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Economy

Washington’s Multilateral Export Control Impasse

Oct 14, 2022
  • Joseph Vaughan

    Master, Johns Hopkins University School of Advanced International Studies
  • Justin Feng

    Graduate, Johns Hopkins School of Advanced International Studies

Introduction

Amid the deepening mutual distrust between the United States and China, export controls have taken center stage in the Washington discourse over strategic competition. In mid-September, National Security Advisor Jake Sullivan endorsed the use of export controls to keep adversarial states “as far back as possible” in certain “foundational” technologies, including semiconductors. Only weeks later, the Biden administration delivered on Sullivan’s remarks with an exhaustive package of new measures restricting advanced AI chips, semiconductor manufacturing tools, and even the freedom of U.S. citizens and permanent residents to work in China’s chip industry. 

In a recent piece titled “CoCom’s daughter?,” as if anticipating such an escalation, Kevin Wolf and Emily Weinstein called for the creation of a modern-day successor to the Cold War-era Coordinating Committee for Multilateral Export Controls (CoCom), which was aimed at keeping critical “dual-use” technologies out of Soviet and Chinese hands. The now-defunct CoCom convened in response to Moscow’s 1948-9 blockade of Berlin—an act of aggression that also catalyzed the establishment of NATO and the partition of Germany into two separate republics. By 1953, CoCom’s membership had come to exactly mirror that of NATO, along with Japan. Initially, the group accepted Washington’s wide-ranging export controls on hundreds of items from commodity metals to high-tech electronics. 

Wolf and Weinstein’s proposed export control regime would consist solely of U.S.-aligned “techno-democracies” willing to adopt more muscular rules against adversarial states. On paper, it appears consistent with the Biden administration’s approach of creating new multilateral initiatives to backstop unilateral attempts to cut off Chinese firms’ access to Western technology. But is a CoCom-style framework feasible given the extent of China’s economic integration with U.S. allies in Europe and Asia? The significant structural differences between the Soviet Union and present-day China suggest that a new U.S.-led multilateral export control regime would likely fail to match both CoCom’s breadth of international support and the severity of its restrictions. 

Export Controls and U.S.-China Semiconductor Competition

In recent years, growing U.S. alarm over the perceived national security risks posed by China’s domestic semiconductor development program has provoked a rapid proliferation of export controls against Chinese tech companies. The Obama and Trump administrations both separately placed ZTE, China’s second-largest telecommunications equipment maker, on the Entity List maintained by the Commerce Department’s Bureau of Industry and Security (BIS), on charges that the company had violated U.S. sanctions on Iran and North Korea. (American companies must obtain a license from BIS in order to sell to firms on the Entity List.) BIS has since added dozens more Chinese tech firms to the Entity List and other sanctions lists for their alleged ties to Beijing’s military-industrial complex, including national champions such as smartphone and 5G giant Huawei and China’s largest chipmaker, Semiconductor Manufacturing International Corp (SMIC). 

In addition to targeting more companies, Washington has also greatly expanded the number of items covered under its export controls, most notably in its sweeping and remarkably specific October rules. Both the Trump and Biden administrations have now sought to exploit China’s supply chain vulnerabilities through the controversial foreign direct product rule (FDPR)—an extraterritorial provision requiring third-country suppliers whose products depend on U.S.-origin technology to stop selling to customers based in China. The Trump administration prevailed upon the Dutch government to stop lithography equipment maker ASML from selling its advanced extreme ultra-violet (EUV) machines to China. In a move that could cripple China’s semiconductor manufacturing base, the Biden administration is reportedly lobbying to extend this ban to include deep ultra-violet (DUV) immersion lithography machines—a more mature and pervasive technology. 

The Biden administration appears eager to complement its unilateral export control policies with more inclusive policy dialogues. Its plurilateral initiatives include the Chip 4 alliance, the U.S.-EU Trade and Technology Council, the Quad’s Critical and Emerging Technology Working Group, and the Indo-Pacific Economic Framework (IPEF). Among these, the Chip 4 alliance—a nascent semiconductor-focused working group between the United States, South Korea, Japan, and Taiwan—has been described as a potential “rough draft” of an emergent export control regime. But while the members of Chip 4 may agree on the need for increased supply-chain coordination, alignment on tougher controls against Beijing will likely prove a heavier lift. Cutting off China’s access to the four countries’ producers in wholesale fashion would slash revenues that the industry depends upon to fund its enormous R&D needs—endangering their capacity to innovate in the process. 

The Biden administration’s uneasy blend of multilateralism and demonstrated willingness to wield export controls as—in Jake Sullivan’s words—a “strategic asset” against American adversaries reflects the diplomatic challenges involved in assembling a modern-day CoCom. After the devastating multilateral sanctions inflicted on Russia in response to its invasion of Ukraine, including export controls on an unprecedented scale, Washington’s enthusiasm for a revival of economic alliances is perhaps understandable. But the real test of a new multilateral export control regime will be whether its members can forge a common approach to doing business with China, a country that at once embodies both enormous market opportunity and acute competitive threat. 

Anticipating the New Multilateral Export Control Regime

Proponents of a new export control regime make two primary claims. First, they argue that unilateral controls are sub-optimal and possibly even self-defeating in the long run. Highly motivated firms in targeted countries can simply find substitutes from third-country suppliers, placing competitive pressure on the blocking country’s domestic industry. Second, they contend that existing multilateral export control regimes lack the capacity to challenge novel threats such as China’s military-civil fusion program. Of the four regimes currently in place, three—the Australia Group, the Missile Technology Control Regime, and the Nuclear Suppliers Group—limit their scope to matters of weapons non-proliferation. 

The fourth and most recent 42-member Wassenaar Arrangement is distinctive in that its remit extends beyond weapons per se to encompass the notoriously vexing category of dual-use goods—items with both military and civilian applications. Semiconductors, thanks to their role as the foundation of modern computing power, are arguably the most important such item. However, critics argue that Wassenaar, which operates by consensus and includes Russia as a member, fails to meet the unique challenges posed by China’s state-capitalist system. The Wassenaar Arrangement’s softer rules, combined with Beijing’s rapid technological development and more assertive foreign policy, have prompted analysts such as Wolf and Weinstein to advocate for a new regime capable of curtailing China’s access to vital dual-use technologies produced by countries within the U.S. alliance structure. 

During the Cold War, many U.S. allies’ relatively greater dependence on trade with the Soviet Union created a natural tension at the heart of CoCom. As the perceived national security threat from Moscow gradually diminished, the temptation for suppliers to circumvent CoCom increased. Commercial considerations eventually forced Washington to accept significant cuts to its desired list of restricted exports. Given China’s centrality to the current global structure of trade, a revived CoCom would face even greater coordination challenges. Compared to the Soviet Union, China today boasts a more globally integrated economy, especially in manufacturing, and poses less of a direct security threat to many U.S. allies. This juxtaposition suggests that the Biden administration may struggle to form a durable united front among key supply chain actors that is both broad enough to close off third-country loopholes and forceful enough to slow China’s technology development drive. Longer term, failure to unify export controls at the multilateral level could place American tech firms, subject to a more stringent export regime than their peers overseas, at a material competitive disadvantage.

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