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Congressional agency report: U.S. Commerce Department falls short in preventing sensitive technology from falling into Chinese military


An agency of the U.S. Congress said in a report on Tuesday (June 1) that the U.S. Commerce Department failed to do its part in protecting national security and preventing sensitive technology from falling into the hands of the Chinese military.

The Commerce Department has been slow to develop a list of sensitive technologies, the U.S.-China Economic and Security Review Commission (USCC) said in the issue brief titled "Unfinished Business: Export Controls and Foreign Investment Reform." These technologies should be carefully scrutinized before being exported to China.

In 2018, Congress tightened U.S. efforts in 2018 as Chinese entities sought to acquire sensitive U.S. technology and as the U.S. became more aware of the risks posed by China’s military-civilian integration strategy and industrial policies like “Made in China 2025,” the report noted. China’s export policies and procedures for reviewing foreign investments, passed the Foreign Investment Risk Review Modernization Act (FIRRMA) and the Export Control Reform Act (ECRA) to make it harder to export key technologies to adversaries such as China.

Defining a list of "emerging and foundational" technologies is a key part of implementing the Foreign Investment Risk Review Modernization Act and the Export Control Reform Act, the report said.

“Since the bills became law in 2018, there has been a significant delay in the development of the list and unclear procedures and methods. The list will support the development of new controls guided by the two bills, as well as the identification of existing control lists. Other national security risks not covered. In enacting the Export Control Reform Act, Congress entrusted the Commerce Department with its intent to strengthen U.S. export control laws, but the Commerce Department has so far failed to do so,” the report concluded.

The report argues that the lack of clear definitions of what constitutes emerging and foundational technologies hinders the ability of the Committee on Foreign Investment in the United States (CFIUS) to meet its responsibilities, while years of delays in developing these definitions could exacerbate national security risks.

Under the law, a range of technologies, defined as emerging and foundational technologies, would make certain transactions subject to filing, which would result in CFIUS scrutiny of high-risk transactions, the report said. In the absence of such a comprehensive list, CFIUS continues to operate without this additional guidance and may be limited in its ability to review transactions.

In a statement, Reuters reported that the Commerce Department did not directly respond to questions about the lack of such a list, but said it had issued four rules on emerging technology controls, with more coming soon.

The Commerce Department also said it has expanded end-military user rules and added some companies to its Entity List. The entity lists would restrict U.S. suppliers from selling to companies such as Huawei Technologies and Hangzhou Hikvision.

The Biden administration's Commerce Department on April 8 added seven Chinese supercomputer companies to its "entity list" for engaging in "acts that endanger the interests of U.S. national security or U.S. foreign policy." Under the Trump administration, the Commerce Department has included dozens of Chinese companies on the Entity List, including Huawei and SMIC.

The report mentions some of the Commerce Department's actions, including proposals to regulate gene-editing software that would make it easier to develop biological weapons, but the rule has not yet been finalized. The Commerce Department also issued interim rules for geospatial imagery involving artificial intelligence neural networks.

Advanced surveillance technology has received some attention as it is used to detain Uyghur Muslims in Xinjiang, the report said, including export controls to promote human rights, but the Commerce Department still has no export controls for newer types of advanced surveillance software .

The report argues that cross-agency coordination and leveraging expertise from the private sector and academia can help develop this list. It mentioned that the Ministry of Commerce has strengthened the role of relevant expert advisory bodies and solicited public comments on the preparation of a list of emerging and foundational technologies, but it has not been clear how, if and when expertise in these technologies will be included.

It also said that coordinating national security risk assessments among other agencies could also lead to faster completion of the list, and encouraged agencies to fill in the gaps in comprehensive protection technology.

The report raises questions about whether the Commerce Department's inspector general should investigate the more than two-year delay in developing the list and whether the power to enforce export controls should be handed over to another government department.

The U.S. Congress established the U.S.-China Economic and Security Review Commission in 2000. According to the legislation, the agency's mission is to observe and study the impact of U.S.-China bilateral economic and trade relations on U.S. national security and submit an annual report to Congress on this. The agency also makes recommendations to Congress on legislative and executive measures, as appropriate.