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Tangled sanctions: Demystifying the “sniper” of US technology sanctions

This is the headline of many media reports on US actions against China.

America, is there really no scruples?

Master Tan recently discovered some details that have not been paid much attention to.

In the middle of last month, the “strictest” US export controls against Huawei came into effect.

As long as foreign products containing U.S. technology cannot be exported to Huawei, Huawei’s chip supply chain has been completely cut off.

As a result, not long ago, American chip companies Intel and AMD announced that they had obtained a license to supply Huawei.

This scene seems familiar.

On May 16, 2019, the United States for the first time included Huawei and its 68 affiliated companies on the U.S. Department of Commerce’s “entity list” for export control.

Companies on this list cannot obtain components such as chips produced by U.S. companies without a special license.

As a result, four days later, the U.S. Department of Commerce announced a 90-day “temporary license” for Huawei and its partners, during which U.S. companies can still supply Huawei.

On August 19, the license expired.

On the same day, the US Department of Commerce announced again that the “temporary license” was extended for 90 days.

Sanctions first, permission later, there must be a story behind it.

Master Tan checked the information and found a report in the Wall Street Journal at the time.

To the effect, Nazak Nikahtar, a US official involved in the Huawei sanctions, “stepped down”.

Nazak Nikakhtar, formerly acting head of the U.S. Department of Commerce’s Bureau of Industry and Security.

She was nominated a month before the first sanctions against Huawei.

Four months later, the temporary license to supply Huawei was extended for the second time, and she announced her resignation.

Voices within the U.S. government appear to be at odds with the sanctions.

An important clue to understanding this disunity is the Bureau of Industry and Security.

The trader who sanctioned a series of Chinese technology companies such as Huawei and ZTE is the most “popular” “star department” in the United States in recent years.

In the past few years, the number of posts and the departmental budget of the Bureau of Industry and Security have increased year by year.

Its 2021 budget even exceeds that of the Office of the United States Trade Representative, an agency on a par with the U.S. Department of Commerce, the higher-level agency of the Bureau of Industry and Security.

Embarrassingly, this “important department” does not seem to be willing to take the lead.

The previous two heads, including Nazak Nikahtar, have resigned one after another, and the current head was only appointed in November 2019.

Intermediate positions are vacant for up to 15 months.

Why does the US cut off the supply of chips “continuously”?

Why is the department leading the sanctions bad?

The story starts with a company in Fujian.

Monday, October 29, 2018.

A factory with an investment of nearly 40 billion yuan in Jinjiang City, Fujian Province is exceptionally quiet.

In the whole yard, there was only the sound of footsteps one after another.

The company is called Fujian Jinhua and was established in 2016.

According to the plan, Jinhua will achieve a breakthrough in a chip used for memory (DRAM).

This chip can be used in almost all Electronic devices such as personal computers and smartphones.

Jinhua’s IDM integration process involves various links such as chip design, manufacturing, and packaging.

Once a breakthrough, it can drive the entire chip industry in China.

However, at a critical moment when nearly half of the equipment in a chip production line was installed, the “sniper” who had already aimed at it shot.

On October 29, the Bureau of Industry and Security of the U.S. Department of Commerce issued an announcement to include Fujian Jinhua in the “entity list”.

A group of foreign engineers who provided technical support for production equipment in Jinhua soon received an order from the company headquarters to immediately stop cooperation and return to China.

On the same day, before Jinhua’s employees could say goodbye to the R&D support staff of Applied Materials, they had already packed up and evacuated.

Other American chip equipment companies, such as American business Kelei and Kelin R&D, also hurriedly packed up and prepared to leave.

A few days later, the Dutch manufacturer ASML withdrew, and Japan’s Tokyo Electronics also suspended the supply of equipment to Jinhua.

Due to a ban by the Bureau of Industry and Security, all the machines and equipment in Fujian Jinhua were installed and the operation of assisting production was completely stopped, and the shipment of machines and equipment that had been ordered but not shipped was suspended.

Why is one institution, one list, so powerful?

Lawyer Ren Qing, who used to work in the Department of Treaty and Law of the Ministry of Commerce, mentioned a word to Master Tan, export control.

Export control is the main battlefield for the United States to maintain its technological leadership. The core is that no company may export controlled equipment produced in the United States to countries or companies that are embargoed by the United States.

The U.S. Department of Commerce’s Bureau of Industry and Security is responsible for export control of dual-use goods.

Once a business is placed on the Entity List by the Bureau of Industry and Security, all companies using U.S. technology can no longer deal with that business.

Why is Fujian Jinhua the “shot” in export control?

Tan found the original text of the announcement on the official website of the US Department of Commerce:

After reading the whole article, Tan Zhu noticed a key word, American origin technology.

In the view of the Bureau of Industry and Security, the DRAM technology originated in the United States, once mass-produced in China, will threaten the national security of the United States.

In other words, Jinhua stole Micron’s DRAM technology.

Is it theft?

Fujian Jinhua’s 32nm DRAM technology process is developed in cooperation with Taiwan’s second largest foundry, UMC.

When the “sanctions” came, the two sides already had a batch of patent achievements.

Crucially, DRAM technology is not native to the United States.

The UMC listed company in the United States once issued a statement in response to the so-called original technology in the United States:

After 2010, Micron acquired the 25nm DRAM technology by purchasing Taiwan-based semiconductor company Rexchip and Japanese semiconductor company Elpida. Completed the construction of its own DRAM product technology.

In other words, Micron is not the real establisher of DRAM technology, but acquired these technologies through capital operation acquisitions during its own development.

“Original technology” is just a rhetoric.

But since then, the U.S. has formally accelerated unreasonable sanctions on Chinese tech companies.

Export control has become the most important means of sanctions.

In 2018, including Fujian Jinhua, China added 8 to the “entity list” formulated by the Bureau of Industry and Security of the U.S. Department of Commerce.

By 2019, it had more than 10 times more than 84 new ones.

These include the first sanctions against Huawei in May 2019, which included Huawei’s 68 subsidiaries in 26 countries and regions around the world into the “entity list”.

In the first half of 2020, the Bureau of Industry and Security made another seven shots against China.

In one of them, a ban was announced to completely “cut off” Huawei chips.

Further horizontal analysis, we can see more clearly the thinking of the United States to suppress.

According to the list data disclosed by the Bureau of Industry and Security of the U.S. Department of Commerce, as of May 23 this year, China was the country with the largest number of entities on the list, reaching 362.

Among the 215 mainland companies, emerging technology companies such as semiconductors accounted for 41.4%, ranking first.

One of the key points of US sanctions has always been the most important link in the semiconductor industry chain-chips.

However, such sanctions have caused concern in the United States.

Due to the interruption of supply to Huawei and other reasons, the performance of the US chip giant Qualcomm has plunged this year. In the second quarter of fiscal 2020, its net profit fell by 29% compared with the same period last year.

During the same period, the chip giant Micron Technology, which sued Fujian Jinhua, also saw a 75% year-on-year drop in net profit.

Also in the second quarter of this year, a report was published on the website of the American Semiconductor Industry Association, which mainly analyzed the leading position of the United States in the chip field.

But after reading it carefully, there are still a few sentences, which are very meaningful.

Here’s what the report says:

Export controls will cause many foreign companies to choose to supply China with equipment and other items, and American industry will lose tens of billions of dollars in annual revenue.

The revenue was originally to fund research and development for U.S. companies to develop the next generation of chips.

With less funding, the U.S. semiconductor industry will lose out in the next round of global competition, and future customers will even be reluctant to choose U.S. equipment and other items.

It’s a vicious circle.

This vicious circle, like the recoil after a shooting, is causing more and more American businesses to suffer.

The initiator of export control, the Bureau of Industry and Security of the U.S. Department of Commerce, is also increasingly difficult to balance the so-called “national security” and industrial development.

In the past two years, in addition to chip technology, the Bureau of Industry and Security of the U.S. Department of Commerce has been trying to figure out a question, which technology exports will affect the so-called “national security”.

If you look back, this question is easy to answer.

Yang Nan of the American Institute of the Chinese Academy of Social Sciences told Tan Zhu:

The Bureau of Industrial Security, established at the beginning of this century, was originally intended to deal with the frequent terrorist threats inside and outside the United States at that time, and to prevent the flow of lethal technologies into terrorist groups and high-risk countries.

It seems very fair and reasonable.

But now, this seemingly righteous original intention has also changed.

On the official website of the Bureau of Industry and Security, Tan Zhu read the latest “entity list” list, a total of 414 pages, involving nearly 80 countries.

What does this have to do with terrorism?

Snipers are most likely to be exposed when the target is less clear.

The source of the risk is the Export Control Reform Act promoted by the White House administration in August 2018.

According to the Act, Congress authorized the U.S. Department of Commerce’s Bureau of Industry and Security to upgrade export control measures for “emerging and fundamental technologies critical to U.S. national security” and strengthen the pre-approval of related technology exports.

Powers have expanded, but at the same time, the problem of defining “emerging and foundational technologies” that affect national security is left to the Bureau of Industry and Security.

Very confused.

The first step taken by the Bureau of Industry and Security was to create a directory of comments on the export control framework, soliciting comments from domestic industry on the list of “emerging technologies.”

A “Advice for Proposed Rulemaking” published in the Federal Register on November 19, 2018 by the U.S. Department of Commerce’s Bureau of Industry and Security

According to the opinion, products and technologies in 14 fields, including artificial intelligence and machine learning, quantum computing, 3D printing, logistics technology, and biotechnology, will be included in the export control catalog.

Worry, it’s coming soon.

The New York Times obtained comments submitted by Google, GM, Qualcomm and other companies in January 2019.

They recommend keeping controls as narrow as possible, since many of the emerging technologies developed by the Bureau of Industry and Security are already taking shape in companies and research universities abroad.

Tight restrictions could end up jeopardizing U.S. technological development.

A typical letter from a company is Qualcomm.

In the letter it reads:

“Ultimately, it is far better for U.S. national and economic security for a foreign country to use U.S. technology products than for the U.S. to be forced to use foreign products.”

This sentence reminded Tan Zhu of a chat with Zhu Min, the former vice president of the International Monetary Fund.

When asked what the U.S. all-around crackdown on Chinese technology companies will bring, Zhu Min mentioned Schelling, an American Nobel laureate.

Schelling has been with the U.S. Department of Defense, specializing in game theory.

He came to an interesting conclusion:

If technology is decoupled, the party catching up will have better advantages and motivation to catch up and surpass it faster.

The United States is most worried about being overtaken, and naturally pays special attention to “emerging and basic technologies”.

In November 2019, the Bureau of Industry and Security formed an Emerging Technology Advisory Committee for this purpose to identify, classify and review emerging technologies, and finalize a list.

Tan Zhu noticed that the list of the committee’s first meeting included executives from GM, Boeing, Google, Qualcomm, Lockheed Martin and other companies.

The bosses of Boeing and Lockheed Martin should still have lingering fears on the subject of export controls.

At the end of the last century, the satellite industry, like the chip industry today, was viewed by the United States as an industry critical to national security.

In 1999, the United States introduced regulations targeting the export of satellite technology.

As a result, things backfired.

Companies such as Boeing and Lockheed Martin have moved their satellite manufacturing operations overseas, fearing that the restrictions will cripple their ability to ship overseas.

Ultimately, the U.S. market share in the satellite industry fell sharply, from global dominance to about 50 percent today.

A report from the U.S. Department of Commerce revealed this fact:

The controls have eroded U.S. competitiveness in the industry, costing the satellite industry the equivalent of about $1 billion to $2 billion in lost opportunities between 2009 and 2012.

In 2013, the United States eased export restrictions on satellite technology to China, making so-called “national security” a thing of the past.

The bullet that was fired did not hit, but instead injured himself.

Due to the sheer volume of the task of identifying the “emerging and foundational technologies” list, the Bureau of Industry and Security has successively requested additional budgets for fiscal years 2020 and 2021.

One of the important goals is to clarify the jurisdiction of “emerging and foundational technologies”.

The Bureau of Industry and Security seems to have a lot of fat, but because the draft list is hanging in the air, the differences are large, and the position of the person in charge has become a hot potato.

Nazak Nikkhtar, mentioned at the beginning, participated in the process of developing the list, and her departure is related to the contradictions within the government on the list.

To sanction or not to sanction, this is a question for the United States.

Tan Zhu recalled a report released this year by the Peterson Institute for International Economics, the report’s name is ironic: “Export Control: Another National Security Threat to the United States.”

The United States often arbitrarily uses export control measures and imposes sanctions in the name of national security.

In the end, it may be the United States itself that really affects the national security of the United States.

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