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                                                                                           Updated January 14, 2021

U.S. Export Control Reforms and China: Issues for Congress


Over the past two years, the U.S. government has
reformed-through   legislation, regulation, and licensing
practices-the export control system that regulates dual-use
exports (goods and technology that have both civilian and
military uses). These changes largely aim to address
concerns about China's attempts to seek global civilian and
military leadership in advanced and emerging technologies
through coordinated industrial policies. Some of these
reforms have prompted U.S. business concerns because
they tighten technology trade with China, which is a
growing  market for many firms. Other reforms-such as
setting emerging technology controls, expanding controls
on existing technologies of concern, and reforming the
licensing process-are ongoing. Congress has an important
role in overseeing the reforms it legislated and shaping the
evolving U.S. export control regime.

China's  Industrial Policies
Tightened controls respond to China's ambitious state-led
industrial efforts, such as its Made in China 2025 (MIC
2025), that intend to create competitive advantages for
China in strategic industries, in part by obtaining
technology and expertise from U.S. and foreign firms. MIC
2025  aims to make China a leader in emerging technologies
important to future commercial, government, and military
systems and capabilities. Priority sectors include advanced
manufacturing, aerospace, artificial intelligence,
information technology, new materials, robotics, and
semiconductors. U.S. policy makers have expressed
concern and sought to counter MIC 2025 because they say
it generally incentivizes technology transfer, licensing, and
joint venture requirements; state-directed technology and
intellectual property (IP) theft; and government-funded
acquisitions of U.S. companies in strategic sectors. Many
Members   of Congress are also concerned about China's
military-civil fusion program, which seeks to leverage MIC
2025  technological advancements for military development,
including gains achieved through business ties in advanced
and dual-use technologies. Some experts contend that
China's approach blurs commercial and military
distinctions and challenges a core tenet of the U.S. export
control regime that assumes clear distinctions between
military and civilian end use and end users. See CRS In
Focus IF10964,  Made  in China 2025 Industrial Policies:
Issues for Congress, by Karen M. Sutter.

U.S.  Dual-Use  Export  Controls
The Export Control Reform  Act of 2018 (ECRA)  (P.L. 115-
232) restored legislative authority to the President for the
control of dual-use exports for national security and foreign
policy reasons. The Bureau of Industry and Security (BIS)
of the Department of Commerce  (USDOC)   administers
dual-use export controls and chairs an interagency process
that includes the Departments of Defense (DOD), State, and
Energy. BIS administers these controls through the Export


Administration Regulations (EAR, 15 C.F.R. 730 et seq.),
which includes the Commerce  Control List (CCL). The
EAR   sets licensing policy for specific destinations, end-use,
and end-user controls. On the CCL, national security (NS)
controlled items are on the Wassenaar Arrangement's
multilateral control list. The EAR presumes denial for
license applications of NS items that would make a direct
and significant contribution to China's military. Separate
programs  and statutes control nuclear materials and
technology and International Traffic in Arms Regulations
(ITAR)  defense articles and services. The United States has
prohibited arms sales to China since 1989. Congress has
mandated  a policy of denial for exports of satellites and
space equipment to China. See CRS Report R41916,  The
U.S. Export Control System and the Export Control Reform
Initiative, by Ian F. Fergusson and Paul K. Kerr.

Figure  1. U.S. Exports to China in 2019
Export Authorizations by U.S. Regulatory Authority
                      TAR    Other USG Agencies
                      0.001%     0.2

                                              BIS Licensed
                                                0.5%
                  f' EAR Reporting ECCN
                                               BIStLicense
                                               Exceptions
                                                 1.1


Source: CRS with data from U.S. Customs and Border Protection.
Note: EAR99 items are subject to the EAR, but not currently
controlled; ECCN, Export Control Classification Number, refers to
items on the CCL. NLR - no license required.
U.S.  Licensing Approach
Currently, a relatively small amount of U.S. trade is
controlled and most controlled technology is approved for
export under a license. In 2019, $500 million (0.5%) of
U.S. exports to China required a BIS license. Of the $106.6
billion in total U.S exports to China, $104.7 billion required
no license. While $1.7 billion in trade required a license,
$1.2 billion was exempted from the license requirement.
(See Figure 1.) BIS has removed licensing requirements for
much  of U.S. technology trade to China over time as
technologies have become more  widely available and in
response to business pressures to pursue market
opportunities in China. Although most items on the CCL
require a license for export to China, in practice, BIS has
until recently waived license requirements for national
security-controlled items destined for civilian end-use in
sectors including aerospace, microelectronics, and
semiconductors. China's technology policies often require
joint ventures and partnerships in which the Chinese side
controls the technology and IP. Many Chinese partners for
U.S. firms are government-controlled entities, increasing


https://crsreports.congress.gov

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