A House Foreign Affairs subcommittee Chairman, Rep. Brian Mast (R-FL-12), doubts China will make good on its promise to get its Institute for Forensic Studies removed from the infamous Entity List in exchange for going after China companies that sell precursor chemicals used to produce fentanyl in Mexico. The deal happened last month as part of a handful of agreements made between President Biden and Xi Jinping at the Asia Pacific Economic Cooperation (APEC) conference in San Francisco.
“This institute is behind human rights abuses of the Uyghurs,” Rep. Mast said during a hearing on Tuesday. “There is mounting evidence to me that Commerce’s Bureau of Industry and Security (BIS) is not really blocking anything going to China and that BIS’ export restrictions are in name only.”
Congressman Mast heads the Oversight and Accountability Subcommittee. Their Dec. 12 hearing to review BIS’s export controls on U.S. tech going to China saw two Commerce Department officials grilled for nearly 90 minutes on that Institute’s removal from the Entity List. Few thought it was a wise decision.
Homeland, Commerce and Defense departments each have blacklists, or Entity Lists, dominated by Chinese companies. Once on an Entity List, a U.S. company needs an export license for permission to sell certain restricted tech items. Tuesday’s subcommittee hearing called into question the efficacy of those restrictions.
For starters, Rep. Mast said that BIS has “had a lot of approvals of licenses for American tech to both Huawei and Semiconductor Manufacturing International Corporation”, two Chinese tech titans, “and have only denied less than 10% of licenses for goods sold to Entity List names in the last seven months.”
Fentanyl, the Entity List, and Acquiescing to China
China is cracking down on producers of precursor chemicals sold to Mexican drug cartels to make synthetic opioids. But do we know that for sure, Committee members asked Matt Axelrod of export enforcement at the Commerce Dept.
Exhibit A in what many on the Committee agreed to be a lackluster policy was the Institute for Forensic Studies (IFS).
Rep. Corey Mills (R-FL-7) was first the first committee member out of the gate to get the ball rolling on IFS. He asked why it was removed. The company was put on the Entity List for its impact on human rights abuses of Uyghur Muslims. None of the two government officials could say what those abuses were, nor what products they were inhibited from buying.
Thea Rozman Kendler, Assistant Secretary for Export Administration at the Commerce Department said that China requested it be removed from the list or they would not help with tracking down producers and sellers of the precursor chemicals sold to Mexican drug cartels making synthetic opioids in labs south of the border. “We were of the clear understanding that this was an impediment to them cooperating with us on fentanyl. That was clear to us,” she said.
Mills and Kendler went back and forth on this, with Kendler saying the President was not involved in the decision, which was made prior to the meeting with Xi at APEC. “Commerce, State, Energy and the Department of Defense; it was an interagency committee that had to all agree unanimously to remove IFS,” she said.
Ranking Member Jason Crow (D-CO-6) saw this as a partisan attack against the Biden administration and rushed in to defend. “What you are implying is that we are acquiescing to China’s requests,” he said to Rep. Mills. “We don’t acquiesce to other countries. Right, Mrs. Kendler?”
“That’s right,” she replied. “We look at all sources of information and go from there and we had to weigh the issue of Uyghur human rights with the fentanyl crisis in the United States.”
Rep. Crow asked her what data they used to decide to grant China this request. Kendler did not answer the question, so he turned to her colleague Matthew Axelrod, Assistant Secretary for Export Enforcement at Commerce. After stalling by saying how many people are dying from fentanyl each year here, Axelrod eventually answered. He said China had shut down some companies that were selling precursor chemicals, and was the first time they acted on this since the Trump Phase One agreement in 2020. The export of fentanyl precursor chemicals was a key subject in those negotiations. In other words, China had already promised to crack down on this in 2018 and did not.
Rep. Nathaniel Moran (R-TX-1) asked if BIS had any measurable evidence of China going after chemical-producing entities selling to Mexico.
“It’s too early to say. My understanding is that some companies have stopped operations, from what I know,” Axelrod said.
“We are basically taking China’s word for it and as a result, we are going to remove IFS from the Entity List,” Rep. Moran countered.
Axelrod corrected him, saying the removal of IFS did not happen without noticeable actions being taken by China first. “We are not going to just trust what China says,” Axelrod concluded.
“That is exactly what you did,” Rep. Moran countered. “We went ahead and gave China what they wanted before we saw the results. We haven’t seen results. Yet, we took IFS off the list; and I am willing to bet you that the precursor shipments will not go down and IFS will not be put back on the Entity List.”
On Dec. 11, CPA along with a coalition of law enforcement and national nonprofit and community-based organizations devoted to fighting against the fentanyl crisis sent a letter to the leaders of the House and Senate urging them to take immediate action to close the de minimis loophole which allows for the duty free import of narcotics priced under $800. Read the full letter HERE.
China Tech Restrictions, Barely Working?
Rep. Moran: “Egg on our faces.”
China tech restrictions are barely working: such was the takeaway from the hearing, with the two Commerce officials trying to convince the Committee otherwise. It does not look like they managed to persuade the majority in that committee hearing.
There is some concern among members of both parties that export controls hurt U.S. companies. Rep. Crow said that national security also includes the economic interests of American corporations. “We cannot be exporting critical tech that undermines national security, but we cannot impede U.S. companies that will hurt them against their competitors in a global business,” he said.
Drone maker DJI is on the Defense Department’s Entity List. The company manufactures military drones and autonomous vehicles as a defense contractor, and makes retail drones for consumers. American defense contractors cannot procure DJI drones, but American consumers can easily buy one on Amazon.
Rep. Moran mentioned South Korean companies that were selling equipment to make semiconductors. The U.S. has restrictions on domestic companies selling to the Chinese, to which point Kendler said that the policy needed international cooperation or would not go according to plan. So far, only two countries have agreed to stop selling certain chip-making machinery to China – The Netherlands and Japan. Taiwan and South Korea have not and they compete directly with the U.S. companies that need permission from Commerce to sell chip-making industrial equipment.
Rep. Mast asked about the latest White House Executive Order restricting semiconductors for use in artificial intelligence systems. Kendler said AI chips are not leaving the U.S. Mast had other ideas, highlighting again the difficulties of the export restriction policy run by BIS. “If one part of China can get their hands on a restricted technology because their supplier got a license to sell it to them, then the entire country has access to that technology,” Mast said. “Do you think China has compliance measures in place to make sure companies in one part of the country don’t get what companies in another part of the country have? Like a private business that is supported by the CCP, if the technology is not restricted to them, I would suggest that if one piece of China’s economy has it, they all have it,” he said.
Rep. Moran summed up the hearing best: “We are going to have egg on our face if we gave China what it wanted and we get nothing in return.”
