Ian Cohen

U.S.-China technology competition and Trump administration restrictions on Huawei likely dashed prospects of a phase two trade deal, China experts said. Robert Dohner, of Atlantic Council and former Treasury Department official, called the deal “dead,” adding the U.S. approach to protecting technology damaged future negotiations. “I think the technology policies, particularly the pursuit of Huawei, have made it impossible now to go back and negotiate with China on technology policy or domestic industrial policy,” Dohner told a council webinar Tuesday. Leland Miller, a Chinese economy expert with the Atlantic Council, said the administration needs to reassess how it wants to approach Huawei and needs to better follow through on threats. Companies are trying to determine what they can “get away with,” said Dexter Roberts, also of the council. “All the restrictions in the world are going to be very, very hard to implement as long as Huawei is providing fast, cheap chips and cheap telecom gear that countries around the world want.” The White House declined to comment Thursday. The office of U.S. Trade Representative didn't comment.

The Committee on Foreign Investment in the U.S. is increasing scrutiny on transactions involving sensitive technologies, trade lawyers said. Companies are facing more CFIUS-related delays and a heavier involvement by political appointees as the Trump administration seeks to put more pressure on China, the lawyers said. Transactions by companies that operate in industries that don’t seem to affect national security are attracting CFIUS attention, said Dechert's Mark Thierfelder, on Friday's webinar hosted by the law firm. “Deals that we might have thought about as being simple from an approval process in prior years seem to be getting an increasingly harder look.” In areas that may be national security risks, companies should expect even more CFIUS scrutiny, especially with critical tech, said Neal Wolin, CEO of Brunswick Group and former CFIUS chair. This is partly due to the administration’s increased focus on tech competition with China and a heightened White House involvement in foreign direct investment matters, Wolin said. “The willingness of the White House to be engaged in and involved in these kinds of conversations … has increased,” he said. “There's a lot of focus and a lot of politics around these kinds of deals, so inevitably the work of the committee gets shaped by that broader political context.” The Treasury Department and the White House didn't comment Monday.

The Commerce Department Bureau of Industry and Security is preparing to issue additional export controls over emerging technologies and is finalizing a long-awaited advance NPRM for foundational technologies, BIS officials said. The upcoming rules will include controls agreed to at the Australia Group, a multilateral export control body, said Matt Borman, Commerce deputy assistant secretary-export administration. Speaking during the first meeting of the Emerging Technology Technical Advisory Committee Tuesday, he said BIS is preparing controls on six emerging technologies agreed to during the 2019 Wassenaar Arrangement. The ANPRM, part of a broader effort that has proved “intellectually challenging” for Commerce officials, is in the “last stages of review within the bureau,” said Rich Ashooh, Commerce-assistant secretary for export administration. Commerce officials expected to release a series of emerging technology controls last year but had delays (see 2004010034). The agency’s first ETTAC meeting was delayed twice as security clearances for members took longer than expected (see 2002250041).

Treasury Secretary Steven Mnuchin worked closely with U.S. Trade Representative Robert Lighthizer on forced technology transfers in China, and Huawei is discussed on an interagency basis, Mnuchin told the Senate Banking Committee Tuesday. He responded to Sen. Ben Sasse, R-Neb., asking why the government hasn't placed sanctions on Huawei. Sasse acknowledged that “Lighthizer has been a little bit of a pit bull,” saying “this is an increasingly bipartisan issue that Republicans and Democrats believe it's important to hold these faux private companies to account.” For other news in this issue on Huawei, see 2005200039.

China promised countermeasures to respond to increased U.S. restrictions against Huawei, slamming “abuse of export controls” and violation of international trade laws. License requirements on shipments to Huawei for foreign-made chips containing U.S. content (see 2005180018) are a “serious threat” to China’s chip industry, China’s Commerce Ministry said Sunday, per an unofficial translation. State media said China is considering placing U.S. companies on its unreliable entity list. The rule will “complicate” operations for communication equipment manufacturers and could lead to drops in revenue and R&D efforts, emailed a U.S.-China Business Council spokesperson. “More transactions will require export licenses, adding additional expense and delays with no guarantee that licenses will be granted.” Chinese companies “of course would very much like to ... indigenize all aspects of the supply chain,” said Keith Krach, State Department undersecretary-economic growth, to reporters last week. “But at least for the moment … U.S. companies still have a very significant comparative advantage when it comes to the largely software-facilitated design tools that are involved in producing the very best chips.” National Foreign Trade Council Vice President Richard Sawaya said the rule falls short of industry’s worst fears, and members “realize that national security-related technology controls are warranted.” He said industry would have appreciated more transparency as the rules were being considered and a comment period. “That’s really what industry is asking for,” Sawaya told us: “Due process.” Monday, Huawei criticized the increased restrictions, saying they “ignore the concerns of many companies and industry associations.” It said the rule will “undermine” the global semiconductor industry. “The U.S. is leveraging its own technological strengths to crush companies outside its own borders,” the company said. Huawei’s rotating chairman, Guo Ping, said he's “confident” the company will work around the curbs. “Our experience over the past year has made us confident that we can find a solution, that our customers and suppliers can continue to stand with us and minimize the impact of this discriminatory rule,” he said. Sen. Ben Sasse, R-Neb., called the rule “long overdue.” The U.S. “needs to strangle Huawei,” Sasse said. “Modern wars are fought with semiconductors, and we were letting Huawei use our American designs.”

The U.S. needs a clearer strategy for leading 5G and artificial intelligence standards setting to counter China’s growing tech leadership, technology experts said. The Trump administration should define a strategy and work with allies to set global standards, the experts said, or risk forcing its companies out of global markets because of restrictions placed on China. “We're behind. I can't say it enough to U.S. legislators,” said Nicol Turner Lee, a Brookings Institution fellow, speaking during a Friday webinar hosted by the think tank. “That should be disconcerting to companies who will be told by the U.S. that they cannot do business [in China] even though there are other European companies that can.” At the center of the issue is China’s dominant presence at global standards setting bodies for emerging tech, said Sheena Chestnut Greitens, nonresident Brookings fellow. International bodies are seeing more rules written by Chinese companies, she said. “About half of the standards that [China has] proposed have been adopted by the U.N. as the global standard,” Greitens said, noting those standards include facial recognition technology. U.S. restrictions on Huawei blocked the U.S. from participating in bodies in which the company is a member, although the Commerce Department drafted a rule to address the ability of U.S. companies to participate in 5G bodies (see 2004290066). The White House declined to comment Monday, referring us to the State Department Bureau of Economic and Business Affairs. The bureau wouldn't provide an on-the-record comment.

The Commerce Department’s unclear rollout of an export control on geospatial imagery software is causing industry confusion and could lead to broad, unintended impacts on exports of certain artificial intelligence, industry representatives said in interviews last week. “For these companies who now have to supply software without AI, it's like supplying a human body without blood,” said Sanjay Kumar, CEO of the World Geospatial Industry Council. “It will make it impossible for some companies to continue doing business how they were before.” The interim final rule released in January was criticized by industry for unclear definitions that made it difficult for some in the AI field to determine whether the rule applies to them. “That lack of definitions is creating, at best, confusion,” said Jennifer O’Bryan, chair of Commerce’s Sensors and Instrumentation Technical Advisory Committee. Some terms in the rule, such as deep convolutional neural networks, rotational normalization and rotational patterns, “desperately need some sort of definition to make sure that they don't intrude on certain purely commercial technology spaces that use similar AI software,” said O’Bryan, government affairs director for SPIE, an international society for optics and photonics. Stakeholders wish Commerce had issued the rule for public comment before it took effect, saying industry expertise is critical for export controls that involve complex technologies. “To put out an interim rule or a draft rule and have it go into effect immediately before there's any period of public comment just seems incongruous with the principles that we grow up with in this democracy,” said Barbara Ryan, World Geospatial Industry Council policy adviser. The department's Bureau of Industry and Security declined comment.

Technology and semiconductor trade groups objected last week to increased export restrictions under consideration by the Trump administration, saying the controls could lead to uncertainty. BSA|The Software Alliance, CompTIA, the Information Technology Industry Council, Semiconductor Industry Association, Software & Information Industry Association, U.S. Council for International Business and others wrote Commerce Secretary Wilbur Ross, asking the administration to seek input before finalizing the rule. If approved by President Donald Trump, the measures could block Huawei and other Chinese companies from buying U.S. semiconductors. “Initially, there was some talk about a generic change in de minimis” threshold, said Richard Sawaya, vice president of the National Foreign Trade Council, one of nine groups that signed the letter to Ross. “I think the effort within the interagency process is to narrow that and tailor it as much as possible so that it is Huawei-specific,” Sawaya said in an interview. The Commerce Department didn't comment Friday.

The Trump administration should do more to restrict sales of emerging technologies to China, lawmakers said in recent interviews. The administration hasn't issued regulations under authority granted by Congress 19 months ago. Senators commended the administration for increasing foreign direct investment restrictions and going further than previous administrations in confronting China’s unfair trade practices. They will continue pushing for tighter restrictions.

Huawei’s chairman said the U.S. may face retaliation from China if it follows through on plans to increase restrictions on foreign exports to the Chinese telecom giant (see 2002190002). Chairman Eric Xu said at a Tuesday news conference China may respond with restrictions on U.S. companies operating there. “I think the Chinese government will not just stand by, watching Huawei be slaughtered,” Xu said. “I believe the Chinese government may also take some countermeasures.”