Ian Cohen

Strengthen U.S. measures to slow China technology growth, including prohibitions on Chinese acquisitions of American technology, an Information Technology and Innovation Foundation virtual event was told last week. ITIF President Robert Atkinson said China’s “technology advancements come at the cost of European technology advancements and U.S. technology advancements.” European countries don't feel responsible for countering Chinese tech advancements, responded Daniel Gros, Centre for European Policy Studies director. Atkinson isn't “on the side of full decoupling,” and the U.S. should be working with allies to “push back against” China and its unfair trade practices, especially in the tech sector, the ITIF chief said Wednesday. Though the Trump administration has often opted not to pursue multilateral cooperation, Atkinson said the incoming Joe Biden administration will do more and “mend some of the fences that were unfortunately broken” with allies. The White House and China's embassy in Washington didn't comment Friday.

As China gains ground in technology, Congress should pursue more investment and restrictions to prevent China from accessing sensitive U.S. technologies, the U.S.-China Economic and Security Review Commission reported Tuesday. Commissioners said China’s access to U.S. technologies is helping it innovate and export surveillance tools and other advanced technologies globally. Commissioners expect trade restrictions to continue. “There is greater scrutiny and presumably greater action will come as a result of not only what Congress has done, but also the identification of numerous companies on the entity list” barring such transfers and maintained by the U.S. government, Commissioner Michael Wessel told an event hosted by the commission. The report said China is seeking to dominate the development of emerging technologies by securing leadership roles at international standards-setting bodies and “rewriting the norms by which they operate.” China hopes to exclude the U.S. and EU because it views standards as a “policy tool to advance its economic and geopolitical interests,” the report said. Experts told the commission this earlier this year (see 2006250050). The U.S. should create an interagency executive committee on international standards to form a coordinated response to Chinese actions at these bodies, said Commissioner James Talent, ex-Republican senator from Missouri. Talent said the committee would be modeled after the Committee on Foreign Investment in the U.S., with “high-level political appointees” from agencies with jurisdiction over standards setting, such as the Commerce Department. The White House didn't comment Wednesday on the recommendations in the annual report to Congress. China sees "the so-called commission" as having "always been ideologically biased against China," said a Foreign Affairs Ministry spokesperson Wednesday. "There is no factual basis for the vilification and smear of China in various reports it has fabricated."

The Commerce Department Bureau of Industry and Security's handling of emerging and foundational technologies drew rhetorical fire on a Center for Strategic and International Studies webinar. Experts said Friday the lengthy process is impeding Committee on Foreign Investment in the U.S. work. “It’s a hard list," said Wiley's Nova Daly of BIS work to come up with information on such technologies that need curbs when involving certain other countries. "Emerging technologies shift and change.” Putting controls on emerging and foundational technologies is "a requirement by law," the expert added. "It will help CFIUS do its job in terms of being able to make sure we don't lose those critical technologies.” The Foreign Investment Risk Review Modernization Act (FIRRMA) let CFIUS review transactions involving such tech. Because of some BIS delays in issuing those controls, CFIUS may not have a clear definition for what technologies to target, experts say. Making CFIUS partly dependent on BIS “was a really bad idea, and I think it needs to be re-looked,” said David Hanke, who helped draft FIRRMA and now is at Arent Fox. “There needs to be more agility, there needs to be more speed, the ability for [Treasury] to see something coming, and whether or not it's covered by BIS and the commerce control list, to be able to designate that in a quick manner.” Thomas Feddo, Treasury's CFIUS lead, cautioned critics from placing too much blame on BIS. “I'm not an export controls expert. I wish Commerce was here to defend themselves,” he said. “I think they might make some argument that they're making a great deal of progress.” Feddo said CFIUS doesn't necessarily need BIS to designate critical technologies for the committee to target transactions. BIS didn't comment Monday. A BIS spokesperson Friday pointed to its notice that day announcing six additional emerging technology controls. The agency hasn't issued foundational tech final controls (see 2008260013).

State Department final guidance expands on the initial definition of human rights due diligence and offers red flags and due diligence considerations for exporting surveillance technology. The department didn't significantly narrow its definition for surveillance items despite industry requests. It deleted a suggestion that companies incorporate a “kill switch” to remotely deactivate a device if a company is concerned it's being misused. Information Technology and Innovation Foundation comments last year warned a kill switch could be used for “censorship or other negative purposes.” Snooping tech can be misused if exported to “foreign government end-users or private end-users that have close relationships with governments that do not demonstrate respect for human rights,” State said Wednesday. The U.S. restricts shipments to China over the country’s mass surveillance and detention of ethnic minorities in the Xinjiang.

The Commerce Department Bureau of Industry and Security is preparing industry guidance for its August restrictions on Huawei (see 2008170043), said Deputy Assistant Secretary of Commerce-Export Administration Matt Borman. BIS will issue FAQs similar to its “fairly extensive” FAQs for new licensing restrictions for military-related exports, he told BIS' Material and Equipment Technical Advisory Committee meeting. He asked METAC members and industry to provide input on the pre-rule for foundational technologies (see 2008260013). The agency is looking for more candidates for emerging technology controls and wants to get back into the “process” of using industry comments to develop its own controls, Borman said Thursday.

The government's repository of regulatory actions and comment deadlines is experiencing delays publishing complex rules due to the COVID-19 pandemic and an “unusually” large number of documents submitted this year, said Katerina Horska, Office of the Federal Register legal affairs and policy director. The Federal Register typically publishes rules within three days of receiving items, but some “can take more than a month,” she emailed us Wednesday. “Given the unusually high volume of documents submitted since the beginning of this year, compounded with the number of emergency documents related to COVID-19 submitted over the past several months, lengthy and more complex documents are taking longer to publish.” The FTC is among communications agencies affected. Horska said FR staff processes documents “on a first-in, first-out system as much as possible,” but that process may be interrupted by emergency documents for the pandemic and the time it takes to work with agencies on edits. For “complex” documents that aren't designated as emergencies, “the backlog has only extended the usual processing time,” she noted. "The FTC has experienced delays of three to four weeks on rulemaking documents (proposed rules, final rules)," emailed a commission representative Thursday. "There have been no delays on notices." NTIA hasn't experienced slowdowns with its FR documents, most of which at that agency are routine and not of a regulatory nature, a rep said. The FCC declined to comment.

The Treasury Department will soon require declarations to the Committee on Foreign Investment in the U.S. when transactions involving critical technologies would normally be subject to an American export license. Its final rule makes some changes and clarifications, partly due to industry comments. It's effective Oct. 15, said Tuesday's Federal Register. Existing declaration requirements for critical tech apply to transactions “for which specific actions occurred” Feb. 13-Oct. 14.

China on “multiple occasions” has protested the Trump administration’s “unreasonable oppression of Chinese enterprises” on false national security grounds, said a Foreign Affairs Ministry spokesperson Monday when asked about reports that DOD is seeking to impose export restrictions on Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker. The administration “for some time” has been “abusing” its authority “to impose all sorts of restrictive measures on Chinese companies without producing any solid evidence” of wrongdoing, he said. “This is stark bullying. China firmly opposes that.” SMIC has been “fully compliant with all rules and laws” throughout its “long-term strategic partnerships with multiple U.S.-based semiconductor equipment suppliers,” said the company Saturday. SMIC “manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses,” it said. “We have no relationship with the Chinese military.” Any statements to the contrary are “false accusations,” it said. It’s open to “sincere and transparent” talks with the administration to resolve “potential misunderstandings,” it said. DOD didn’t comment Tuesday.

Last week's tightening of U.S. restrictions on Huawei (see 2008170043) took the semiconductor industry by surprise, and many in the sector worry about short-term supply chain disruptions due to the new measures, said industry officials and experts we canvassed. Many said they think the initial restrictions in May were sufficient, expressing frustration that the Commerce Department's Bureau of Industry and Security didn't seek industry feedback before imposing the new requirements. Though chipmakers are bracing for short-term complications, officials said they're also concerned about the long-term impacts of a U.S. national security policy that seems to continually target U.S. industry, even if indirectly. “We're now encouraging customers in China to move away from U.S. technology and semiconductors,” one semiconductor industry official said. “Why would they in the future use U.S. technology if they’ll be subject to all these rules?” The new rule expanded on a May policy that further restricted non-U.S. companies from selling chips using U.S. technology to Huawei. Officials said semiconductor supply chains will inevitably be impacted, but many remain unsure how broadly the impacts will be felt. The scope of the restrictions will depend on how strictly Commerce Department officials review license applications, which can range from case-by-case reviews to presumptions of denial. Much depends on whether Commerce "is serious about implementing this new rule literally,” said Alen Lin, a technology industry expert and analyst with Fitch Ratings. “If they do that, it does effectively cut off Huawei from any type of semiconductors.” Even though companies are still assessing the impact, industry officials expect many more chipmakers to be affected by the new restrictions than by the measures issued in May. Officials thought those requirements worked in targeting Huawei, which is why some said they were surprised when BIS issued more restrictions last week. “We were caught off guard,” one semiconductor industry official said. “We thought the original May rule was working. The objective seemed to have been achieved.” But Commerce Secretary Wilbur Ross said Huawei was working with third parties to evade the restrictions, necessitating the tougher measures. The US-China Business Council said it's “deeply concerned” about the risk of “overly broad” restrictions resulting from the rule. It could lead to “unintended consequences … that deliver a bonanza of new business to our competitors while doing nothing to improve national security,” USCBC spokesperson Doug Barry said. He said more communication between government and industry would help: “The Trump administration needs to listen carefully to the industry perspective and learn more about their business models.”

A U.S. intelligence official urged companies to avoid supply chains involving Huawei and said there's a strong push within the administration to bolster domestic production of 5G technologies. Constance Taube, National Counterintelligence and Security Center deputy director, said U.S. companies should approach Huawei and other Chinese state-controlled companies with a high degree of skepticism, saying their supply chains will ultimately benefit from more trusted actors. “It's fair to say that supply chain risk can probably never be entirely eliminated,” Taube said, speaking during a Wednesday webinar hosted by the Intelligence and National Security Alliance. “But supply chain risk must be managed.” Taube said Huawei is “subject to the whims of an authoritarian government,” saying its strong links to the Chinese military should dissuade U.S. companies from trading with it. Recent U.S. restrictions, such as increased license requirements on exports to Huawei and Chinese military end-users, might cause industry pain in the short term, Taube said, but the U.S. will ultimately be better off. China heavily criticized the U.S. restrictions. Taube said the COVID-19 pandemic highlighted the risks of doing business with China and stressed the importance of supply chain diversification. “What we have learned during the COVID crisis is that we are so deeply integrated in terms of supply chains on critical areas, that we may want to rethink and readjust to ensure that when we are in crisis periods, we are well positioned to get through the crisis without a reliance on partners that might not gain full trust.” Though Huawei is the world’s top telecommunication equipment maker, Taube said U.S. companies should turn to other sellers and buyers of 5G technology that are trusted. Taube also cautioned U.S. companies against doing business with other Chinese companies, saying they're subject to “different kinds of scrutiny and different requirements than companies that operate in environments that are democratically managed.” She said it's often unclear which companies are aiding the Chinese government. “Chinese government provides subsidies to their organizations that they feel are vital to their own national or economic security,” Taube said. “And I'm putting it bluntly: They don't necessarily always represent them as subsidies.”