Based on consistent comments by the US Congress, think tanks, and the US-China Economic and Security Review Commission, several members of Congress proposed legislation to shift jurisdiction for export controls from Commerce to the Defense Technology Security Administration.
On October 28, 2022, House Representatives Banks, Wittman, and Steube introduced HR 9241, the Prioritizing National Security in Export Controls Act of 2022. The same day, the draft bill was referred to the Committees of Foreign Affairs, Armed Services, and Appropriations for consideration. This proposed legislation marks the culmination of extensive discussions over the last several years regarding the ability of the Department of Commerce to manage export controls covering dual-use goods, software, and technology. Not surprisingly, the bill outlines findings that form the basis for the proposed transfer of jurisdiction away from Commerce, including the following:
- Commerce, through the Bureau of Industry and Security (BIS), has been unsuccessful in addressing the Export Control Reform Act of 2018 (ECRA) requirements to tighten restrictions on emerging and foundational technologies, especially to countries of concern.
- The agency remains unable to manage its conflicting missions of protecting national security and encouraging legitimate trade.
- BIS has taken a more relaxed approach to licensing even “particularly important technologies” as the agency has approved almost every authorization requested for exports to China.
- BIS has been ineffective in identifying and designating Chinese companies that meet the requirements for military end users—citing statistics that indicate that BIS has designated only 70 parties to the Entity List while there are “tens of thousands of Chinese entities” that may meet the criteria.
- BIS has not taken any action to restrict foundational technologies as mandated by ECRA.
With this backdrop, the draft bill proposes to transfer licensing and related authority delegated to Commerce under the ECRA and other authorities to the Defense Technology Security Administration (DTSA) within the Department of Defense. As part of that transfer, the bill:
- Arranges for 20% of the funding currently allocated to Commerce to be reallocated to DTSA for carrying out the new DTSA authorities
- Prohibits the transfer of any Senior Executive Service Commerce personnel to DTSA to fulfill the responsibilities under the legislation
It appears that the proposed bill seeks to address at least three foundational national security concerns:
- An apparent “imbalance of equities”—i.e., whether national security considerations are evaluated sufficiently when juxtaposed against economic factors. Based on the licensing statement made in the Whereas clause, the draft bill highlights that exports continue fairly uninterrupted to China regardless of findings made over the last several years regarding US-China tensions.
- Commerce is ineffectively fulfilling Congressional mandates included in ECRA—both in the designation of emerging and foundational technologies as well as in its licensing posture related to China.
- Commerce appears equally ineffective in managing threats posed by organizations or entities that pose national security concerns. In this vein, the Whereas clause cites the number of Chinese entities currently included on the Entity List as an indication of slow or weak responses to the threats posed.
The proposed legislation raises a number of ongoing concerns that can be viewed as impacting US national security and foreign policy objectives and interests. Assuming the bill progresses through Congress and makes it to President Biden’s desk—and it is unclear how likely this is given the upcoming election, the potential outcome, and a range of legislative priorities—the bill may address a host of issues that have plagued the Export Administration Regulations (EAR) since the 1970s, including the following:
- Commerce Control List (CCL) duplications and inefficiencies—i.e., the list is outdated the moment it is published because it is so granular
- CCL publication creates national security concerns—i.e., as currently written, the CCL provides a granular, technical roadmap to competitors and adversaries regarding technical areas of concern and sensitivity to the US government
- The process is not designed to provide the US government visibility into export activities, whether abroad or in the United States—i.e., the EAR and the CCL adopt a “catch and release” approach to management of what may be exported. This results in broad categories of items being included on the CCL, but little licensing that applies. Commerce, therefore, through its extensive preauthorized releases under License Exceptions, lacks visibility into what transfers are occurring, as parties are neither filing license applications nor submitting reports on post-exporting activity, unless required. When those licenses are required remains low as millions of exports occur on an annual basis and licensing volume is statistically insignificant in that context.
Should this bill become law, we expect a shift in the overall analytical framework that will apply to export licenses, as well as the manner in which products, technologies, and software are identified and subjected to licensing.