BIS Hammers 36 Russian Military Suppliers; Chinese Military Suppliers Get A Pass.

This week Commerce Secretary Gina Raimondo kicked off the first Bureau of Industry and Security (BIS) conference since the pandemic saying that export controls “are at the red-hot center of how we best protect our democracies” and that they “matter more than ever.” As part of sweeping efforts in response to Russia’s invasion of Ukraine, BIS added 36 new parties to the Entity List for providing support to Russia’s military and/or defense industrial base in connection with the Ukraine invasion, including 25 companies based in China. Yet BIS has been slow to address dual use exports to China. “There is just no country that presents a broader threat,” declares Federal Bureau of Investigation Director Christopher Wray.

Many national security experts, including some in the Biden Administration, have called on the Commerce Department to restrict exports to and imports from memory chip maker Yangtze Memory Technologies Corp (YMTC) given its role in supporting China’s military ambitions. The company is on a buying spree of U.S. chipmaking equipment, stockpiling machines for which its pays more than competitors. Reportedly Secretary Raimondo and National Security Advisor Jake Sullivan met with executives from leading US companies Lam Research, KLA, and Applied Materials to probe their record profits in China and whether they give preferential sales treatment to Chinese fabs over orders from Intel, TSMC, and Samsung. Raimondo concluded that the sales themselves were not problematic and that the U.S. government should not micromanage them.

Experts say that BIS has been slow to impose new export controls on American technologies that could become tools of military or economic warfare. Derek Scissors of the American Enterprise Institute chalks it up to BIS capitulation to industry. “The true reason Commerce is dead set against restricting foundational technology is American companies make a good deal of money selling products utilizing foundational technology to China” he writes.

The new report Silicon Sellout: How Apple’s Partnership with Chinese Military Chipmaker YMTC Threatens National Security from China Tech Threat and the Coalition for a Prosperous America details the risks of an Apple-YMTC partnership – everything from the Chinese government compromising Apple users’ security and privacy to the disruption of the global memory chip market. The deal threatens 24,000 U.S. semiconductor jobs and concentrates more chip production inside China.

This tradeoff of security for profits is one many tech firms readily make, and BIS frequently allows. Martijn Rasser and other scholars at the Center for a New American Security summarized the problem: “Business leaders, especially since the end of the Cold War, have done what they were incentivized to do: maximize profits and shareholder value, streamline and globalize operations. For many years, this worked well. Now, however, the dynamic has changed, with the rise of China as an economic, technological, and military power that rivals, and in some cases surpasses, the capabilities of the United States and its allies.”

Military intelligence expert James Mulvenon, who published the definitive report on YMTC outlining the risk and the need for controls in 2020, cites BIS’ non-enforcement of Seagate’s decision to illegally sell technology to Huawei after export controls came into effect. “BIS’ inaction not only allowed Seagate to continue shipping prohibited products for almost a year but also sent the message to other companies that the FDPR will not be enforced or may not be enforced consistently,” notes Mulvenon. A Senate Commerce Committee report concluded, “Seagate likely made the strategic calculation to continue violating national security regulations based on the prospect of earning significantly greater profits through market monopolization than the potential cost of regulatory penalties.”

The choice of Alan Estevez to lead BIS, with his impressive defense and supply chain background, suggested that greater emphasis on security would be forthcoming. Estevez quipped that his job really could be titled “chief technology protection officer of the United States.” While acknowledging that Russia remains a challenge, he declares his focus is “China, China, China” and to “stop them from using our technology against us.” His follow through remains to be seen.

“Ultimately, a policy that balances risk and opportunity will need to weigh the long-term security risks against the near-term benefits of continued revenue…Unchecked, China will seek to do to the semiconductor industry what it did to 4G telecom suppliers, using a blend of subsidies, predatory trade practices, and espionage to drive foreign competitors from the market,” observes leading national security expert at the Center for Strategic and International Studies James Lewis

Former BIS deputy Kevin Wolf suggests that America’s export control regime is ill-fitted for today’s security challenges and needs revamping, particularly as policymakers demand levers to achieve human rights objectives. He outlines a new model with Emily Weinstein of Center for Security and Emerging Technology.

New regimes take time. China isn’t slowing down, and with a threat like YMTC, neither can we. It’s time for the U.S. to take action.