Process Fouls and Consultations

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Credit for this week’s column goes to Greg Allen, CSIS’s artificial intelligence guru, who suggested the idea, which embarrassed me because I should have thought of it myself. (Those of you who were expecting a Trump rant as he takes over the government will have to wait a week or two until we know more about what he actually plans to do.)

This week’s topic begins with a letter a number of business organizations (Information Technology Industry Council, National Association of Manufacturers, National Foreign Trade Council, SEMI, Semiconductor Industry Association, and the Semiconductor Technology Leadership Coalition) sent President Biden expressing concern about the Department of Commerce Bureau of Industry and Security’s (BIS) new regulation imposing further restrictions on the export of AI-related semiconductors. Their objections focused primarily on the process—the lack of consultation with industry over the details of the new rules, although they also oppose the substance of the rules. This paragraph from the letter sums up their concerns:

We are deeply concerned about an increasing pattern of regulatory activity during the final days of your Administration, which appears to bypass standard rulemaking processes. Agencies are issuing inadequately considered, technically complex and lengthy regulations without following federal rulemaking procedures including consultation with industry stakeholders. These hastily issued regulations call for immediate compliance and implementation without regard for how U.S. national security, global leadership and competitiveness may actually be diminished through faulty assumptions and incomplete data.

This is not a new concern. Having represented companies in the past, including those from this sector, I can say that business never believes consultation has been adequate. In this case, however, the complaints seem to be more than routine and, in particular, point to what the signers see as an effort to publish as many regulations as possible before the Biden administration concludes. The flood of BIS regulations over the past several weeks suggests there is some truth in that accusation.

That matters for two reasons. First, BIS rules are exceptionally complex. The one in question is around 160 pages, and that is shorter than some previous ones. This is inevitable and not new. Walking the fine line between under-controlling and over-controlling requires choosing words very carefully and making definitions as clear as possible. That always leads to errors of both omission and commission, which are quickly pointed out by companies trying to comply. You would be hard-pressed to find a BIS veteran who would say close and detailed consultation with industry is not important.

Second, haste is particularly problematic this time around because of the change in administrations. Unlike many of the Biden regulations, the ones from BIS are not likely to be quickly reversed. They relate directly to our national security concerns about China and are largely consistent with expected Trump administration policies. Even if there is a desire to amend them, bringing in senior people with the expertise necessary to do that will take time, while business complaints will go unheeded. All things considered, it would have been better to move these along more slowly, have more extensive consultations, and let the incoming administration deal with them when it is prepared to do so.

This episode also brings to mind a related missed consultation opportunity that I have tried and failed to persuade the government to address for years. Companies that make items subject to export controls get purchase inquiries from questionable sources. Usually, they just dismiss them, knowing they will not be able to obtain an export license. However, such inquiries can be useful to the government in helping to identify what the bad guys are currently looking for, who they are trying to persuade to provide it, and what channels they are using to obtain it. Closer cooperation between the government and the private sector could be a win-win in this case. The government would obtain information that would be useful in its enforcement efforts, and the companies would obtain information from the government on risky partners they should avoid.

In trying to promote this idea, I’ve learned the government’s reaction is “We’re already doing that,” which is simply not true. The companies’ reaction is “Let me talk to my general counsel,” who will demand a non-prosecution commitment from the Department of Justice for any information provided, something that is not going to happen. The result is a stalemate that underscores the mutual suspicion between the government and the private sector and creates these missed opportunities.

The relationship between the government and the private sector will always be in some part adversarial, and that is a healthy thing. It pushes the government to be more accountable and careful in its actions, and it forces companies to take compliance seriously and not cut corners. But, just as there is a fine line when it comes to export controls, there is also a fine line with consultations. Too little encourages authoritarianism and produces mistakes that cost companies time and money and hold back the implementation of government policies. Too much can slow down the decisionmaking process and promote uncertainty in the private sector with the same wasteful consequences. The truth, as usual, is somewhere in the middle, but finding it can be a challenge.

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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William Alan Reinsch
Senior Adviser, Economics Program and Scholl Chair in International Business