US set to tighten rules on high-tech exports to China

Move a bid to prevent Beijing from using the technology to strengthen its military might

NEW YORK/WASHINGTON • The Trump administration is tightening rules to prevent China from obtaining advanced US technology for commercial purposes and then diverting it to military use, several sources told Reuters.

Three measures agreed to by senior US officials last Wednesday, but not finalised, would introduce hurdles that could be used to stop Chinese firms from buying certain optical materials, radar equipment and semiconductors, among other things, from the United States.

The moves are advancing as ties between the United States and China, a key customer for American technology, sour over the coronavirus pandemic, which originated in the Chinese city of Wuhan, and tit-for-tat expulsions of journalists from each country.

They are also a sign of growing nervousness within the US government over China's "civil-military" fusion promoted by President Xi Jinping, which aims to build up the country's military might and super-charged technology development in tandem.

China hardliners within the administration say it is time to update US export rules in the light of the Chinese policy, since some US shipments are authorised based in large part on whether they will be used for civilian or military applications.

Since "the Chinese have said to us, 'anything you give to us for a commercial purpose is going to be given to the military,' what point is there in maintaining a distinction in our export control regulations?" said former White House official Tim Morrison, who was involved in drawing up the changes, in the works since at least last year.

It was not clear if President Donald Trump would sign off on them, despite the decision last week to press ahead with their roll-out.

Industry fears the new rules, which include withdrawing licence exceptions, could drive Chinese consumers into the arms of foreign rivals. "There's a chilling effect when they start taking away the availability of these licence exceptions for particular exports," said trade lawyer Eric McClafferty. "It makes people more nervous to export to China."

When asked about the US' plans for tighter restrictions, Chinese foreign ministry spokesman Hua Chunying told a daily briefing yesterday: "We urge the United States to stop this purposeful slandering and look at China's policy in an objective way and do more for the cooperation between our two sides."

One change would do away with the civilian or "civ" exemption, which allows the export of certain US technology without a licence, if it is for a non-military entity and use, sources said.

The exception, which eases the export of items such as field programmable gate array integrated circuits, would be eliminated for Chinese importers and Chinese nationals. Such circuits are made by several companies, including Intel and Xilinx.

CHILLING EFFECT

There's a chilling effect when they start taking away the availability of these licence exceptions for particular exports. It makes people more nervous to export to China.

TRADE LAWYER ERIC MCCLAFFERTY, on plans by the US to tighten rules on exports to China.

Mr Doug Jacobson, another trade lawyer, said several of his clients were concerned about the elimination of the civilian exemption, involving mainly companies dealing with electronics.

"It could be significant for certain companies," he said.

"In terms of whether that would lead to (licence) denials, who knows? But it would be an additional hurdle to jump through for a US company to sell to commercial end users in China."

Another proposed change would stop China's military from obtaining certain items without a licence even if they were buying them for civilian use, such as scientific equipment like digital oscilloscopes, airplane engines and certain types of computers.

If implemented, the measure could block certain shipments to Chinese military importers like the People's Liberation Army, even if they said the item would be used in a hospital, for example.

A final change would force foreign companies shipping certain American goods to China to seek approval not only from their own governments but from the US government as well.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 03, 2020, with the headline 'US set to tighten rules on high-tech exports to China'. Print Edition | Subscribe