Ian Cohen

A U.S. intelligence official urged companies to avoid supply chains involving Huawei and said there's a strong push within the administration to bolster domestic production of 5G technologies. Constance Taube, National Counterintelligence and Security Center deputy director, said U.S. companies should approach Huawei and other Chinese state-controlled companies with a high degree of skepticism, saying their supply chains will ultimately benefit from more trusted actors. “It's fair to say that supply chain risk can probably never be entirely eliminated,” Taube said, speaking during a Wednesday webinar hosted by the Intelligence and National Security Alliance. “But supply chain risk must be managed.” Taube said Huawei is “subject to the whims of an authoritarian government,” saying its strong links to the Chinese military should dissuade U.S. companies from trading with it. Recent U.S. restrictions, such as increased license requirements on exports to Huawei and Chinese military end-users, might cause industry pain in the short term, Taube said, but the U.S. will ultimately be better off. China heavily criticized the U.S. restrictions. Taube said the COVID-19 pandemic highlighted the risks of doing business with China and stressed the importance of supply chain diversification. “What we have learned during the COVID crisis is that we are so deeply integrated in terms of supply chains on critical areas, that we may want to rethink and readjust to ensure that when we are in crisis periods, we are well positioned to get through the crisis without a reliance on partners that might not gain full trust.” Though Huawei is the world’s top telecommunication equipment maker, Taube said U.S. companies should turn to other sellers and buyers of 5G technology that are trusted. Taube also cautioned U.S. companies against doing business with other Chinese companies, saying they're subject to “different kinds of scrutiny and different requirements than companies that operate in environments that are democratically managed.” She said it's often unclear which companies are aiding the Chinese government. “Chinese government provides subsidies to their organizations that they feel are vital to their own national or economic security,” Taube said. “And I'm putting it bluntly: They don't necessarily always represent them as subsidies.”

The U.S. should impose stricter export controls on advanced chip manufacturing equipment to prevent China from getting more of its own semiconductor technologies, experts told the Commerce Department’s Information Systems Technical Advisory Committee meeting. Success of U.S. export controls depends on cooperation with allies, said Carrick Flynn and Saif Khan, research fellows with Georgetown University's Center for Security and Emerging Technology. “Doing this without full buy-in from all partners is going to be worse than doing nothing at all,” Khan said. “That always has to be an overriding principle." Khan predicts China needs “at least a decade” to develop industry-leading advanced semiconductor manufacturing equipment. Flynn suggested the U.S. take risks to prevent China from becoming the world’s leader in advanced technology development. “We do not want the Chinese government to have access to advanced computer chips,” he said. An artificial intelligence "arms race, or a hypersonic missile arms race, or any other technology arms race is not in the best interest of the United States or global security,” he said. China's Washington embassy didn't comment Thursday.

The State Department’s Directorate of Defense Trade Controls is considering permanently revising international traffic in arms regulations so industry employees involved in ITAR can work remotely, said Wednesday's Federal Register. DDTC said, due to industry requests, it will extend through this year temporary telework measures, which had been set to expire July 31. The agency will use that time to “fully investigate the possibility and ramifications of making this modification, or a variation thereof, a permanent revision,” and may seek comments. DDTC said the extension will “provide regulated entities with staffing flexibilities” during the pandemic and it seems "regulated entities will continue to engage in social distancing measures for the foreseeable future.”

Industry and some lawmakers applauded the U.S. loosening export restrictions on drones. The State Department's Friday announcement means it will no longer subject exports of certain unmanned aerial systems to a “strong presumption of denial,” instead imposing a case-by-case review policy on a “subset” of unmanned aircrafts that fly at speeds below 800 kph. The change “acknowledges the evolution” in unmanned aircraft technology, the Aerospace Industry Association said Monday. Northrop Grumman said the new export policy could benefit its “Fire Scout” helicopters, which are unmanned and autonomous. Senate Foreign Relations Committee Chairman Sen. Jim Risch, R-Idaho, urged the administration to continue loosening export restrictions. Risch said “the permanent fix for this issue must be to treat unmanned aircraft the same as other aircraft for the purposes of export.” Committee ranking member Sen. Bob Menendez, D-N.J., called the move “reckless,” saying it may lead to the U.S. exporting unmanned aircraft to human rights abusers. It's “another reckless move by an administration fixated with eliminating the international cooperation that has made the United States and other countries safer for decades,” he said. U.S. export policy for unmanned aircraft was in “dire need of modernization,” the White House said.

The Bureau of Industry and Security has begun a broad review of new export controls on surveillance technologies going to China, which may also include additions to the agency’s entity list, said acting Commerce Department Undersecretary for Industry and Security Cordell Hull. Hull called the review “comprehensive” and “in-depth,” saying it could lead to controls over advanced surveillance tools, artificial intelligence software and biometric technologies. The effort included a business advisory for companies with supply chains in China’s Xinjiang region and a request for industry feedback on the impact of controls on facial recognition software and other surveillance technology (see 2007170024). “We have put the business community on notice,” Hull told Wednesday's U.S. Commission on International Religious Freedom hearing. Hull said BIS is pleased with the impact of its export control regime, saying the restrictions hurt China’s ability to source sensitive U.S technologies. “We believe it's working. We believe our entity listings have impacted millions of dollars of items going to these entities,” Hull said. China's embassy in Washington didn't comment Thursday.

U.K. Foreign Secretary Dominic Raab said his country wasn't “strong-armed” by the U.S. into recent actions against Beijing, saying the U.K. shares many of the same policy goals as the U.S. Instead, Raab said recent U.S. restrictions against Huawei and Chinese officials factored into U.K. policymaking. His country recently announced it's banning Huawei from its 5G network (see 2007140023). “The reality is as a result of U.S. sanctions, we’ve, of course, got to look with a clear-sighted perspective at what that means,” Raab told a news conference Tuesday in London with U.S. Secretary of State Mike Pompeo. The U.K.’s measures are “reflective" of what Prime Minister Boris Johnson believed was in "the best interests of the” British people, said Pompeo. He said he thinks Britain "made a good decision," not because the U.S. said it was a good decision but because U.K. leadership concluded it was "the right thing to do.”

The Commerce Department's new Bureau of Industry and Security agenda touches on several technology issues, our review shows. It mentions an NPRM in BIS’ effort to control emerging and foundational technologies that will request comment about how export controls might affect “legitimate commercial or scientific applications.” BIS said it aims to issue the proposed rule this month. The agenda newly mentions a final rule to adopt new emerging technology controls agreed to at the 2019 Wassenaar plenary. The new controls will cover dual-use goods and technologies. BIS said it aims to issue the rule this month. The agenda includes a new mention of a rule to control “software” for some genetics operations that need export controls.

The Treasury Department Office of Foreign Assets Control fined Amazon more than $130,000 for allegedly violating U.S. sanctions. The company processed online orders sent to a range of sanctioned countries in the Middle East and Asia, and didn't follow reporting requirements for more than 300 transactions done under a Crimea general license, OFAC said Wednesday. The company also processed orders for people “located in or employed by the foreign missions” of Cuba, Iran, North Korea, Sudan and Syria. Amazon’s sanctions screening program “failed to fully analyze all transaction and customer data,” which led to gaps in compliance, the U.S. said. The maximum penalty was more than $1 billion, but OFAC said Amazon self-disclosed the violations. Additional mitigating factors included that Amazon hadn't committed a violation in the previous five years, cooperated with the investigation and conducted an internal probe. The company didn't comment Thursday.

The U.S. government has been slow to incentivize R&D in the semiconductor industry, ceding ground to foreign governments that have been heavily investing in advanced technologies for “decades,” said Semiconductor Industry Association CEO John Neuffer. He praised a recent push by Congress and the administration to provide more such federal funding and said much more is needed. “These would be very, very important first steps,” Neuffer said in an American Enterprise Institute interview Monday. “But when you compare to some other governments, it’s insufficient.” The Trump administration has taken what it says are significant measures to attract semiconductor manufacturing and counter rising competition from China, including convincing Taiwan Semiconductor Manufacturing Co. to build a factory in Arizona (see 2006240045) and increasing license restrictions for foreign exports of semiconductors to Huawei. Instead of more restrictions on China, Neuffer said he wants more domestic spending to aid U.S. companies. He said other governments “identified semiconductors as strategic industries long ago” and “they’ve been plowing substantial amounts into attracting semiconductor manufacturing.” Neuffer said the administration “has been working behind the scenes” on incentives for the semiconductor industry, and encouraged it and Congress to move faster and raise funding levels. The White House didn't comment Tuesday.

The U.S. shouldn't address U.S. and Chinese trade tensions through decoupling, experts told the U.S.-China Economic and Security Review Commission. Instead, they recommended investing more heavily in technology research while pursuing more involvement at international standards bodies. “We need to accept that this is going to go on for the long term,” said David Finkelstein, director of the China and Indo-Pacific security affairs division at CNA, a nonprofit research group. “It's just not enough to [only] confront. We have to be positioned to compete.” The panel is preparing a report on U.S.-China competition to present to Congress in November. Kristine Lee, U.S.-China relations expert at the Center for a New American Security, said “there are a number of important elections coming up” for international bodies. The Commerce Department recently issued a rule to allow U.S. companies to more easily participate in standards setting bodies in which Huawei is a member (see 2006170031). Others advocated Wednesday for more technology investment, especially as China continues to pursue advancements in 5G and artificial intelligence. “Let's put some money into experimental, high-quality AI network-driven infrastructure,” said Barry Naughton, chair of Chinese international affairs at the University of California-San Diego. The White House didn't comment Thursday,