Companies, Trade Groups Concerned Over Emerging Tech Controls

Companies and trade groups are concerned about the consequences of the Commerce Department’s efforts to restrict sales of emerging technologies and are growing impatient with a delay that has stretched several months, stakeholders said in interviews. Nearly a year after Commerce issued advance notice that they planned to review the technologies, some companies are confused about the delay and fear the controls won’t be fully coordinated with U.S. allies, causing their customers to simply seek foreign sellers.

Commerce officials said the agency plans to closely follow the Export Control Reform Act -- which expresses a preference for coordination with allies over unilateral controls -- and justified the delay by pointing to the complex nature of the controls. But some industries are not yet convinced and say the delay is leading to more short-term business uncertainty, impacting exports, sales, business planning and research and development. “It’s having a chilling effect,” Jim Hendler, chair of the Association for Computing Machinery’s technology policy committee, said in an email. “Without knowing which aspects of which technologies will fall under what restrictions makes the future very uncertain.”

Officials at the Bureau of Industry and Security, the agency in charge of the controls, are growing frustrated with a slow interagency review process that is partially causing the delay, according to a person familiar with the situation. The administration's approach toward the controls is also lacking a single voice, the person said, creating a leadership void. “This administration does not have a highly disciplined interagency process, to put it mildly,” the person said. “It’s slowing things down, of course.” In response to emailed questions, a Commerce spokesperson said the agencies “continue to review the information we received.”

Commerce received more than 200 comments about the proposed restrictions on sales of emerging technologies. Most warned against overbroad controls that could stifle innovation and decrease U.S. competitiveness. Although they are unsure what the controls will entail, the technology and auto industries think Commerce will heed their recommendations, seven industry officials said in interviews. But the prolonged wait and the prospects of strict controls have left them preparing for the worst, the industry officials said. “We’re trying to understand what we need to prepare for, and here we are months late,” said a trade expert for a large car manufacturer. “It’s increasing uncertainty.”

Commerce officials have said publicly the delay is having a negative impact on U.S. industries. Some companies are moving research and development outside of the U.S. “because they don't know what's going to come out,” Matt Borman, Commerce’s deputy assistant secretary for export administration, said during an October technical advisory committee hearing (see 1910290062). Commerce initially asked for feedback from industry about possible export controls on emerging technologies -- technologies that aren’t yet commercially available, such as artificial intelligence and quantum computing -- in a November 2018 notice. A Commerce official said in July the controls would be released within “weeks” (see 1907100044).

The delay is partly due to a slow interagency review process and the complex nature of the controls, industry observers say. Along with controls on emerging technologies, Commerce is also tasked with proposing restrictions on foundational technologies -- technologies that are widely used but are not currently controlled. A Republican House staffer recently said that there is tension between the Commerce and State departments over the extent of controls for emerging and foundational technology (see 1906270062). Commerce officials expect to request industry comments on foundational technologies before the end of the year. “I think the Commerce Department has difficulties getting its head around what it has been asked to do and to come up with sensible proposals,” said Spencer Chilvers, chairperson of the United Kingdom-based Export Group for Aerospace, Defence & Dual-Use and head of export control policy for Rolls-Royce.

Former Commerce officials have made similar points. Kevin Wolf, Commerce’s former assistant secretary for export administration and now a trade lawyer for Akin Gump, said the controls are intellectually challenging, which he suggested is a plausible reason for the delay. “They’re far more difficult to get your brain around than anything I’ve ever done for Commerce,” he said.

The task may be stretching the knowledge and resources of some government officials, said Chris Padilla, Commerce’s former undersecretary for international trade and former assistant U.S. trade representative who now works for IBM. The administration, for instance, may not employ many quantum-computer experts, Padilla said. “This is really hard,” he said. “It takes a long time to get something like this right.”

While Padilla said he thinks “there is a lot of interagency disagreement” on how the controls should be proposed, he and Wolf also said they are not surprised the controls are delayed and said companies may ultimately be grateful BIS is taking its time rather than rushing out hurried controls. They also said they expect the controls to be narrow. “I have faith in BIS staff,” Wolf said. “But we won’t know until we see the first series of proposed rules, and that’s why there’s so much anxiety.”

Borman and other officials have stressed that the controls will be narrowly focused and will not impose sweeping restrictions on broad categories of technologies, such as all of artificial intelligence. Officials have also emphasized that the controls will be a continuous process -- the upcoming set of controls, expected before the end of the year, will be followed by more sets. Borman said Commerce is planning to propose the first set of controls in February at the Wassenaar Arrangement -- a multilateral export control regime with more than 40 member states. The emerging tech controls are “ideally … developed within the U.S. government right now” and will be released in time for Wassenaar, he said during a Nov. 4 event at George Mason University.

Industries view multilateral control as a necessary component of the regulations. Without ally nations also restricting exports of advanced technologies, companies could lose sales to competitor countries, making the controls one of the more consequential regulatory restrictions for U.S. exporters in years. One tech industry representative said companies are constantly monitoring announcements surrounding the controls, describing them as “massively important to our industry.”

Meanwhile, BIS is operating without an official leader. Nazak Nikakhtar, former acting Commerce undersecretary in charge of industry and security, stepped down from the position in August as she awaited Senate confirmation (see 1908290044.) The position has not yet been filled. Commerce declined to comment on its plans for the position. Borman and Rich Ashooh, Commerce’s assistant secretary for export administration, are primarily leading BIS, according to Wolf, Padilla and two industry officials.

Companies and trade groups are confident in Borman, Ashooh and the rest of the BIS staff’s ability to construct the controls, industry officials said. “They have a strong team and they’re highly competent,” said Michael Petricone, senior vice president of government affairs for the Consumer Technology Association. He said companies are concerned about the delay less so because of BIS staff and more so because “they crave certainty, and they want to know what the rules are. They want rational business planning.”

While several industry officials said they were surprised by the long wait, others said they are employing a “wait-and-see” attitude. And while they fear another delay, they are hopeful the technologies will be released this month. “For those who have lived and breathed this for a career, there's nothing unusual about what BIS is doing,” said Wolf, who was assistant secretary of Commerce for Export Administration from 2010 to 2017. “If, however, you have greater expectations of broader and more aggressive controls, then yes, I can see why you would be impatient.”