New Chip Export Controls and the Sullivan Tech Doctrine with Kevin Wolf
How the US intends to outpace China in force-multiplying technologies
The US Commerce Department this past Friday dropped 100+ pages of new export control regulations that have the potential to reshape the future of the global semiconductor industry. Will these regulations stop China from getting below 14nm? Is that a goal even worth pursuing? And what are the trade-offs baked into taking a unilateral vs multilateral approach?
To explain what it all means, over the weekend I had on the podcast Kevin Wolf, partner at the law firm Akin Gump and former Bureau of Industry and Security (BIS) official with thirty years' experience in the field. He represents many of the firms impacted by this new regulation.
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The Sullivan Tech Doctrine
Jordan Schneider: On September 16th, National Security Advisor Jake Sullivan announced a new policy on how the US should think about leadership and key technologies. He said:
Fundamentally, we believe that a select few technologies are set to play an outsized importance over the coming decade.
Computing-related technologies, biotech, and clean tech are truly “force multipliers” throughout the tech ecosystem. And leadership in each of these is a national security imperative.
On export controls, we have to revisit the longstanding premise of maintaining “relative” advantages over competitors in certain key technologies. We previously maintained a “sliding scale” approach that said we need to stay only a couple of generations ahead.
That is not the strategic environment we are in today.
Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.
Kevin, where were you when you heard the Jake Sullivan speech?
Kevin Wolf: That's actually a good way of putting it, because it is a transformational document in terms of the thinking and the philosophy of what national security means in the context of export controls. During the Cold War, the rules governing the movement of commodities, technology, software, and sometimes services between the US and the Soviet Union/Eastern Bloc had a larger strategic element to them. What changed, with the end of the Cold War, the rise of the current multilateral regime system, and the Wassenaar arrangement being created in 1996, was the focus of export controls on the inherent nature of commodity software and technology that were identifiably related to the development, production or use of either weapons of mass destruction or their means of delivery or conventional weapons.
After 9/11 some anti-terrorism aspects were added in, but they were not strategic controls. They were overtly not focused on specific countries. The laws of the allies are governed almost exclusively by the structure of lists and specific items that are identified for one of those WMD or conventional-weapons applications.
What changed, frankly, is China's technology acquisition policies, [including] acquiring commercial technologies in order to help modernize its military, the use of a state policy of achieving strategic economic dominance in key sectors for the economy that are also critical for the modernization of a military, [and] the use of commercial items to commit human rights abuses. There [needed] to be a fundamentally new way of thinking about what national security means with respect to China's strategic economic ambitions, civil-military fusion policies, human rights abuses, etc. With the Export Control Reform Act, which passed in August of 2018, there was a mandate to the agencies to start identifying the types of emerging and foundational technologies that didn't fit within the traditional concept of what export control should be for.
Congress didn't define what national security meant outside their traditional context. The Trump administration issued different rules and made some specific edits within this broader concept of “emerging and foundational”, but never really articulated a clear vision of what national security with respect to China meant when you get outside the traditional objectives.
The Biden administration hadn't either, until the Jake Sullivan speech. He did exactly what you just said: that we must think about force-multiplying technologies, high-end compute capabilities, advanced node semiconductor capabilities, quantum and AI applications… Not in the traditional sense of export controls, because each one of those items has inherent characteristics that are identifiable with respect to WMD or weapons in the classical sense of export controls. But we need to think, as he said quite clearly several times, about controls on a strategic basis, because those are force multipliers for other items of great significance: for purposes of competitive economy and advancing and modernizing a military.
Jordan Schneider: When you see a strategy like that, you are then waiting on pins and needles for how it's going to manifest. Kevin, what's in these regs?
Kevin Wolf: The short answer is: any of the inputs, tools, technology or software, whether US- or foreign-made, and any services in support of basically all the things that in Jake Sullivan's speech are now subject to some form of regulation. By regulation, I mean a licensed permission from the US government is required. It articulates, at the beginning of the rule, a much more focused and lengthy description of the general principles than were laid out in the Jake Sullivan speech.
The policy objective, [which is] the problem to be solved, is that China has mobilized vast resources to support its defense modernization and civil-military fusion strategy by targeting and affecting advanced computing and advanced node semiconductor manufacturing.
Strategic Motivations for Export Control
Jordan Schneider: Let's talk about the strategic thesis behind this, which is that 14nm and below is scary from a US national security perspective. The document makes the argument that this is because you can design missiles better and have awesome hypersonics that you couldn't if you weren't making or importing these chips.
I'm sure another reading of this is America just wants to be on the cutting technological edge for a long-term economic edge. What is the goal as BIS is defining it, and do you think it is justified?
Kevin Wolf: Between imposing controls on items that are critical to making advanced military items and WMD, etc., and a goal to have as a purely economic objective, there's nothing in this rule that indicates that the latter is the motivation. The overt articulation is that over time, you need advanced computing capabilities in order to modernize your military and make more advanced weapons. What's slightly different than what the traditional type of controls has been is the relationship between the specific item and the policy concern.
The classical view of export controls up until now is that there was much more of an identified relationship between WMD, the military item, and the actual item going into it. Is it radiation-hardened? Does it operate at a particular capability? Does it have a frequency that's used in military radar?
This basically goes back several layers before in the food chain: in order to get to the point for all sorts of other applications to make modern military items, you need to have an ecosystem that has advanced computing capabilities. For those things to function, you need advanced node semiconductors. For advanced node semiconductors to exist, you need certain types of production equipment and software. For those things to be put together, you need services of US persons behind it.
There's no doubt that the overwhelming number of applications for everything described in this rule are commercial. I want to emphasize: the controls that have been in place for a very long time already regulate, and in fact completely embargo for China, any type of item, whether it's sophisticated or simple, that's in any way modified, changed, altered, intended, or designed for a military application, satellite, or missile application.
[The items that these new regulations address] are items that don't have, by definition, any particular modifications, and are inherently commercial in their main application. But what Jake Sullivan said, and what the Commerce Department said, is that those capabilities are foundational to creating the military and other items of concern, even if these items themselves have not been modified for military applications.
Jordan Schneider: An exoscale computer can run meteorology and climate models. They can also run ballistic tests. I guess the argument is that if you sell these chips, you don't know where they're going, and because of the national security implications of leading node technology you end up not being able to play the game that export controls classically played.
What do you think are the good and bad arguments for going this route?
Kevin Wolf: I do think it's directly responsive to this need for a new way of thinking about national security with respect to the specific, unique, and significant threats that China presents. In my personal view, I think it's direct and responsive.
In [its] scope and the fact that the effective date was immediate for Friday, there was no opportunity for companies to think about what the implications, unintended consequences, or impacts on the supply chain would be. In that sense, it's awkward. But I also see the reason why they went forward without notice and comment. They overtly say this is not technically an emerging and foundational technology control even though it's all about emerging and foundational technologies, because that part of the Export Control Reform Act, requires public notice and comment for any rules that are under that new authority.
What they said is that the issue with China is an emergency.
There was probably also a concern about stockpiling. If they identified too loudly what their plans were, then companies would send ahead items that were thought to be controlled. That's a constant dilemma with export controls.
Jordan Schneider: Can you talk about how much work must have gone into writing these?
Kevin Wolf: This is an extraordinary amount of work. Although complex, it's really quite thoughtful in the way in which it, from an export control regulatory perspective, addresses the instructions given to them by the National Security Advisor.
Although comprehensive, it's really tailored to address the very specific high-performance computing and advanced notice semiconductor concerns. It's not a broad decoupling agenda.
This is clearly intended to not try to affect global supply chains of mature node semiconductors and other items that are used for widely available commercial items. Thanks and kudos to the leadership and staff at BIS for getting out a really thoughtful, but clearly difficult, rule.
They acknowledge upfront that there will be mistakes. When you're moving on something this big, it's not just going through one person's brain. This also has to go around and get inter-agency clearance. Nothing publishes out of BIS unless at least the Departments of Commerce, Defense, State, and Energy have also reviewed, cleared, and commented as well. The inter-agency drafting process can sometimes lead to inconsistent outcomes as part of the clearance process.
A Tour of the Regs
Jordan Schneider: Fair enough. Kevin, what's in the regs?
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