U.S.-China Commission Calls for Single Export License Scheme

Congress should consider creating a single export licensing system to strengthen export controls on China, the US-China Economic and Security Review Commission said in its annual report to Congress released last week.

The Administration has taken steps to impose a tough export control regime on China in order to prevent Beijing from accessing US technology in order to gain an edge over the United States in emerging technologies that have potential national security concerns.

In its report, the commission urged Congress to consider a number of steps to make it more difficult for China to evade US controls.

First, the report recommends that Congress hold hearings to evaluate the potential for establishing a single export licensing system. Such a system would integrate the Commerce Control List, the dual-use technology licensing system managed by the Commerce Department’s Bureau of Industry and Security and the US Munitions List, the armaments licensing system managed by the State Department’s Directorate of Defense Trade Controls.

In evaluating a single licensing system, the commission said Congress should consider:

• Whether a single licensing system could improve the enforcement of export controls targeting specific end users, particularly those in jurisdictions with poor transparency into corporate ownership and commercial affiliations, such as China;
• The potential commercial impact of combining the licensing systems, including how to reduce the compliance burden on industry without compromising national security;
•  Which technologies to include in a combined system and how to integrate appropriate technical expertise to scope evolving controls on dual-use emerging and foundational technologies;
• Where such a system should be housed within the US government and how to establish effective coordination between different agency stakeholders and
• How to provide the Department of State and other relevant agencies with appropriate information and authorities to advocate for multilateral export controls that advance US security, foreign policy and economic competitiveness.

The report also suggests that Congress provide the Committee on Foreign Investment in the United States the authority to review investments in US companies that could support foreign acquisition of capabilities to attain technological self-sufficiency or otherwise impair the economic competitiveness of the United States, including:

• Investments in technology areas prioritized in potential adversaries’ industrial policies, such as China’s 14th Five-Year Plan, Made in China 2025, and other related initiatives;
• Investments in US firms that have received funding from the Defense, Commerce, Energy and other US government funding for projects critical to national security and competitiveness and
• Other investments that may provide privileged access to expertise, business networks and production methods critical to maintaining US economic and technological competitiveness.

The report also proposes that Congress establish a risk matrix framework to evaluate the national security threat posed by electronic products imported from China. To eliminate or mitigate risks identified in the threat matrix evaluation, Congress should consider the use of all trade tools, including tariffs.

In addition, Congress should request an evaluation, to be completed within 180 days by the General Accountability Office, of the effectiveness of recently imposed semiconductor export control regulations in preventing China from either acquiring or developing the capacity to manufacture certain advanced semiconductors.

The report should include an assessment of the extent of cooperation received from key allied governments, as well as both US and foreign-based companies, and an evaluation of China’s efforts to circumvent these controls or to negate their effectiveness by developing its own indigenous capabilities. This assessment should be prepared for public release but may include a classified annex and should be updated annually.

The report is part of the Commission's mandate to investigate, assess, and report to Congress annually on “the national security implications of the economic relationship between the United States and the People's Republic of China.”

Sections this year include:

• Rule by Law: China’s Increasingly Global Legal Reach
• Battling for Overseas Hearts and Minds: China’s United Front and Propaganda Work
• China Educating and Training Its Next Generation Workforce
• Fiscal, Financial, and Debt Problems Weigh Down Beijing’s Ambitions
• China’s Relations with Foreign Militaries
• Weapons, Technology, and Export Controls
• Europe-China Relations; Convergence and Divergence in Transatlantic Cooperation
• Taiwan
• Hong Kong
• Overviews of key developments in U.S.-China economic and trade relations, and issues related to security, politics, and foreign affairs in 2023

All of the Commission's research and other work is available at www.USCC.gov.