On December 7, 2023, Chairman Michael McCaul of the Foreign Affairs Committee in the House of Representatives released a 90-Day Review Report (the “Report”) of the US Bureau of Industry and Security (“BIS”), the agency tasked with administering the Export Administration Regulations (15 C.F.R Parts 730–774, the “EAR”) under the US Commerce Department. Chairman McCaul previously highlighted his plans for greater oversight of BIS at an October 2022 Atlantic Council event during which he stated that he would implement a 90-day review of BIS if he became the next chairman. Largely focused on, and advocating a more aggressive, US export control policy towards China, the Report identifies specific issues and recommendations to improve the functioning of BIS and sharpen US export control policy. The key issues and recommendations set out in the Report are summarized below, as well as in a press release from the Foreign Affairs Committee.
The Report does not impose any binding requirements on BIS, the Biden Administration, or Congress or propose legislation to address the problems it identifies. Nevertheless, the below recommendations may be indicative of potential actions that Congress or BIS may take to address increasing bipartisan pressure to strengthen US export controls. Many of the same points made in the Report have been made in recent years by Chairman McCaul and other Republican legislators — see here, here, here, here, and here.
Issues and Recommendations in the Report
- Issue: The Operating Committee—the first body to review licenses in instances where the US Departments of Commerce, Defense, Energy, and State disagree on a given application—is minimizing the equities of national security agencies in adjudicating licenses, particularly through the strict, short timelines imposed upon the Operating Committee in a manner that undermines interagency input.
Recommendation: The Operating Committee should use a majority vote system, especially for exports to China.
- Issue: BIS is not following its own regulations (the EAR), as described in 15 C.F.R. § 750.3, in seeking input from relevant interagency officials when reviewing commodity classifications. The Report alleges that BIS officials routinely ignore the recommendations of interagency officials.
Recommendation: BIS should be mandated to refer license applications to other appropriate agencies, including the Departments of Defense, Energy, and State, for commodities, software, and technology subject to the EAR that implicate other agencies’ interests.
- Issue: BIS appears to be approving a large number of items on the Commerce Control List (the “CCL”) for national security reasons for export to China, with the Report alleging that BIS was approving 95% of such license applications as of August 2021.
Recommendation: BIS should impose a policy of denial for all exports of national security-controlled items to China.
- Issue: Sensitive, militarily useful items remain designated EAR99 (e.g., the Report references certain semiconductor manufacturing equipment) and therefore are not subject to any licensing requirement for transfers to China.
Recommendation: BIS must seriously review EAR99 technologies and control or re-control items on the CCL.
- Issue: BIS is using a licensing regime that allows companies on the Entity List to access large swaths of US technology either without a license or under a presumption of denial.
Recommendation: BIS should apply a “presumption of denial” for all items subject to the EAR for companies on the Entity List.
- Issue: Without a clear definition and criteria for the application of the “presumption of denial” standard of license application review, each department (i.e., the Commerce, Defense, Energy, and State Departments) possesses a subjective standard of determination by which Congress is unable to hold BIS to account.
Recommendation: “Presumption of denial” should be defined to mean a license, no matter the item, will be denied in essentially every instance. BIS should state this clearly in its regulations; otherwise Congress should write it into law.
- Issue The Entity List is not reflecting the scope of military end users or entities that threaten or have the potential to threaten US national security or foreign policy interests.
Recommendation: The entire corporate network of listed companies should be incorporated in each Entity List designation; at the very least, BIS should adopt the “50 Percent Rule” (often applied to sanctions regimes administrated by the US Treasury Department’s Office of Foreign Assets Control) when listing a company. (Under the 50 Percent Rule, an entity that is 50% or more owned by Specially Designated Nationals (“SDNs”) is also considered to be an SDN.)
- Issue: The executive branch is not using a standard definition of a Chinese military company or Chinese military end user.
Recommendation: BIS should adopt the definition provided in Section 1260H of the National Defense Authorization Act for fiscal year 2021, which includes a definition for “military-civil fusion contributor” intended to cover private Chinese companies supporting the Chinese military and would be broader than the military end user definition in EAR § 744.21(g).
- Issue: The multilateral regime for dual-use export controls is incapable of achieving meaningful control on technology transfers to China. Since the plenary decisions of the Wassenaar Arrangement are taken by consensus by its 42 member countries, a single country (e.g., Russia) has veto power.
Recommendation: The United States must pursue bilateral and plurilateral agreements. Ideally, these agreements should result in adopting the same legal and regulatory requirements within their respective countries to control specific emerging or foundational technology. In addition to semiconductors, the US government must, at a minimum, pursue agreements on artificial intelligence, quantum, and biotechnology in the near-term along with US allies.
- Issue: The “knowing” and “willfulness” standard for criminal prosecutions for violations of the EAR, as set by Section 110(b) of the Export Control Reform Act of 2018 (“ECRA”) appears nearly insurmountable for prosecutors and enforcement agents. (It is not clear what the basis for this position is given that the US Department of Justice regularly secures criminal convictions of parties that violate US export controls.)
Recommendations: Congress should develop a new standard for criminal prosecutions to support enforcement actions that deter future evasion or violations.
- Issue: The end use check agreement governing BIS end use checks within China severely limits BIS’s ability to conduct checks on its own terms and schedules. The US-China end use check agreement permits only one full-time export control officer to operate within China, and in-country end use checks require the consent of the Chinese government.
Recommendation: The Commerce Department must renegotiate its end use agreement with China or impose greater restrictions on exports to China considering BIS’s inability to conduct meaningful end use checks.
- Issue: BIS argues it is under resourced to carry out its mission. For example, the Report alleges that at one point BIS only employed one individual capable of operating the Federal Register system necessary to update the EAR.
Recommendation: Amend ECRA to allow BIS to charge fees on certain licenses to better support enforcement efforts.
- Issue: Through a September 2022 interim rule, BIS has allowed Entity List parties to access to potentially sensitive technologies through standard-setting bodies.
Recommendation: BIS or Congress must update the definition for standard-setting organizations to close this loophole.
