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US officials tighten restrictions on high-tech exports to China

Image credit: A Chinese government worker adjusts the U.S. and Chinese national flags before a news conference at the Great Hall of the People in Beijing, July 10, 2014

The Trump administration is tightening rules to prevent China from obtaining advanced US technology for commercial purposes and then diverting it to military use, according to a Reuters report.

Three measures, agreed to by senior US officials in a meeting on 1 April that are yet to be finalised, will introduce hurdles that could be used to stop Chinese companies from buying certain optical materials, radar equipment and semiconductors, among other things, from the US.

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

There are also indications of “growing nervousness” within the US government over China’s “civil-military” fusion promoted by President Xi Jinping, which aims to build up its military might and super-charge technological development in tandem.

China hardliners within the administration have said: “it is time to update US rules in light of the Chinese policy”. This is because some US shipments abroad 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.

It was not clear, however, if President Donald Trump would sign off on them, despite the decision last week to press ahead with their roll-out. However, 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 Washington trade lawyer Eric McClafferty. “It makes people more nervous to export to China.”

 “We urge the US 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,” Chinese foreign ministry spokeswoman Hua Chunying told a daily briefing on Thursday (2 April) when asked about the plans for tighter restrictions.

According to sources, one change would do away with the civilian exemption, which allows for the export of certain US technology without a licence, if it is for a non-military entity and use. The exception, which eases the export of items like field-programmable gate array (FPGA) integrated circuits, would be eliminated for Chinese importers and Chinese nationals.

FPGA circuits are made by several companies, including Intel and Xilinx.

A Xilinx spokesperson said in a statement: “Xilinx is aware of the proposed increased export restrictions to China and is monitoring the situation closely. We will comply with any new US Department of Commerce rules and regulations if/when they are enacted.”

Doug Jacobson, another Washington lawyer who specialises in trade, said that several of his clients were concerned about the elimination of the civilian exemption, mainly companies involved with electronics.

“It could be significant for certain companies,” Jacobson 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 change in the proposed restrictions 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, aircraft engines and certain types of computers. For example, if implemented, the measure could block certain shipments to Chinese military importers such as the People’s Liberation Army, even if they said the item would be used in a hospital.

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, sources told Reuters.

According to one informant, the Trump administration’s concern is that a lot of US allies are not as worried about China’s civilian and military fusion.

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