Tag Archives: Chinese Imports

Will Foreign Companies Start Ditching American Dual-Use Tech?

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Proposed changes to U.S. Commerce Department rules could have immediate and lasting negative effects for U.S. exporters. (Eric Risberg/AP)

DEFENSE NEWS

The International Traffic In Arms Regulations (ITAR) are a set of government regulations administering the export, re-export and import of defense-related articles, services and technology on the U.S. Munitions List, or USML.

Unlike the Cold War, the high degree of technology integration with China results in a paradoxical interdependence, the remedy for which includes, not only finely tuned adjustments to U.S. investment and export control regulation, but also an informed embrace of a competitive strategy of investment.

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“Largely the result of European space and defense manufacturer design outs, the “U.S. International Trade in Arms Regulations-free” movement began in the 1990s. Since that time, the ITAR-free movement has diffused into other industry sectors and regions. For example, in 2017, the German Ministry of Defence announced tenders for new assault rifles for the German armed forces. The tender included an ITAR-free exclusion criterion not only for the rifles but for supplies as well. India’s space program is working with vendors on the basis of ITAR-free systems.

ITAR controls are highly stringent, so much so that the Obama administration in 2010 initiated the Export Control Reform Initiative to streamline controls to make them both effective and to increase American competitiveness.

As the U.S. government controls the re-export of USML items, the ITAR are an internationally well-known quantity. In many instances, foreign defense product producers and consumers know the ITAR more intimately than their U.S. counterparts. Transferring or re-exporting U.S. defense items requires U.S. government approval no matter how seemingly trivial the part or mundane the transfer. The practical effect of ITAR requirements makes U.S. defense items very sticky and cumbersome; therefore: the ITAR-free movement.

In terms of other strategic items, the U.S. Department of Commerce licenses the exports of dual-use components in a similar manner, albeit to a much more nuanced degree. The Export Administration Regulations, or EAR, require consumers of U.S.-origin dual-use items to seek licenses for re-exports and transfers of said items depending upon the amount of U.S.-origin technology/components and/or the proposed destination of the transfer. In contrast to ITAR controls, EAR re-export and retransfer controls are simultaneously more complicated, but more flexible.

The Trump administration’s on-going technology war with China is now bleeding into the arcane world of the EAR. Recently, the Commerce Department announced its intention to revise two EAR provisions that regulate U.S.-origin technology incorporated into foreign-produced products. Apparently, the effort is born out of frustration with the government’s limited ability to curtail exports (or, more precisely, re-exports) to Huawei. Revising the two provisions — the de minimis and direct product rules — would allegedly further empower the government to limit Chinese and others’ acquisition of EAR-controlled items. However, several major U.S. technology companies have warned about the dire consequences of revising the rules, particularly if they are modified against specific targets.

At a recent meeting of the Department of Commerce’s Regulations and Procedures Technical Advisory Committee, Assistant Secretary of Commerce for Export Administration Rich Ashooh said of changes to the direct product and the de minimis rules: “We are looking at those two and many others,” noting that “the U.S. has entered a new realm when it comes to export controls.” The looking-glass notwithstanding, the tech sector is decidedly spooked.

In a recent letter to Commerce Secretary Wilbur Ross, a consortium of tech industry trade associations cautioned that further tightening of technology controls would “encourage the design-out of U.S. technology by non-U.S. firms, while also imposing massive new compliance burdens for U.S. and non-U.S. companies alike …. and …. could set a dangerous precedent.” The current private sector admonishments are of piece with earlier jeremiads about overly burdensome U.S. product and technology controls. The effects for this current round of tech redlining could very well be the same: EAR-free foreign products.

The other cautionary note concerns market exit. Last month, the RISC-V Foundation, which directs the development of an open-source instruction set architecture for central processing units, announced that it will incorporate in Switzerland from its current corporate address in Delaware. The RISC-V Foundation chief executive, Calista Redmond, observed about the move: “From around the world, we’ve heard that ‘If the incorporation was not in the U.S., we would be a lot more comfortable.’ ”

Similar warnings were also articulated in comments to the Department of Commerce’s advanced notice of proposed rule making regarding emerging and foundational technologies. One commenter conjectured: “If significant controls were to be imposed …. then the employees and foreign companies will usually choose to leave the United States and take their skills to foreign competition.”

In addition to potentially cooling U.S.-based technology exports, Pyrrhic control parameters could also accelerate technology autarky efforts in the target economy (i.e., China). Ironically, the ensuing panicked reaction to Beijing’s announcement of its Made in China 2025 policy has only accelerated Beijing’s efforts to create an autonomous –— or at least non-U.S. based — innovation ecosystem.

In 2018, Chairman Xi Jinping asserted that “self-reliance is the foundation for the Chinese nation to stand firmly in the world, while independent innovation is the only way for us to climb the peak of the world’s science and technology.” Even for countries not in the market for tech self-sufficiency, there is an increased general appetite for a U.S.-free alternative, either homegrown or non-U.S. sourced.

Based on the preliminary responses from U.S. and foreign technology companies, the proposed Commerce rules changes would have immediate and, perhaps, lasting negative effects for U.S. exporters.

The ITAR-free moniker is bad enough; do we really need an EAR equivalent?”

https://www.defensenews.com/opinion/commentary/2020/01/22/a-slippery-slope-will-foreign-companies-start-ditching-american-dual-use-tech/

Chinese-Made Surveillance Equipment Sold To U.S. Military

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Photo: Getty Images

CYBERSCOOP

Aventura Technologies  is accused of lying to customers, including the U.S. military, for over a decade by claiming to make their equipment in Long Island while surreptitiously importing it from China. 

In doing so, Aventura exposed its customers to “serious, known cybersecurity risks, and created a channel by which hostile foreign governments could have accessed some of the government’s most sensitive facilities.

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“U.S. prosecutors on Thursday announced charges against a New York company and seven of its current and former employees for allegedly selling Chinese-made surveillance equipment with known cybersecurity flaws while falsely claiming the technology was made in the U.S.

The U.S. Air Force, Navy, and the Department of Energy were among Aventura’s clients.

Jack Cabasso, the company’s de facto owner, his wife, Frances, and other senior company executives were charged with conspiracy to commit wire and bank fraud and “unlawful importation,” prosecutors said. Four of the defendants were charged with defrauding the U.S. government by falsely asserting that Aventura was owned by Frances Cabasso in order to win government contracts reserved for female-owned firms.

Six of the accused were arrested Thursday morning, authorities said. The fate of the seventh defendant wasn’t immediately clear. U.S. authorities also seized the Cabassos’ 70-foot yacht and froze some $3 million of the defendants’ ill-gotten gains, the Justice Department said.

Neither a spokesperson nor an attorney for Aventura could be immediately reached for comment.

In a statement, U.S. Attorney Richard Donoghue accused the defendants of “padding their pockets with money from lucrative contracts without regard for the risk” to U.S. national security posed by their products. The company made more than $20 million off of federal contracts, U.S. officials said.

The announcement is just the latest example of Chinese technology, which U.S. officials have often tried to exclude from government supply chains, slipping into the government’s procurement process. On Wednesday, Sen. Marco Rubio, R-Florida, wrote to the Department of Defense asking why more than 2,700 Chinese-made surveillance cameras had reportedly been installed at U.S. defense facilities.

The Justice Department announced in April that Fortinet, a U.S. security vendor, had agreed to pay the equivalent of $545,000 to settle allegations it sold the government Chinese-made equipment while claiming the technology originated in North America.

U.S. officials also have gone to great lengths to try to keep equipment from Chinese telecommunication giants like Huawei and ZTE out of federal networks amid espionage concerns. Both companies deny any wrongdoing.

In May, President Donald Trump issued an executive order that warned companies not to use surveillance-enabling telecom equipment coming from overseas. A defense policy bill signed by Trump last year bans U.S. government agencies from using certain Huawei and ZTE components.”

The U.S. Must Use Economic Levers To Parry China Territory Building

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epa04712851 A handout picture made available by the Armed Forces of the Philippines (AFP) Public Affairs Office on 20 April 2015 shows construction at Mabini (Johnson) Reef in the disputed Spratley Islands in the south China Sea by China on 18 February 2015.  Just before the opening of the Balikatan 2015 joint Philippines and US military exercises, Philippine military chief General Gregorio Pio Catapang showed the latest aerial photos of the expansive reclamation and building being done by China in at least seven disputed territories. The Philippines has alleged that China causes economic losses of at least 100 million dollars annually due to its reclamation activities, which have destroyed an estimated 120 hectares of coral reef systems in the Spratlys islands group.  EPA/ARMED FORCES OF THE PHILIPPINES  HANDOUT EDITORIAL USE ONLY/NO SALES

Image: New York Post – Major Chinese Base under Construction on Disputed Johnson South Reef

“DEFENSE ONE”

“China is a global competitor aggressively pursuing their aims and threatening toupend regional stability. Washington has become all too preoccupied with a military response, often overlooking the necessity of folding other policy responses into the toolkit of the U.S. regional strategy.

Instead, policymakers should turn toward the business community to explore alternatives that would curtail U.S. trade flows into China’s expansionist engine.

With labor costs and resource constraints increasing in China, businesses are faced with an existential decision: stay or go? Already, the greater Mekong sub-region and Indonesia offer cheaper alternatives for American businesses.  TPP and BIT can enable other Asian and Latin American nations to compete with China for exports to America. Advances in 3-D manufacturing can also contribute to trade reductions with China and a return of manufacturing to the U.S.

For the United States, the possibility of using economic leverage as a policy tool toward China should focus less upon specific goods and more broadly on bilateral trade flows. U.S. companies have more than $70 billion invested in China, with many choosing China as their Asian hub. China imported $124 billion of goods and services from the United States even as Americans imported $466 billion worth of Chinese goods. There is no doubt that U.S. trade flows with China have shaped China’s own economic growth; and, with the Trans-Pacific Partnership (TPP) and a U.S.-China Bilateral Investment Treaty (BIT) queued up for completion, it is probable existing trade levels will further increase, giving a needed boost to a slowing Chinese economy.

The Chinese economic engine should thus become a focal point for U.S. strategy. While the TPP and BIT are broader than the U.S. and China, increased economic integration with China may not have the highest utility in quelling geopolitical challenges in the South China Sea and elsewhere.

Trade is China’s strategic center of gravity. Trade flows, if comprehensively and strategically re-conceptualized, could undermine China’s regional dominance strategy over the longer term. If trade is not part of an American and allied strategy, imports to China will continue to finance China’s expansion.

Beijing has a strategy that works well in blending military posturing with economic carrots and sticks; Washington, in contrast, has the rebalance. Ultimately, calibrating a strategy toward China that accounts for both military and economic components requires a whole of government approach. To be effective in its strategy toward China, a comprehensive policy would entail the integration of State, Treasury and the Pentagon efforts as well as engaging top management from the private sector in developing a strategic long-term response to the ever-evolving challenges in the Asia-Pacific. That should start with a Pacific Commerce Strategy.

Even as we seek to divert American and global trade flows to take some steam out of China’s engine of expansion we must engage China in expanding and significant ways. Competition with China need not result in military conflict. A strong defense and a military strategy that prudently deters China from aggressive military action are necessary. But beyond economic and military competition, we are in a struggle to better understand each other and this requires engagement politically, economically, militarily, and socially. This engagement should not be seen as leverage to force China to alter its course; this broad engagement should not be conditional on Chinese actions. It should be seen as a critical line of operation within a broader strategy to deter through strength, to reduce Chinese capacity through adjustments in global trade and an integrated commerce strategy, and to reduce the chance of misunderstanding and miscalculation through engagement.”

http://www.defenseone.com/ideas/2015/06/military-force-alone-cant-deter-chinas-expansionism/114475/?oref=defenseone_today_nl