U.S. presses ahead on plan to limit high-tech exports

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December 11 2018 - The U.S. is pressing ahead with plans to tighten restrictions on technology exports that some American companies fear could hurt research and development, even as President Donald Trump and his Chinese counterpart Xi Jinping agreed to a 90-day truce aimed at alleviating a trade war.

The White House has embarked on a long-term strategy to ensure the U.S. maintains its technological lead over China, with Trump’s trade advisers tying the U.S.’s economic interests to protecting national security. Central to that effort are wider controls on a broad range of American exports including artificial-intelligence components, microprocessors and robotics.

“The real action in U.S.-China relations remains centered squarely on the development and access to cutting-edge technologies,” said Paul Triolo, who focuses on global technology issues at Eurasia Group. “The U.S. holds most of the cards when it comes to core technologies, from semiconductors to enterprise software, and Beijing now knows it.”

U.S. accusations that China steals intellectual property and forces technology transfers is at the heart of a trade war between the world’s two largest economies that’s rattled markets. The arrest of a top executive at China’s Huawei Technologies Co. is running the risk of further inflaming tensions. Still, trade negotiations remain on track as Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese trade czar Liu He discussed by phone a way forward for the negotiations on Monday night.

The U.S. has delayed hiking tariffs on $200 billion of Chinese goods until March 1 to hammer out a trade deal with China.
Export Controls

Separate from those trade negotiations, the U.S. Commerce Department last month asked for public comment on a list of new technologies that have national-security applications and whether they should be subject to stringent export-control rules. Commerce has extended its comment period by three weeks, to Jan. 10, in response to companies and business groups that have asked for more time to weigh in on the complex process.

The Commerce Department said on Tuesday that it’s seeking “more detailed responses” to better understand how to tailor the export curbs so American businesses don’t lose out.

“More detailed responses will help Commerce and other agencies identify and assess emerging technologies to update the control list without impairing national security or hampering the ability of the U.S. commercial sector to keep pace with and exceed international advances in emerging technologies,” the department said in a statement.
Technology companies are worried the proposal could crimp sales overseas and undermine their ability to innovate.

“It’s so wildly over-broad. Our companies are struggling to wrap their heads around what it wouldn’t cover rather than what it would cover,” Sage Chandler, vice president for international trade at the Consumer Technology Association, said in an interview. CTA’s members include Facebook Inc., Alphabet Inc.’s Google, and Amazon.com Inc.
“You look at this and it could be a major blow to companies,” Chandler said. “This has the potential to be so broad and devastating to industry. It’s the reason why you’re seeing so much nervousness.”

National Security

The overhaul of the law to control critical U.S. technology has backing from Congress and is supported through legislation signed by Trump that toughens national-security reviews of foreign investment in the U.S. It’s not aimed solely at China, but high-end technology has been a big focus in the escalating tit-for-tat trade war.

“The law applies to everybody, it’s not just a China law,’’ said Bill Reinsch, who oversaw export controls in the Clinton administration’s Commerce Department and is now a senior adviser at the Center for Strategic and International Studies. “But the reality is we have different policies for different countries and we’re in the process of developing a tougher policy for one country.’’

There is an ongoing fight between different factions of the Trump administration on how to define national security, according to people familiar with the internal deliberations. Hawks within the intelligence community are pushing for a broad interpretation, while the Commerce Department is trying to narrow the scope, the people said.

The categories as proposed would not only make it harder to get products to markets overseas, according to the BSA | Software Alliance, but could also hurt research and development in the U.S. if foreign nationals working in the country are prohibited from working on the technologies. They would also give foreign companies that already provide a technology an opportunity to gain market share at the expense of U.S. firms, according to the group.

The BSA | Software Alliance, a trade association whose members include Microsoft Corp., Apple Inc. and International Business Machines Corp., were surprised about the breadth of the categories and intend to argue they should be narrowed.

“We didn’t expect them to be as broad as they are,” Christian Troncoso, a policy director at the organization, said in an interview. U.S. national security depends on a competitive technology industry that can continue to innovate, an objective that would be threatened by broad export controls, he argued. “If they’re not narrowed down, it would undermine the objectives that gave rise to this process.”

Kevin Wolf, the assistant secretary of Commerce responsible for dual-use export controls during the Obama administration, said industry should remain vigilant and engaged, but not pessimistic.

“If the administration abides by the standards in the new export control law, then any new export controls will be narrowly tailored to specific, identifiable critical technologies that are essential to the national security and would not harm domestic research or the U.S. economy,’’ Wolf said.

Source: Bloomberg