will aggressively use trade tools to compete with China. But she also said she will prioritize efforts to invest in U.S. technology industries over imposing more export restrictions. “My broad view is what we do on offense is more important than what we do on defense,” Raimondo told reporters. “To compete in the long run with China, we need to rebuild America in all of the ways we're talking about.” She said U.S. offensive tools include investments in domestic semiconductor manufacturing. But defensive tools may be necessary to address China’s “uncompetitive, coercive and underhanded” actions, she said, and Commerce will continue to maintain restrictions against Huawei. “A lot of people have said, is Huawei going to stay on the Entity List?” she said. “I have no reason to believe that they won't.” Commerce added seven Chinese supercomputing entities to the Entity List early Thursday, allegedly for activities that are contrary to U.S. “national security or foreign policy interests.” They were: Tianjin Phytium Information Technology, Shanghai High-Performance IC Design Center, Sunway Microelectronics, and Chinese national supercomputing centers in Jinan, Shenzhen, Wuxi and Zhengzhou. “These entities are involved with building supercomputers used by China’s military actors,” said Commerce. The Chinese Foreign Affairs Ministry didn’t comment.

The Commerce Department Bureau of Industry and Security plans to issue another set of emerging technology controls this year and hopes to propose them for multilateral control in 2022, said Matt Borman, BIS acting assistant secretary-export administration. Borman said he hopes BIS can fall into a more predictable “sequence” for its emerging and foundational technology control effort and move past last year’s pandemic disruptions. The “ideal scenario” is to seek comment “during the course of this year, so that we can tee them up early next year” for a Wassenaar Arrangement meeting, Borman told the department's Emerging Technology Technical Advisory Committee meeting. “That's the sequencing I'd like to get us into.” BIS plans to share the proposals with advisory committees “relatively soon,” he said Friday. “We want to make sure that the regime discussions are as informed as possible."

The U.S. should form a strong global technology alliance and promote better interagency cooperation on technology policies to more effectively compete with China, former government officials said. They said this must start with the White House and Congress embracing industrial policy and pouring resources into protecting critical tech. “There are people in the tech world who understand that China is catching up,” said WestExec Advisors co-founder Michele Flournoy at a Center for a New American Security event Tuesday. “If we don't do something different, they're going to surpass us." CNAS national security expert Loren DeJonge Schulman said the Biden administration recognizes the importance of international standards setting bodies for critical tech, where the U.S. has ceded leadership roles to China. Although the U.S. tried to become more involved in those bodies, including issuing a rule last year that let companies more easily participate in bodies in which Huawei is a member, Schulman wants more action. Form a stronger technology partnership with like-minded allies, advised Sue Gordon, Pallas Advisors senior adviser. The Biden administration can learn from some mistakes made by the Trump administration, including its failure to form a strong coalition against Huawei, she said. “Huawei is a great example where it was really hard for our partners to catch up to where we wanted to go once they had already made a bunch of decisions on their own.” The White House and China's embassy didn’t comment Wednesday.

An Atlanta-based Bitcoin service provider was fined more than $500,000 for allowing people in sanctioned countries to use its services. BitPay committed more than 2,000 sanctions violations when it allowed people in Cuba, North Korea, Iran, Sudan, Syria and the Crimea region of Ukraine to use digital currency on the platform to transact with U.S. parties, the Office of Foreign Assets Control said Thursday. OFAC said BitPay allowed $129,000 worth of digital currency transactions that should have been blocked. OFAC said the case highlights the compliance risks faced by digital currency services. Those companies “are responsible for ensuring that they do not engage in unauthorized transactions,” OFAC said, saying they should develop a tailored compliance program that screens “all available information,” including IP addresses and location data. "During the transaction period, and since, BitPay has steadily enhanced its already rigorous compliance program," the company said. "Our commitment to compliance has been continuous and unwavering."

The Commerce Department Bureau of Industry and Security is experiencing significant delays to its Huawei licensing decisions due to telework amid the pandemic, BIS' Eileen Albanese said. Communication between agencies has been hampered, leading to lengthy license adjudications and a backlog of applications, Albanese, director of the Office of National Security and Technology Transfer Controls, told a Friday Massachusetts Export Center event. “COVID-19 really did have a significant impact on Huawei licenses, more so than any other group of licenses.” Kevin Wolf, an export controls lawyer with Akin Gump, said his clients have applications that have been “pending for months and months and months,” some to 2019. He said clients got a “flurry” of Huawei license denials. “It seemed as if the floodgates opened up" Thursday, he said. A BIS spokesperson said the agency is continuing to work through the applications. Huawei didn't comment Tuesday.