Multilateral Cooperation on Export Controls Is Priority, U.S. Commerce Official Says

During a hearing at the U.S.-China Economic and Security Review Commission on September 8, a U.S. Commerce Department official said that multilateral cooperation is more important than unilateral use of export controls, especially in the context of the “foreign direct product rule.”

Speaking on the Administration Views on U.S. Export Controls panel at the hearing "U.S.-China Relations in 2021: Emerging Risks," Jeremy Pelter, Acting Undersecretary and Deputy Undersecretary, Bureau of Industry and Security, emphasized the importance of multilateral cooperation on export controls: “the most effective controls are those that are multilateral.” But he also noted that “when the multilateral regimes cannot achieve our objectives, we are working on a plurilateral basis with like-minded countries” and “there may be instances in which the U.S. Government determines that unilateral controls are warranted.”

With regard to working with others, Pelter said that “we've seen a very promising collaboration from several key partners in Asia and in Europe. I will also add, as a great example of where this process is advancing, is the new EU-US trade and Technology Council that is standing up with a working group for export controls.” He added that “I think we're going to continue to see our allies, our like-minded trade partners and others, come to the same realizations about the PRC and their malign activities that the United States has seen for many years. I think that education campaign, that collaboration campaign, that coordination campaign is working well.”

During the Q&A session, when asked about the narrow application of the “foreign direct product rule” (FDPR), especially in the context of restricting Huawei’s access to U.S. technology, Pelter gave the following explanation:

...I think the foreign direct product rule can be a very powerful tool. And we've seen that in its application with Huawei, preventing them from using U.S. technology to advance malign behaviors. Like any tool, particularly powerful tools, it needs to be used judiciously, and will be most effective where significant choke point technologies are involved and they are of U.S. origin. If it's used injudiciously, there's certainly a risk of unnecessary negative consequences to U.S. industry, and not just use in China, but also by our international partners. Again, you and I have repeated my phrases, you know, I still believe multilateral controls are the most effective and best tools, the FDPR is certainly an available alternative tool. I'll refrain from comment on any existing deliberations among the interagency pertaining to the FDPR, but like all of our regulations, we work through a process with other interagency partners that includes not only the NSC but State, Energy, and Defense.

In his written testimony, Pelter highlighted the progress the agency has made on China, noting that BIS “added new license requirements for additional items … if the exporter knows that the item is intended, entirely or in part, for a military end-use or military end-user (which includes any person or entity whose actions or functions are intended to support military end-uses) in the PRC;” “implemented new controls that require a license if the exporter knows that any item subject to BIS jurisdiction is intended, entirely or in part, for a military-intelligence end use or a military-intelligence end-user”; and added 26 Chinese entities to the Entity List in 2021 alone.

With regard to the progress of BIS in identifying emerging and foundational technologies, as required by law, Pelter noted that 37 emerging technologies had been added to the Commerce Control List and that “on emerging tech, much of the work continues with the multilateral regimes.” Concerning the foundational technologies, Pelter said that “BIS is working with its interagency colleagues to submit proposals for certain foundational technologies to the relevant multilateral export control regimes.”

But the U.S. should focus on the areas where there is “a significant leading edge.” “We want to make sure our energy, that we're burning our calories on the technologies that are most critical, that the PRC is moving after most aggressively, and particularly the spaces where we have still, whether it's U.S. technology alone or US technology in concert with like-minded nations and allies, where we still have a significant leading edge and the PRC is not a near peer of ours, these are the places where I think we can have the most impact,” Pelter said during the hearing.

On the panel entitled Assessing Export Controls and Foreign Investment Review, Kevin Wolf, formerly with BIS and now at the law firm Akin Gump, noted that it is important to “come up with a definition of what national security means outside the context of the traditional non-proliferation objectives of export controls.” When working with allies, he said, the United States needs to “convince them with that evidence, with that advocacy, with this new definition, with an appeal to common interest and other incentives, that there needs to be a fundamental rethinking of what the purpose and use of export control is to deal with the China issues.”

When talking about using export controls to achieve human rights objectives, Wolf noted that “it should be a much more aggressive effort now” and it is “something for which you should proceed unilaterally, given the moral imperative of the objective.” But he cautioned that “the controls will need to be focused on end uses, not just particular items” because “you're going to be dealing with widely available technologies.”