Exclusive Interview: Potential Commerce Under Secretary Nominee Analyzes Vital Bureau

China has a clear mission to achieve global military supremacy and is prepared to build, buy, siphon, or steal the latest and greatest tech to get there. When we’re dealing with China, it’s not business as usual, and we need to be vigilant to make sure sensitive technologies in particular are directed to their intended uses and don’t fall into rogue military hands. As the U.S. looks at policy levers to protect our leadership and interests, a little known bureau within the Department of Commerce called the Bureau of Industry and Security (BIS) is on the front lines for strategic trade control.

In recent weeks, the Wall Street Journal and Financial Times have speculated about who will lead the 450-person bureau, which can now impose restrictions for human rights reasons. Beyond that, as the bureau gains prominence, so too are questions about its role in policy, if it’s housed in the right department, if it has the resources it needs to address today’s challenges, and more.

China Tech Threat has been examining these questions and the #FutureofBIS and had the opportunity to talk with Kevin Wolf, one of the rumored front runners for the BIS post. Wolf is a veteran of the bureau and developed the sanctions on ZTE. He is currently an attorney at Akin Gump where he advises clients on regulations related to export administration, arms control, trade, foreign investment, and foreign asset control. As the Wall Street Journal notes, he is “highly regarded for his encyclopedic knowledge of export regulations.” Here’s a primer from him on BIS and export controls.

Disclaimer from Kevin Wolf: I am answering the questions asked to help educate people about the Bureau of Industry and Security (BIS) and the Export Administration Regulations (EAR). In answering, I am not suggesting that I am a candidate for BIS Under Secretary or know who will be nominated.

China Tech Threat (CTT): In general terms, would you explain the job of BIS? How has the bureau evolved in recent years?

Kevin Wolf (KW): BIS’s primary mission is to administer controls on the export of commercial items that have military or WMD applications (“dual-use” items) and less sensitive military items in order to protect U.S. national security and foreign policy interests. This involves running a complex interagency licensing system where companies can receive authorization to ship such items if the relevant agencies agree that there is not a material risk that they will be diverted to a bad end use, end user, or destination. It also involves running an enforcement office to investigate and help with the prosecution of those who do not abide by the licensing obligations. BIS’s mission statement is here, and the statement of policy governing the export control system BIS administers is in the Export Control Reform Act of 2018 at 50 U.S.C. § 4811.

CTT: BIS operates within the Department of Commerce, which has a stated mission of “creating conditions for economic growth and opportunity.” At the same time, BIS’s mission is to ensure effective export control. How do you think BIS can manage the sometimes conflicting imperatives of economic growth against protecting national security interests? 

KW: This is a red herring question because Commerce’s mission is also to ensure that its bureaus accomplish their missions and statutory obligations. BIS is in Commerce because it is an industry-facing licensing and regulatory bureau with expertise that does not exist in other agencies. Indeed, in the mid-1980’s BIS (then “BXA”) was separated out from under Commerce’s International Trade Administration (ITA) to avoid a conflict between ITA’s trade promotion mission and BIS’s export control mission. Moreover, BIS does not have unilateral authority to make licensing decisions or regulatory changes. It administers an interagency consensus and cooperation process involving the departments of Defense, State, and Energy.  BIS, for example, cannot amend the regulations without the agreement of the agencies. Finally, I have always rejected the suggestion that BIS should “balance” national security with economic objectives. If an item warrants control for national security reasons, then it warrants control. Period. The economic benefits for U.S. industry come from BIS’s efficient administration of the licensing system and the regulations to avoid collateral consequences.

CTT: In your opinion, what did the Trump Administration get right at BIS and what improvements could be made moving forward?

KW: The Trump Administration and Congress deserve kudos for getting passed the Export Control Reform Act of 2018 (ECRA) and the Foreign Investment Risk Review & Modernization Act (FIRRMA). These two new laws significantly expanded the export control and now related foreign direct investment authorities to respond to technology acquisition efforts of concern largely from China. On the flip side, several of the regulatory actions to implement the new authorities were handled in ways that created significant industry uncertainty about what the overall policies were and what the rules meant. Also, many of the actions were handled unilaterally when their effectiveness could have been enhanced if there had been an effort to get our allies to implement similar controls.

CTT: Many experts believe that China is the best resourced and most determined adversary with respect to obtaining strategic technology for use in national security. Do you agree and if so, why?

KW: Yes, although it is certainly not the only country of concern with respect to such issues.   Indeed, that was the primary policy motive behind the expanded authorities in ECRA and FIRRMA. For more, see testimony on “Confronting Threats from China: Assessing Controls on Technology and Investment” and “Perspectives on Reform of the CFIUS Review Process.”

CTT: You have said you believe that BIS and other agencies with similar responsibilities need more staff and, eventually, should be combined. Would you elaborate?

KW: Yes, on the resource question, both the policy and enforcement staff in BIS and the other agencies need to be substantially increased. The modern technologies and related policy issues that create national security and foreign policy issues are significantly more complicated than when the modern export control system was set up at the end of the Cold War. Thus, more technical and other experts are needed to understand and address the new issues. Also, increased enforcement is good for its own sake, of course, to advance the national security and foreign policy objectives of the controls. It also helps level the playing field for the companies that do the hard work necessary to comply. For more, see testimony on “Modernizing Export Controls: Protecting Cutting-Edge Technology and U.S. National Security.”

With respect to the combination question, my view is that dual-use and defense trade export control agencies should be combined and their regulations harmonized to reduce overall regulatory complexity and to increase licensing efficiency. The mission of both agencies is the same – to regulate exports to advance national security and foreign policy objectives. There is no need for two different license applications, different regulations, different definitions, or different agencies to do the same thing. Of course, some items are more sensitive than others and warrant stricter controls, but I’m referring only to the process by which the controls are administered, not whether any particular item should be more or less controlled. For more, see testimony on “Export Control Reform: Challenges for Small Businesses.”

CTT: What information is necessary about a foreign company in order to employ export controls?

KW: A core part of the licensing process is to determine whether the foreign party to a controlled export is reliable and whether it would divert the item to be shipped to unauthorized end uses, end users, or destinations. Some of this information comes from the parties to the application, but the rest comes from a review of licensing and enforcement histories, intelligence, country policies, and inputs from the technical experts in the items at issue. BIS, working with its interagency partners, also has the authority to impose end user controls on foreign parties, such as through Entity List actions, if there is reason to believe that the party is engaged in acts contrary to U.S. national security or foreign policy reasons. Such actions largely cut the foreign party off from receiving U.S.-origin items regardless of their sensitivity, which can be used to create leverage over the foreign party to stop engaging in such acts.  

CTT: What responsibility do American corporate leaders have to decline sales to foreign companies that may have an intention of using the American-made products against U.S. strategic interests?

KW: Many companies have internal corporate social responsibility standards that state they will not engage in certain conduct even when otherwise legal. The U.S. government often provides guidance to inform such policies. Such standards, however, are voluntary and it is thus ultimately up to the U.S. government to define through law and regulation which actions by U.S. companies are prohibited because they are contrary to U.S. strategic interests. The U.S. government is better able to make such determinations generally and a law, rather than voluntary standards, is better able to level the playing field for all companies. The Export Administration Regulations (EAR) are a significant tool to implement such determinations to the extent they can be addressed through controlling the movement of commodities, software, and technologies. To the extent they cannot, then other regulatory tools are needed, such as economic sanctions.