Controlling for the Future: Why Export Controls Are Not Going Anywhere

• Publication year: 2024
• Citation: Vol. 1 No. 4

[Page 239]

David P. Levine ^*

In this article, the author argues that, despite the prevalence of commentators noting the various ways that the targets of export controls have been able to get around new restrictions, the future of export controls is bright. In the author's view, the United States' restrictions have been largely successful (even if not completely so), and, perhaps more importantly for the future, its allies seem on-board with the philosophical and policy goals undergirding the controls.

Introduction

The United States has, over the past five years, turned increasingly to export controls as a tool of coercive diplomacy. Deploying increased restrictions on the export of everything from advanced semiconductors to flavored cigarettes, the United States has attempted to use its economic heft to answer the varying threats it faces around the globe, but most prominently from China and Russia.

This newfound prominence represents quite the turnaround for export controls. Described in multiple news articles within the past four years as previously having been a "backwater," ¹ export controls appeared, in recent years, to be coming of age, so to speak. Beginning with former President Trump's use of the "foreign direct product rule" to choke off exports of semiconductors to Chinese tech giant Huawei, the United States then enacted sweeping controls on exports to Russia in response to the invasion of Ukraine and significant restrictions on the entire semiconductor industry in China in the face of China's increasingly aggressive military posture. American policymakers were seemingly awakened to the possibilities of just how much global commerce they could proclaim jurisdiction over and used that realization to try to advance U.S. economic and national security goals.

[Page 240]

After the initial wave of restrictions against both Russia and China, the Department of Commerce's Bureau of Industry and Security (BIS)—the agency drafting and enforcing America's "dual-use" export controls ² —received generally positive mainstream coverage for its efforts. Articles were written about the United States "hobbl[ing] China's semiconductor ambitions" ³ and strangling Russia's access to strategic goods. ⁴ Export controls were presented as more targeted, more humane, and more effective than the wide-ranging embargoes imposed on Iraq a generation earlier.

Recently, however, the shine appears to be coming off export controls' bloom. Mainstream publications are now explaining "Why Sanctions Haven't Hobbled Russia," ⁵ and warning that "China on cusp of next-generation chip production despite US curbs." ⁶ New articles appear on a seemingly regular basis reporting on the shortcomings of the export restrictions imposed by the United States and its allies over the past few years. The expectations created by the initial wave of positive press that accompanied export controls' rejuvenation has seemingly created a backlash, as enforcement took time to catch up with the new regulations and impacts have been more limited than some may have expected.

For practitioners, all this attention—both positive and negative—on a previously mostly ignored policy tool can induce cognitive whiplash. This article aims to break through the static and assess export controls' usefulness on their own merits, free from (perhaps unrealistic) expectations about their effects, and evaluate their future usefulness as the United States encounters increasingly global challenges. Despite the prevalence of commentators noting the various ways the controls' targets have been able to get around new restrictions, this article argues that the future of export controls is bright. The United States' restrictions have been largely successful (even if not completely so), and, perhaps more importantly for the future, its allies seem on-board with the philosophical and policy goals undergirding the controls.

Historical Background

Before diving into the successes and failures of the recent period of more aggressive reliance on export controls, it is worth a short review of the path the United States took to get to this point. Practitioners will be largely familiar with the general chronology, but

[Page 241]

the highlights provide useful context for the successes and failures of the most recent efforts.

Birth of the Modern Export Control System

The United States has used export controls since its earliest days, ⁷ but the modern era of controls on goods and technology began during and immediately following World War II.

During the war, Congress authorized the President to control the export of military equipment and munitions as well as certain civilian goods. ⁸ And in the wake of the destruction of significant overseas production capacity, after the war Congress sought to "reduce the inflationary effect of abnormal foreign demands upon [U.S.] supplies." ⁹

The Cold War, however, and the resulting military and economic competition with the Soviet Bloc, truly birthed the system of dual-use export controls that we are familiar with today. In 1949, Congress enacted the Export Control Act (ECA 1949) (P.L. 81-11), "the first comprehensive system of export controls ever adopted by the Congress in peace time." ¹⁰ In the ECA, Congress declared that it was now the policy of the United States to use export controls for three reasons: "(a) to protect the domestic economy [. . .]; (b) to further the foreign policy of the United States [. . .]; and (c) to exercise the necessary vigilance over exports from the standpoint of their significance to the national security." ¹¹ Subsequently, Congress passed the Export Administration Act of 1969 ¹² and then the Export Administration Act of 1979. ¹³ This latter law represents the basis for the modern Export Administration Regulations (EAR). The EAR, of course, houses the current system of dual-use controls—including the Commerce Control List (the classification system for export controlled goods and technologies), end user and end use-based controls, and licensing guidelines. ¹⁴

U.S. policymakers recognized relatively early in the process that unilateral export controls were unlikely to be successful: foreign markets presented ample opportunity to evade controls, while domestic industries would bear the cost of enforcement alone. Together with its major allies in Europe and Japan, the United States formed the Coordinating Committee (COCOM) in 1949, which focused on coordinating export controls targeting the Eastern Bloc. ¹⁵ The China Committee (CHINCOM) followed

[Page 242]

in 1952, coordinating controls targeting the People's Republic of China (PRC). ¹⁶ These committees were replaced by the Wassenaar Arrangement in 1997, which brought a wider spectrum of countries into the multilateral dual-use export control community. ¹⁷

In general, however, export controls were viewed as specialized, technical measures to keep specific technology out of the hands of bad actors. ¹⁸ The EAR was generally the province of specialists, and export control measures rarely broke through as mainstream news.

Recent Aggressive Uses Against China and Russia

If export controls were regarded as a "backwater" ¹⁹ during these previous eras, it was because controls were generally applied to a relatively narrow cross-section of goods—either purely military goods (in the United States subject to the International Traffic in Arms Regulations ²⁰ ) or those civilian goods that were likely to be used for military purposes (the so-called dual-use goods subject to the EAR). Under the Trump administration, with its desire to fulfill campaign promises for a more aggressive approach to China, however, the United States turned to export controls as another economic weapon to use in the promised trade war. Many observers expected the Biden administration to reverse course and effectively return export controls to the technocratic province it had been prior to President Trump. Those expectations, however, were confounded by the one-two punch of a bipartisan appetite for continuing pressure on China and the Russian invasion of Ukraine. Instead of repealing Trump's actions, the Biden administration put them on firmer legal footing and then used them as a blueprint for its own efforts to undermine Russia's war machine and ratchet up pressure on China.

Trump Expands Foreign Direct Product Rule Versus Huawei

The EAR's Foreign Direct Product Rule, or FDPR, is a feature of the U.S. export control system that, before the Trump administration, had been used primarily with reference to specialized rocket and missile technology and other national security-related concerns. The FDPR is based on a theory that the United States has jurisdiction not only over products that originated in the United States, but over products produced overseas but based on technology or using equipment that itself originated in the United States. ²¹

[Page 243]

While the FDPR is based on an expansive theory of jurisdiction, it was able to fly under the radar for many years because it was not applied to broad swaths of goods or in particularly contentious circumstances. ²²

The Trump administration, however, saw the potential that such an expansive grant of jurisdiction presented. Because the United States occupies a unique position in the global supply chain—it does not actually produce many of the end products, but does provide the technology and intellectual property behind many advanced chip-manufacturing tools—an assertion of control over equipment with any American components or technology meant that the United States could exert significant leverage over the entire semiconductor market. In May 2020, the Trump administration applied the FDPR to, effectively, any semiconductors bound for Huawei. ²³ This meant that virtually any semiconductor manufacturing facility that used American equipment or American technology was prohibited from selling their chips to Huawei. According to market figures cited by the New York...