Hello from Washington, where Donald Trump has just tried to combat the effects of coronavirus on the US domestic food supply chain by ordering slaughterhouses and meat processing plants — which have become coronavirus hotspots — to stay open. As many as 20 had closed because of widespread infection among the workforce.
In today’s main piece, we unpack some export control adjustments for US tech companies sending their knowhow to China — which the commerce department sent out into the storm of a news cycle jammed with coronavirus — and gauge industry reaction. Our person in the news is Graciela Márquez, Mexico’s economy minister, while our chart of the day highlights the fall in UK services sector sentiment.
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‘If you’re a China hawk, you’re very happy’
Coronavirus continues to dominate the news in Washington, but that didn’t stop the US commerce department from this week sneaking out a note alerting us all to check the Federal Register, where new rules and regs get posted. There we found some alterations to existing export controls designed to keep US semiconductors and chips out of the hands of the Chinese military.
Washington has long been worried about Beijing forcing private Chinese companies to transfer technological knowhow to the military, helping the Chinese state grab emerging US technology for the People’s Liberation Army. The US has grown increasingly anxious about supply chains as a result.
Chinese telecoms company Huawei has become something of a poster child for this. In February, US prosecutors alleged that Huawei was a criminal enterprise and accused the Chinese group of stealing technology from US companies, as well as violating sanctions and making false statements to the FBI. Last May, the commerce department also put Huawei on its “entity list”, meaning US companies need a licence to sell it equipment.
The three changes to rules put out by commerce officials are really two eliminations of carve-outs whereby a company did not have to apply for a licence to send tech to China under certain circumstances, and one expansion of an existing rule.
First up: the US government allows companies to send technology that is regulated and monitored because of its potential national security uses to civilian Chinese companies without a licence. That exception has just been pulled.
One lawyer tells Trade Secrets that this could have quite significant impacts on US technology companies employing Chinese workers in the US. The administration assumes that a Chinese employee returning to China is the same as an export — but if the technology is being used for civil purposes then it’s covered by the existing exemption. Companies now face having to apply for a licence for every Chinese worker.
The second elimination applies to re-exporting rules. The US claims extraterritorial jurisdiction over American goods when they’re sent from one country to another, even if the US is not otherwise involved in that trade. Washington has been letting companies use the licensing and export rules of some of the countries they’re exporting from, implying trust in allies. That exception has now been pulled — companies will have to apply to the commerce department for a licence. So far there has been little reaction to this from US companies, lobbyists say.
The third is an expansion of a Bush administration rule prohibiting the sale of US technology to Chinese companies for military use — a licence is now required for any sale to a private company that in any way supports military use, even if it’s broadly a civilian company.
Mike Pompeo, US secretary of state, banged the drum on ‘civil-military fusion’ during a speech to Silicon Valley firms in January © Nicholas Kamm/Reuters
All of this fits into the Trump administration’s big theme of “civil-military fusion”. In January, US secretary of state Mike Pompeo banged the drum on this in a speech to Silicon Valley firms, warning them that Chinese companies and researchers “must — I repeat, must — under penalty of law, share technology with the Chinese military”. But it’s a longstanding preoccupation.
John Neuffer, chief executive of the trade body for semiconductor manufacturers, said that the companies were worried the rules would “unnecessarily expand export controls” and “create further uncertainty” for the industry. But it was also ploughing through the nuances of the rules and would wait to see how they were implemented.
The one practical conclusion we can draw from this is that companies will have to apply for a lot more licences, and carry out a lot more due diligence, when dealing with China. The cost of doing business has just been raised. As Kevin Wolf, a Washington trade lawyer, puts it: “If you’re a China hawk, you’re very happy.”
Charted waters
UK industrial production is running just above half of its capacity while sentiment in the services sector has dropped to an all-time low in April as businesses shut down in an attempt to limit the spread of coronavirus. The economic sentiment indicator for services dropped to minus 58.8 in April, from minus 9.3 in March and the lowest since records began in 1997, according to data from the European Commission.
Person in the news
Graciela Márquez, Mexico’s economy minister, concluded four years of negotiations with the EU by announcing a new free trade agreement © Gerardo Luna/NOTIMEX/dpa
Who is it?
Graciela Márquez, Mexico’s economy minister
Why are they in the news?
On Tuesday, Mexico and the EU wrapped up four years of negotiation with a new free trade agreement that will make virtually all trade in goods between them duty free.
The deal includes measures to fight corruption and money laundering as well as investment protection, sustainable development in line with the Paris climate accord and simpler customs rules to boost exports.
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