USCBC Comments on End-Use and End-User Based Export Controls

US-China Business Council Comment on End-Use and End-User Based Export Controls, Including US Persons Activities Controls: Military and Intelligence End Uses and End Users (Docket No. 240923-0249) (RIN 0694-AJ43); Export Administration Regulations: Crime Controls and Expansion/Update of US Persons Controls (Docket No. 240923-0250) (RIN 0694-AI35) 

October 11, 2024

The US-China Business Council welcomes the opportunity to submit comments to the Department of Commerce regarding two notices of proposed rulemaking preceding the implementation of regulations on Military, Military Support, and Intelligence End Users and Foreign Security End Users. USCBC fully supports BIS’s efforts to protect US national security and human rights and prevent the proliferation of technologies with clearly defined national security and foreign policy implications, such as technologies with mass-surveillance applications. At the same time, it is critical that BIS narrow these regulations to address security and human rights concerns in a targeted, implementable way.

USCBC’s membership comprises more than 270 American companies that do business in China. Our membership includes some of the largest and most iconic American brands, in addition to small- and medium-sized enterprises. US trade with and sales of US goods and services in China bring many important benefits to the US economy and American workers.

Many US companies depend on China’s market to enhance and undergird their global competitiveness, such as through globally integrated supply chains that improve efficiency and lower costs for American consumers. According to our annual survey, 91 percent of respondents say China is important for their global competitiveness, among which 23 percent of respondents say their firm would not be competitive without China. It is crucial that BIS and the administration evaluate export controls with these considerations to ensure that they do not inadvertently damage US competitiveness, and, by extension, US national security.

We appreciate the administration’s consultations with our organization and its ongoing efforts with our member companies to ensure that they acquire export licenses in a timely manner. USCBC members have longstanding, sophisticated due diligence and compliance mechanisms to prevent their products, software, and technology from furnishing the development of a sanctioned entity, end user, or military end-use technology. These mechanisms also provide rare visibility and insight into the progress and intentions of China’s technological development.

However, USCBC is concerned that the proposed rules, and the implementation thereof, will substantially expand the jurisdiction of existing US export controls to areas with minimal national security risks and will unilaterally disadvantage American companies in multiple ways. We are concerned that the rules’ inclusion of low-tech goods represents a departure from the administration’s “small yard, high fence” framework and could ultimately result in commercial decoupling from China.

Capturing all items subject to the EAR represents a considerable expansion of scope, including for items which do not have national security and foreign policy implications. Revisions to the NPRM, as suggested in our comments, are needed prior to the promulgation of a final rule to ensure that the rules are clear, implementable, and appropriately scoped to only cover transactions with clear and identifiable foreign policy and national security risks.

USCBC members have made considerable investments in their compliance architectures to acquire export licenses and perform due diligence. While absorbing more costs and uncertainty around customer relationships, companies have dutifully integrated EAR compliance metrics into their contracts with Chinese customers and suppliers and developed complex IT systems to perform worldwide compliance and due diligence. However, should controls be implemented to the extent outlined in the proposed rule, they will place severe bandwidth constraints on both corporate due diligence and government license processing capacity.

We suggest that adjustments to scope be made to limit degradation to corporate and government bandwidth and therefore permit effective implementation. According to our survey, 75 percent of member companies consider due diligence a main export controls compliance challenge.  Another 41 percent said delayed or unclear administrative processes were a challenge. To maintain a workable export controls system from both a compliance and processing standpoint, BIS should work in consultation with industry to narrow its rules and focus on areas of national security and foreign policy concern.

Such controls will unilaterally disadvantage American firms by furthering a perception among Chinese customers that they are unreliable suppliers. In our survey, 48 percent of respondents said they had lost sales to Chinese competitors due to the impact of export controls—a strong indication of increased Chinese indigenization—and a loss to visibility of technology ecosystems and national security. It is essential that BIS continue to assess foreign availability, including availability in China, before imposing additional export controls. Without multilateral coordination, US firms will be replaced by foreign suppliers as well. In our survey, 30 percent of respondents said export controls caused them to lose sales to international, third-country firms, underscoring the importance of multilateralism and the ineffectual nature of unilateral tools. This is especially pronounced for US companies with products that are widely commercially available and not controlled by any other country, as is the case with EAR99 items.

Export controls have also reduced room for progress on diplomacy with China in other important commercial issues, such as China’s industrial policies and nonmarket practices. We urge the administration to maintain an economic security posture that balances regulating the most impactful transactions that are directly related to foreign policy, national security, military diversion, and human rights concerns, while providing ample opportunities to stabilize the relationship through commerce. China’s own supply chain security initiatives, including its “Delete A” campaign, coincide with the rise of US export controls and are resulting in lost sales for American firms in China. According to our 2024 member survey, 45 percent of our survey respondents have said that US-China tensions caused them to lose sales due to customer uncertainty of continued supply. We believe this sentiment is partially attributable to export controls.

As a matter of principle, USCBC supports the Biden administration’s efforts to protect US national security and promote a robust bilateral commercial relationship with China. However, we are concerned that the scale and magnitude of these controls will undermine the administration’s diplomatic priorities with China in other areas—in particular, healthcare. The proposed controls could have direct negative impacts on bilateral efforts to ensure global health security by severely disrupting cross-border drug development and clinical trials, delaying access to needed medical therapies in the United States. When assessing national security and foreign policy implications, equal measure should be given to the potential harmful effects these proposed rules could impose on global public health.

See our full submission:

USCBC Comments on End-Use and End-User Based Export Controls