Congressional Agency Report: U.S. Department of Commerce Fails to Do Its Job in Preventing Sensitive Technologies from Falling into China’s Military

The U.S. Department of Commerce has failed to do its part in protecting national security and preventing sensitive technologies from falling into the hands of the Chinese military, a congressional body said in a report released Tuesday (June 1).

In the issue brief report, entitled “Unfinished Business: Export Control and Foreign Investment Reform,” the U.S.-China Economic and Security Review Commission (USCC) said the Commerce Department has been slow to develop a list of sensitive technologies. These technologies should be carefully scrutinized before being exported to China.

The report notes that in 2018, Congress tightened U.S. export policies and procedures for reviewing foreign investments as Chinese entities sought to acquire sensitive U.S. technologies and as the United States became more aware of the risks posed by China’s civil-military integration strategy and industrial policies like “Made in China 2025,” passing the Foreign Investment Congress has tightened U.S. export policy and procedures for reviewing foreign investment, passing the Foreign Investment Risk Review Modernization Act (FIRRMA) and the Export Control Reform Act (ECRA) to make it more difficult to export key technologies to rivals like China.

Defining a list of “emerging and foundational” technologies is a key part of implementing FIRRMA and ECRA, the report said.

“Since these bills became law in 2018, there have been significant delays in the development of the list, and the process and methodology are unclear. The list will support the development of new controls guided by these two bills and identify additional national security risks not covered by existing control lists. In enacting the Export Control Reform Act, Congress entrusted the U.S. Department of Commerce with fulfilling its intent to strengthen U.S. export control laws, but the Department has so far failed to meet its responsibilities,” the report concludes.

The report found that the lack of clear definitions of what constitutes emerging and foundational technologies has hampered the ability of the Committee on Foreign Investment in the United States (CFIUS) to carry out its responsibilities, and that years of delay in developing these definitions could exacerbate national security risks.

This report says that under the law, a range of technologies defined as emerging and foundational technologies would make certain transactions subject to filing and thus review by CFIUS for high-risk transactions. In the absence of such a complete list, CFIUS continues to operate without this additional guidance and may be limited in its ability to review transactions.

Reuters reported that the Commerce Department did not directly respond in a statement to the question of not having such a list in place yet, but mentioned that it has issued four rules on emerging technology controls and that more rules are forthcoming.

The Commerce Department also said it has expanded the rules for end military users and added some companies to its list of entities. Those entity lists would restrict U.S. suppliers from selling products to companies such as Huawei Technologies and Hangzhou Hikvision.

The Biden administration’s Commerce Department on April 8 added seven Chinese supercomputer companies to its “entity list” for engaging in “conduct that would jeopardize the national security of the United States or the foreign policy interests of the United States. During the Trump administration, the Commerce Department has placed dozens of Chinese companies on the Entity List, with Huawei and SMIC among them.

The report cites a number of actions taken by the Commerce Department, including a proposal to regulate gene-editing software that could make it easier to develop biological weapons, but the regulation has not yet been finalized. The Commerce Department has also issued interim regulations for geospatial imagery involving artificial intelligence neural networks.

The report says that such technology has received some attention as advanced surveillance technology has been used to detain Uighur Muslims in Xinjiang, including export controls to promote human rights, but the Commerce Department still does not have export controls on newer types of advanced surveillance software.

This report argues that cross-agency coordination and leveraging private sector and academic expertise could assist in the development of this list. It mentions that the Commerce Department has strengthened the role of relevant expert advisory bodies and solicited public input on the development of a list of emerging and foundational technologies, but how, if, and when to include expertise in these technologies has not been clarified.

It also said that coordinating national security risk assessments among other agencies may also lead to faster completion of this list and encourage agencies to fill gaps in comprehensive protection technologies.

The report raises the question of whether the Commerce Department’s inspector general should investigate the more than two-year delay in developing the list and whether the authority to enforce export controls should be given to another government department.

The U.S. Congress established the U.S.-China Economic and Security Review Commission in 2000, whose mission, according to the legislation, is to observe and study the impact of the U.S.-China bilateral trade and economic relationship on U.S. national security and to submit an annual report thereon to Congress. The agency also makes recommendations to Congress on legislative and administrative measures as appropriate.