Meeting the Technology Transfer Challenge: Part II

Last week’s column discussed the United States’ evolving export control policy, and, as promised, this week’s will continue that thread.

First, adding credence to what I said last week, there are now reports from makers of semiconductor manufacturing equipment that the United States, which has been controlling equipment that can make chips at 10 nanometers or better, has now notified companies that they will need licenses for 14 nanometers or better. This would broaden controls and presumably now capture technology that had previously been licensed—more evidence that our policy is moving in the direction of trying to degrade Chinese capabilities rather than simply slow down their advance. The Biden administration may argue that the goal is simply to freeze Chinese progress while the United States gears up to run faster—note that the chips bill finally passed last week—but that may be a distinction without a difference. Of course, if it is true that China is already producing 7 nanometer chips, then this new policy may have failed before it even began.

The U.S. focus on tools rather than what the tools make, however, is the right approach because it addresses technological capabilities. It is really just a variation of the old proverb—give someone a fish and you feed them for a day; teach them to fish, and you feed them for a lifetime. Focusing on the tools and associated know-how is the key to maintaining our technology leadership.

The question lurking behind this policy is how best to multilateralize it. The United States is not the sole producer of advanced technology in every sector—last week’s column, for example, mentioned the leadership of the Dutch company, ASML, in lithography. Even during the Cold War, it was necessary to try to align our friends and allies on a common policy of restricting technology flows to the Soviet Union. The solution then was the Coordinating Committee for Multilateral Export Controls (COCOM), a group consisting of largely NATO allies that would meet regularly, review export license applications, and allow other countries to block proposed exports. The Cold War also produced three other parallel regimes that focused on specific technologies: the Nuclear Suppliers Group (NSG) and the Missile Technology Control Regime (MTCR), which are self-explanatory, and the Australia Group, which dealt with chemical and biological weapons and their means of delivery. The regimes have grown over the years, and all now have membership numbering in the forties.

The demise of the Soviet Union also brought the demise of COCOM, which was deemed no longer necessary. It was replaced by the Wassenaar Arrangement , named after the town in the Netherlands where agreement on it was reached. It was intended to promote cooperation on controls on conventional weapons and dual-use goods and technology. There was no veto, but members would agree on common control lists and share information about their licensing policies.

Wassenaar has two current problems: membership and process. Russia is a member, which makes agreement on new controls probably impossible, and its process is slow. There is only one plenary decisionmaking meeting each year; the agenda for it is set far in advance; and even if agreement on new controls is reached, it can take years for all the members to adjust their national policies. It is hard for the arrangement to keep up with the ever-increasing pace of technological change as well as political developments that create new challenges, like Russia’s invasion of Ukraine.

This has led Bureau of Industry and Security (BIS) under secretary Alan Estevez to advocate for a fifth regime—an addition, not a replacement. It would presumably have a smaller membership of countries that produce the cutting-edge technologies we want to keep out of China’s hands. The technologies of concern are not widely produced, so gathering a fairly small number of countries that would agree on controlling them would be an effective means of denying them to China.

This is a good idea, and former BIS assistant secretary Kevin Wolf deserves credit for coming up with it. But, as always, there are issues, the first of which I discussed last week: Will countries join together on China with the same alacrity they displayed on Russia? Opinion, both public and political, is moving against China in many countries, but countries may not all be ready to act as aggressively as the United States would like.

An equally tough question is deciding what “cooperation on export controls” means. At one extreme, it could mean the countries meet every three months and discuss general trends. At the other extreme, they could operate in a COCOM-like structure and review and veto each other’s proposed exports. The right answer is probably somewhere in between, but getting there could prove difficult.

The underlying challenge will be sorting out security and economics. COCOM encountered many cases where countries were only interested in controlling a technology once they had established market dominance in it, at which point they were happy to shut out competitors who might develop more advanced products. And that was with respect to Russia, where the market was fairly small. The economic consequences of cutting off selected exports to China are far greater, as is the Chinese ability and willingness to retaliate.

Those problems do not mean we should not try. A new regime is an important and worthy effort, but Estevez should be prepared for a long slog in setting one up.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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