USCBC Comment on December 5 and January 16 Export Control Rules

The US-China Business Council (USCBC) welcomes the opportunity to submit comments to the Bureau of Industry and Security (BIS) on the Foreign-Produced Direct Product Rule Additions, and Refinements to Controls for Advanced Computing and Semiconductor Manufacturing Items interim final rule (SME IFR) and the Implementation of Additional Due Diligence Measures for Advanced Computing Integrated Circuits; Amendments and Clarifications; and Extension of Comment Period interim final rule (ACIC IFR). USCBC comprises around 270 US companies that do business in China. Many of our members depend on their market share in China to enhance and undergird their global competitiveness, in ways that make America stronger, such as providing revenue sources that fuel more advanced activities and employment in the homeland. Unfortunately, our members report that export controls have caused the opposite to occur—broad, complex controls have reduced revenue, led to layoffs in the United States, and forced companies to curtail R&D activities needed to maintain cutting-edge advantages.

USCBC data underscores the importance of China for maintaining American global competitiveness. According to our annual member survey, 91 percent of respondents say China is important for their global competitiveness, among which one-quarter say their firm would not be globally competitive without China. Our ongoing goal is to partner with the US government on multiple fronts to craft policies that enhance the competitiveness of US industry and, by extension, strengthen US national security.

USCBC understands and appreciates the crucial role export controls play in preventing the proliferation of technologies that have national security implications and dual-use applications. However, when it comes to controls on semiconductors and semiconductor manufacturing equipment (SME), USCBC is concerned that the October 7, 2022, rules and their subsequent iterations, including the December 5, 2024, and January 16, 2025, rules, have adversely impacted US companies by empowering their Chinese competitors. Export controls have incentivized innovation and collaboration between domestic Chinese industry and the government in China, fueling industrial policies that provide a panoply of benefits to Chinese companies.

The SME IFR’s preamble states that export controls are needed to stymie China’s development of an “independent and controllable” semiconductor sector. China has pursued semiconductor self-sufficiency since the 1960s, and the independent and controllable initiative, also known as “Xinchuang,” is the latest iteration of this longstanding policy objective. USCBC shares the US government’s concerns with this policy. We have called for Chinese regulators to publicly annul certain documents associated with Xinchuang, namely Document 79. However, export controls have, contrary to their intention, accelerated China’s tech indigenization campaign by lowering a barrier that Chinese companies historically have faced in the semiconductor market: their American competitors.

Beyond artificially inducing demand for Chinese semiconductors and semiconductor manufacturing equipment, export controls have resulted in lost visibility for American manufacturers. Broad controls risk blinding American industry, and companies are concerned that their long-term positions will be eroded, not just in China but globally as their competitors grow.

USCBC data indicates that these trends are already occurring. Our survey lists the top 10 challenges that US companies face when doing business in China; competition with Chinese companies ranked third, export controls ranked fourth, and industrial policy ranked ninth. A record number of respondents, 58 percent, indicated that their concerns about Chinese industrial policies are based on existing, as opposed to potential, impacts, and 43 percent said that national policies promoting domestic innovation were the most prevalent sign of protectionism. When asked about the impact of China’s industrial policies, 79 percent of respondents cited increased competition, and an additional 55 percent said that their customers in China have actively shifted away from American companies.

Our data on the impact of export controls confirms these dynamics. When asked about the main impacts of export controls, 48 percent of respondents stated that export controls caused them to lose sales to Chinese competitors, and 30 percent lost sales to international competitors, indicating high degrees of supply chain indigenization and a lack of international harmonization. 19 percent reported delays to product planning and development. Other sources, such as the Federal Reserve Bank of New York, said that US export controls on semiconductors resulted in a $130 billion hit to the market cap of affected US suppliers and did not result in new supply chain partnerships.

USCBC appreciates BIS’s efforts to provide objective bright lines for companies and has engaged in prior rulemaking processes. However, we believe that at this juncture, rather than responding to tech advancements in China by tightening export controls, BIS should holistically reexamine its system to provide the flexibility and speed American companies require to compete—and win—in China’s burgeoning semiconductor market. We question the sensibility of tightening controls in a market that is actively growing and gravitating away from American products.

Years of successive rules, often with minimal adjustment periods for companies, have also increased compliance obligations and placed US companies on the back foot. In our survey, when asked about the main compliance challenges of export controls, 75 percent cited difficulties conducting due diligence, 48 percent cited difficulties communicating regulatory and compliance changes to their Chinese business partners, and 41 percent cited delayed or unclear administrative processes. Compliance questions have again increased in the December 5 and January 16 IFR, and we believe that consumer-grade technologies have mistakenly been captured. To rectify some of industry’s outstanding concerns, improve US companies’ ability to comply with the Export Administration Regulations (EAR), and maintain a narrow focus on military technologies, USCBC makes the following recommendations.