BIS Restrictions on Technologies to PRC

BIS Restrictions on technologies to PRC
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BIS restrictions on technologies to the PRC are being put in place to limit China’s ability to enhance its military capabilities, according to Thea D. Roxman Kendler in testimony to the Senate Banking, Housing, and Urban Affairs Committee.  Roxman is the Assistant Secretary of Commerce at the Bureau of Industry and Security (BIS) in charge of the development of export regulations.

Department of Commerce Export Controls

The BIS, under the authorization of the Department of Commerce, protects U.S. national security and foreign policy objectives by ensuring that technology developed in the United States is not made available to adversaries.  This is accomplished by identifying sensitive technologies, developing policies and strategies, and reviewing license applications for the export of these items under the Export Administration Regulations (EAR).

The BIS maintains controls of the shipping, transmitting, or transfer of items categorized as dual-use items.  These are items, software, and technology that have both civilian and military applications.  Dual-use export controls are applicable to:

  • Military and spacecraft items enumerated in the Commerce Control List (CCL)
  • Multilaterally controlled dual use items
  • Items with civil applications that will be exported to parties with intended military purposed end use
  • Items to be used in Weapons of Mass Destruction (WMD) programs
  • Exports to parties identified on BIS’s Entity List

The BIS continues to work with interagency partners in the Department of State, Department of Defense, and Department of Energy.  It also works with international partners such as the Global Export Control Coalition to enhance the effectiveness of these controls.

Effects of Enhanced Regulatory Activities on the Export Community

The BIS is applying increased scrutiny on license applications submitted by exporters sending items to the PRC.  This is due to the concern over the risk of technologies being diverted to parties other than those described in license applications.  

This has resulted in longer license processing time.  In 2022 license applications for the PRC took an average of 90 days to process, up from an average of 76 days for 2021.  In CY 2022, approximately 26 percent of license applications for exports to the PRC were returned without action or denied.  

Additionally, licensing applications have dropped, as fewer U.S. companies are applying to export sensitive technologies to China.  During 2022, the BIS witnessed a drop of applications for the PRC of over twenty-six percent.  This is due to the fact that businesses are becoming increasingly aware that license applications are likely to be denied and are looking for red flags when screening potential customers.

Specific Technologies Restricted for PRC Export

Semiconductor and Hypersonic Technologies

The BIS is using restricting very specific technologies so as to protect U.S, interests while not unduly imposing limitations on legitimate commercial trade.  As an example, in May of 2022 the agency placed controls on the following technologies:

    • Ultra-wide bandgap semiconductors used in semiconductors devices intended for use in severe conditions where high temperatures and voltages are present. 
    • ECAD software tools are used in the design process of integrated circuits and printed circuit boards for development of Gate-All-Around Field Effect Transistors (GAAFET).  
    • Pressure Gain Combustion used in the development of high-speed applications such as hypersonic air-breathing propulsion systems.

Artificial Intelligence

In October 2022, the BIS addressed advanced computing and semiconductor manufacturing to limit PRC access to integrated circuits and supercomputing capabilities necessary for quantum computing and artificial intelligence (AI).  AI presents particular concerns for U.S. national security as it can be used to improve the speed and effectiveness of military planning and logistics.  AI can also be used in conjunction with electronic warfare, signals intelligence, and radar technologies.  

Semiconductor Production Technology

BIS has also expanded controls on various entities tied to the PRC.  These parties are now subject to the Foreign Direct Product Entity List rule that restricts them from obtaining semiconductor devices and other items.  Additionally, controls have been placed on semiconductor manufacturing equipment required for high-end semiconductor production.

Biological Weapon Related Technologies

BIS restrictions on technologies to the PRC have also been placed on technologies that could be used for development of biological weapons.  Devices used for automated peptides synthesis were specifically targeted due to their capabilities of being used in the design of new or enhanced pathogens.

Other BIS Actions

Civil Space Industrial Base Assessment

The BIS, under the auspices of the Department of Commerce, and the Office of Technology Evaluation (OTE) are evaluating the U.S. Civil Space Industrial Base (CSIB) by means of the authority of Section 705 of the Defense Production Act and Executive Order 13603. The intent is to gather information that will provide guidance for the formation of governmental policies and proposals.

These policies are generated in an effort to protect and advance U.S., national security, foreign policy concerns, and economic base. The assessment was requested jointly by NASA, NOAA, The NOAA Office of Space Commerce (OSC), and the National Environmental Satellite, Data, and Information Services (NEDIS). Members of the commercial space sector that are chosen for involvement in this study will be required to participate. Although this assessment is a one-time event the possibility for further studies is possible.

Increased Enforcement Activities

The BIS under the direction of the Department of Commerce and other export enforcement agencies have been changing the scope and enforcement policies in recent years to address the increased complexities of the international political arena.  Export Administration Regulations (EAR) have continually been changing as more items are being added to the Commerce Control List (CCL).  

David Axelrod, Assistant Secretary for Export Enforcement, has stressed on numerous occasions that the BIS intends to hold U.S. companies and foreign subsidiaries accountable for export violations to protect U.S. foreign policy and national security interests.

Recent events in enforcement include a 300-million-dollar penalty imposed on Seagate Technology, LCC. These actions were taken for alleged export of hard drives to the PRC and include a five-year suspended Denial Order, which if activated, would terminate the organization’s ability to conduct export business.  

The Department of Commerce has initiated the Disruptive Technology Strike Force which will partner the BIS with the Department of Justice (DoJ) in the enforcement of the EAR.  In enacting this enforcement U.S. enforcement agencies will use use advanced data analytics, and enhanced intelligence to coordinate actions. They will be performing more training of field agents and furthering coordination between agencies in the Intelligence Community. 

A Call to Actions for Businesses Involved in Export

These BIS Restrictions on technologies to PRC shows the Department of Commerce’s commitment to continue ramping up enforcement of Export Administration Regulations.  This action is the latest in a series of steps that show how serious the U.S. government is in protection of dual use items.  Additionally, partners of the U.S. are coordinating efforts to enforce export control laws.  Aside from enforcement, penalties both civil and criminal are increasing.

Businesses must ensure that they do not violate export regulations by enacting viable Export Compliance Management Programs (ECMP).   These programs are a requirement for both the Export Administration Regulations and the International Traffic in Arms Regulations (ITAR).  While businesses involved with the ITAR have been proactive in compliance, many involved with the export of dual-use goods enumerated in the EAR have been less diligent.

Export Compliance Management Programs establish clearly defined policies and procedures for all departments within an organization.  They ensure that registration, item classifications, license applications, denied part screening, and security measures are taken that will prevent violation.  They also ensure that training, auditing, and record keeping are maintained according to requirements.

CVG Strategy Export Compliance Management Programs

Export Compliance is an important subject for businesses engaged in sales of items that are intended for international sales or could result in international sales.  Failure to comply with regulations can result in criminal prosecution including imprisonment and fines.  It can also result in civil penalties and disbarment from export activities. 

CVG Strategy can help you in understanding BIS Restrictions on technologies to PRC and help you in establishing a coherent and effective export compliance system.   We can perform export control classifications, perform audits, and educate your team.  Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.  Contact Us with you export regulation questions.

Kevin Gholston

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