Congressional Panel Calls for New Mechanisms to Bolster Export Controls on China

The task force would include representatives of the Commerce, Defense, Energy, State and Treasury departments and the intelligence community. It “should assess the effectiveness of existing export controls; provide advice on designing new controls and/or using other tools to maximize their effect while minimizing their negative impact on U.S. and allied economies; and recommend new authorities, institutions, or international arrangements in light of the long-term importance of U.S.-China technology competition,” the U.S.-China Economic and Security Review Commission wrote in its 793-page annual report.

To further bolster export controls, the commission recommends designating a senior administration official to coordinate efforts to seek allied support for U.S. export control initiatives. It also calls for giving the Bureau of Industry and Security more resources to improve its analytic and enforcement capabilities, and providing more information to Congress about export licenses granted to entities on the BIS Entity List. Congress should require BIS to notify "relevant" congressional committees about those licenses -- including any Entity List-related licenses involving exports subject to foreign direct product rule restrictions -- within 30 days after they're granted, the report said.

While export controls have become a “central tool” for denying China access to critical dual-use technology, “a number of operational challenges diminish their effectiveness, including lack of coordination among key allies, compliance challenges, and uneven enforcement,” the commission wrote. “At times, the United States has had difficulty obtaining alignment with allies, which can undercut the effectiveness of U.S. policy and put U.S. companies at a disadvantage.”

To complement export controls, the commission would prohibit outbound U.S. investment in Chinese technology sectors that threaten U.S. national or economic security. That recommendation follows the Treasury Department's recent release of a new final rule outlining new prohibitions and notification requirements for U.S. outbound investment in China’s semiconductor, artificial intelligence and quantum sectors (see 2411070013).

The commission proposes creating an outbound investment office to “identify and refine the list of covered technologies in coordination with appropriate agencies as new innovations emerge.” The office also would develop "a broader mandatory notification program for sectors where investment is not prohibited to allow policymakers to accumulate visibility needed to identify potential high-risk investments and other sectors that pose a threat to U.S. national or economic security."

To counter China’s growing ties with Russia and Iran, the report calls for sanctioning Chinese financial institutions that are working with Russia’s defense industrial base or facilitating purchases of Iranian oil. It also recommends that the Office of the Director of National Intelligence conduct a “detailed study” on China’s purchases of Iranian oil, including its use of transshipment points and shell companies, to help Treasury determine whether “sanctionable activity” is occurring. China is “going to great lengths to avoid the appearance of sanctionable transactions through the use of smaller purchases and shell companies,” the report says.

The commission also wants the executive branch to examine Hong Kong’s role in aiding sanctions evasion by Russia, Iran and other “adversary countries.” Such a review should assess whether U.S. and foreign financial institutions operating in Hong Kong could identify and prevent transactions that violate U.S. export controls or sanctions, the commission said.