8 Solutions for Mitigating the Threat of an Apple-YMTC Deal

Last week China Tech Threat and the Coalition for a Prosperous America released the report Silicon Sellout: How Apple’s Partnership with Chinese Military Chip Maker YMTC Threatens American National Security.

In our first blog post, we detailed Apple’s motivations for doing business with YMTC. Our second post outlined the risks of this partnership.

Policymakers inside the U.S. government have multiple options to mitigate the damage from a YMTC-Apple deal. Three of them are most important:

1) Restrict technology exports to and imports from YMTC (Best option)
The best, most effective protection of national security restricts U.S. technology exports to and imports from YMTC. This requires three steps: (a) adding YMTC to the Entity List; (b) creating a Foreign Direct Product Rule (FDPR) to prohibit the shipment of YMTC chips to Apple regardless of whether the resulting chips themselves are controlled; and (c) imposing import restrictions on Apple products using YMTC chips per Executive Order 13873 on Securing the Information and Communications Technology and Services Supply Chain.

2) Enforce the Foreign Direct Product Rule
Another means of protecting American national security from YMTC is to restrict it on the likely grounds that it violated the U.S. restrictions on Huawei in the Foreign Direct Product Rule (FDPR). In effect, the FDPR bans the transfers of any American technology to Huawei. If reports that YMTC supplying Huawei are true, YMTC would likely face penalties from the U.S. government.

3) Require Policy Assessment and Audit
Vital policy watchers like the U.S. China Security and Economic Review Commission could conduct an audit of BIS’ activities and effectiveness. Potential negative findings could give Congress momentum to hold hearings on BIS if it were failing to fulfill essential objectives.

Investigative pressure on BIS from Congress would also have the effect of sending a warning signal to American companies that increased scrutiny of BIS could translate into increased scrutiny of their own adherence to the American export control regime. BIS can also wield its own power of audit and investigation.

Perhaps in conjunction with the Central Intelligence Agency, BIS could also conduct an audit of China-based semiconductor supply chains to determine the extent to which U.S. export controls are being violated.

There are several additional options for mitigating the threat:

4) Investigate Forced Labor Prohibitions
If YMTC can be proven to use forced labor in its supply chain, it would warrant a ban on the import of YMTC products into the U.S.

5) Section 1260H
YMTC has extensive ties to the Chinese military. The Department of Defense could put the company on the list of Communist Chinese Military Companies (CCMCs), the Chinese entities transferring civilian technologies to the Chinese military.

6) FCC Covered List
Products using YMTC components could be denied equipment authorization in the U.S. under Federal Communication Commission (FCC) rules.

7) Executive Order 13873
The Secretary of Commerce could block the YMTC-Apple deal on national security grounds.

8) Outbound Investment Screening
Congress could enshrine something it has already contemplated, a so-called “reverse CFIUS authority,” to review US outbound investment to specific countries and entities of national security concern. This would strengthen the power to review and restrict American investments or partnerships with dubious entities like YMTC.

Concerned parties inside and outside of the U.S. government have no shortage of tools to tackle YMTC. They just have to use them.