Part I: USCC Hearing on Export Controls – Jeremy Pelter’s Insights

Earlier this week the U.S.-China Economic and Security Review Commission held a hearing entitled “U.S.-China Relations in 2021: Emerging Risks.” In a panel entitled Administration Views on U.S. Export ControlsJeremy Pelter, Acting Undersecretary and Deputy Undersecretary, Bureau of Industry and Security (BIS) discussed the growing use of BIS to curb the sale of sensitive technology to China. Mr. Pelter has been serving in a senior capacity at BIS for about 2 years and brings important skills to the role.

Mr. Pelter led his testimony by discussing key BIS accomplishments. Most notably, he highlighted that investigations by BIS into China-related transactions have resulted in 226 months of prison time, $1,858,000 in criminal fines, and $4,048,000 in civil penalties so far this year. That compares with 80 months of prison time and $60,000 in criminal fines doled out in 2020, Pelter told USCC.

Further, in 2021, BIS added 7 Chinese supercomputing entities to the Entity List due to concerns involving these organizations’ support for China’s military actors, its destabilizing military modernization efforts, and/or its weapons of mass destruction programs. BIS also penalized a US company some $500k for exporting semiconductor manufacturing-related items to PRC entities involved in the illicit procurement of commodities and technologies for unauthorized military end-use in China.

Mr. Pelter also addressed the critique that BIS has slow-walked the lists that are required for foundational and emerging technologies as part of the 2018 Export Control Reform Act (ECRA). Derek Scissors, a USCC commissioner, raised this issue asking, “How many years should Congress, having passed ECRA, wait on foundational technology for the sake of BIS finding the multilateral system sufficiently accommodated?” He added that “It‘s been three years and we’ve done almost nothing. Are we looking at three more years for action?”

Of 37 emerging technologies added to the Commerce Department’s export control list as a result of ECRA, 36 of them were also implemented under multilateral export control regimes, “which both further protects such technologies from being acquired from other supplier countries and enhances US national security”, Pelter said in prepared testimony.

Finally, Mr. Pelter highlighted BIS’ work to address China’s militarization. Specifically he noted that in 2021, BIS implemented new controls for items intended for military-intelligence end use or a military-intelligence end user in a certain set of countries.

China Tech Threat is closely following BIS, which has an abundance of tools and authority, recently minted from Congress, but it hasn’t acted to deem known Chinese military fabs YMTC and CXMT to the Entity List or the Military End User List, despite substantial evidence. This illustrates a key critique of the agency: it sometimes fails to act when security is at stake because companies’ can succeed to stop, slow, or change a BIS determination. Notably US firms like Applied Materials, KLA, and Lam Research want to sell their semiconductor manufacturing equipment to China, even though it could endanger Americans’ security and empowers an adversary with cutting-edge equipment.

BIS performs many important duties, but it is not being used to its full potential. China Tech Threat will continue to monitor the agency, particularly as President Biden’s nominee Alan Estevez, a career Department of Defense expert on secure supply chain strategy, is expected to take the helm at BIS.