Executive Summary
New technologies and shifting market and political forces are leading many countries to reevaluate their export control
regimes. In July 2019 AmCham Shanghai spoke with the export and trade compliance managers, executives, consultants and
supply chain managers of 16 of our member companies regarding the recent changes to the United States Department of
Commerce’s Export Administration Regulations (EAR) and their corresponding negative effects on their respective businesses
and industries in China.
AmCham Shanghai worked with these companies to identify definitive industry impacts resulting from
the recent changes to 1) the Entity List, 2) the Unverified List (UVL), and 3) the proposed rules on emerging and foundational
technologies. Our interviewees argued that U.S. export control regulations are confusing and burdensome, and often place
U.S. business entities at a competitive disadvantage while not substantially protecting U.S. national security and foreign policy
interests. Several major areas of negative impact were identified and are detailed below.
Loss of Revenue. The companies confirmed significant losses in revenue through canceled orders and lost sales as current
customers and future sales prospects were included on either the Entity List or UVL. Specific sectors such as the semiconductor
industry were particularly hard hit.
Reputational Damage. U.S. regulatory restrictions preventing certain U.S. companies from competing in China, or otherwise
impeding the ability to do so, result in reputational damage which easily spreads to all U.S. entities operating in China. The
American reputation for reliability and trustworthiness is the cornerstone of American commercial competitiveness in China.
This reputation is diminished with every blocked contract, sale, or delivery, undermining Chinese consumer confidence in U.S.
imports.
Unilateralism Harms Competitiveness. A unilateral approach to export control is ineffective. Chinese consumers can source
many blocked items from non-U.S. sources. Ironically, unilateral control may accelerate China’s development of emerging
technologies through nationalization and the strengthening of local industries in mainland China.
Politicization of National Security Damages Trust. The U.S. actions against Huawei have become overly politicized, causing a
widespread perception in China that the U.S. is shrouding its true intentions — to use Huawei as a political cudgel or bargaining
chip — behind a veneer of national security. This has resulted in a breakdown of trust between American suppliers and Chinese
customers.
Legal Opacity. The constant revision of Huawei-related restrictions creates a compliance minefield for U.S. companies. U.S.
companies must continuously consult legal counsel or outside consultants, often at great expense, to ensure the correct
implementation and modification of compliance procedures to ensure adherence with U.S. regulations. Some also expressed
growing frustration over a perceived increase in difficulty in obtaining U.S. Commerce export licenses to China for certain
sectors such as semiconductors.
Policy Announcements too Sudden. New export control policies are often announced without warning or substantive guidance,
depriving industry of the time necessary to analyze, develop and implement new compliance procedures. This not only
exposes industry partners to increased compliance risk, but weakens U.S. national security and policy goals, through the
rushed implementation of partial, inadequate, unproven and potentially ineffective procedures and practices.
License Processing too Long; Review Times too Short. Department of Commerce review times for license applications
necessary to continue supplying companies such as Huawei are overly protracted. Onerous documentation requirements and
an unrealistically short response window for Bureau of Industry and Security (BIS) to verify the bona fides of certain Chinese
entities results in too many Chinese entities being unnecessarily added to the UVL.
Recommendations
Preparing New Regulations
• Regulations centered on emerging and foundational technologies should be tailored to avoid unwarranted
restrictions. Only truly sensitive technologies should be targeted.
• Partner with industry where possible to build better understanding and consensus regarding potentially targeted
technologies and their current availability world-wide.
• Reward companies that have strong compliance programs with certain exceptions to the normal requirements of
the EAR, like the ability to use license exceptions or a streamlined export licensing process.
• Consider rewarding companies with verified strong compliance programs with additional exceptions pursuant
to the EAR to conduct business without a license, such as the ability to use license exceptions or a streamlined
export licensing process. Due diligence investigations by industry regarding the verification of end-user(s) is often
more thorough than similar verification checks performed by BIS.
Regulation Implementation
• New regulations on emerging and foundational technologies should not be a standalone endeavor but should
involve partnership with allies and signatories to existent multilateral control regimes.
• Consider industry impact of placing companies on the Entity List and allow a comment period for industry
consultation. Targeted Chinese entities are often able to source from other suppliers worldwide, unduly punishing
U.S. commercial interests while failing to enforce the desired security or policy concerns.
• Alert industry to major policy changes and allow companies an adequate timeframe to enact the necessary policy
changes to ensure effective compliance.
Lessening the Compliance Burden
• Ensure BIS is adequately staffed thus ensuring license applications are processed effectively and in a timely
manner.
• Ensure that both openness and transparency are maintained to the greatest degree possible.
• Invest further in U.S. commercial competitiveness with more funding to critical industries. The Chinese government
currently invests far more than the U.S. government does in industries like AI. One of the best ways to safeguard
national security is by strengthening U.S. commercial interests abroad.
To read the original report, click here
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