The Bureau of Industry and Security (BIS) — the agency Washington relies on to enforce export licensing controls to ensure sanctioned technology does not reach certain countries — said Tuesday it is struggling to handle a dramatically increased workload caused by the ever-growing number of Chinese companies added to the U.S. Entity List, thanks to geriatric technology and systems.
“Over the past six years, BRI policies have subjected increased trade volumes to [Peoples Republic of China] The PRC has submitted license applications for strategic reviews, and BIS has conducted strategic reviews of those applications, including with publicly traded entities, BIS said in a review. [PDF] from his recent mission to supervise trade with the Middle Kingdom.
The regulator said the number of Chinese entities on the Entity List — Uncle Sam’s catalog of organizations with which U.S. companies are prohibited from doing business — has grown from 218 in 2018 to 787 in 2023. BIS processed nearly 4,000 license applications involving parties on the Chinese Entity List during those years.
The agency attributed a “substantial” increase in the total number of license applications to the inclusion of Huawei and SMIC on the list in 2019 and 2020 respectively.
BIS has historically used a largely manual process designed in 2006 to collect licensing data – a method it acknowledges is resource-intensive and exposes it to the risk of human error.
The office said it is working to improve internal systems and processes that will, in turn, strengthen internal analytical capabilities.
“However, the state of the fundamental systems that were not designed to communicate seamlessly with each other, coupled with the need for human verification of the accuracy of the underlying data once extracted, required a substantial commitment of staff time to execute in a manner that ensures an accurate product,” he conceded.
The regulatory agency said it is committed to working with Congress to secure funding that will allow it to modernize the central licensing system.
One reason for the increase in requests to the agency — and the resulting overload on the system — is that the Entity List has outgrown its original purpose. When it was launched in 1997, it was supposed to “inform the public of entities that have engaged in activities that may result in an increased risk of diversion of items to weapons of mass destruction programs.”
The grounds for inclusion have expanded considerably over the years and today still include foreign persons who may be involved in matters contrary to national security.
But just because BIS’s processes are the same doesn’t mean its policies are the same. For example, it introduced a Foreign Direct Products Rule (FDPR) that it applied to Huawei—a move it defends as having “[given] The U.S. government exercises unprecedented control and visibility over these entities’ access to U.S. technology and foreign-made items” subject to this rule.
The agency also said its increasing focus on nationwide controls allowed it to identify strategic sectors and items based on technological capabilities – an approach it called “more sustainable and effective” than case-by-case licensing reviews.
Of the approximately 4,000 entity list applications BIS has reviewed over the past six years, about two-thirds (worth $335 billion) have been approved. The remainder (worth an even larger $545 billion) have been denied or revoked.
BIS also let slip that since the beginning of 2024, it has already revoked eight additional licenses involving Huawei. ®
