October 27, 2022

A Conversation with Under Secretary of Commerce Alan F. Estevez

By Martijn Rasser

On October 27, 2022, the CNAS Technology and National Security Program hosted Alan Estevez, Under Secretary of Commerce for Industry and Security at the U.S. Department of Commerce for a conversation about new export controls designed to limit the development, purchase, production, and use of semiconductors, semiconductor manufacturing equipment, and supercomputers in China.

The following is a transcript of the event.

Opening Remarks

Martijn Rasser: Good morning. I'm Martijn Rasser, Director of the Technology and National Security Program at the Center for New American Security. And welcome to this special event. On October 7th, the Department of Commerce announced wide ranging export controls related to semiconductors, and this is having profound implications for the US-China Tech competition. It's my pleasure to welcome Alan Estevez, Undersecretary of Commerce for Industry and Security to discuss the scope, scale, and implementation of these controls. Undersecretary Estevez has served the people of the United States for over 36 years in key roles at the Department of Defense and is now at the tip of the spear in promoting strategic US technology leadership. Alan, welcome back to CNAS. It's great to have you here.

Alan Estevez: Great. Thank you, Martin. Appreciate it. And I appreciate you all coming out for this. Before I took this job, I called you because you had written an article about BIS being the most important agency that no one's ever heard of. So we're trying to work that so that people have heard of us and apparently we've done a pretty good deal of that. Before I start into my remarks, I do want to acknowledge the passing of Ash Carter, who is a personal friend of mine and a great mentor to me and a great ecosystem of people across the national security structure. In fact, I probably would not be sitting in this seat right now talking about this head not been for Ash, who a week after Gina Raimondo called me and asked me to take this job, called me and said, "Hey, Gina Raimondo is asking a lot of questions about you. She wants you to take this industry and security job and you better do it."

So here I am. Of course, I had already committed to Secretary Raimondo that I was going to do it, and I told him that. But all important. So as you noted, we put out an interesting rule on October 7th. Frankly, from my perspective, that is just business as usual at BIS, the Bureau of Industry and Security. That is what we're supposed to be doing. I announced during my testimony in July before both the Senate and the House that I was doing a China review. This is part of that China review. I also keep getting asked, when will that China review be done? And that China review will be done when the Chinese change their behavior.

So we are going to continue to look at not just what we did in semiconductors, but areas that the Chinese are using to threaten the United States and its allies. And we will continue that kind of work. Obviously semiconductors at the tip of the spear of tech needed for just about everything. And the rule we put out, I'll briefly summarize what's in that. I think most of you have already written about it, and I've heard ad nauseum briefings from us what's in it, but puts restrictions on highest end chips for artificial intelligence and for super computers.

We invoke the foreign direct product rule on that, which is an executorial regulation that says, if this is made with US... If whatever the product is made with US technology or US software, you also cannot export that to the restricted place, which essentially means that a Chinese designed chip that they expected to be fabbed at TSMC cannot be fabbed at TSMC and sold back. So it's pretty stringent restrictions on the highest end chips. We also put restrictions on tooling for the highest levels of chips below 14 nanometers for logic or 14 nanometers and below. Let me be clear for Logic. 18 pitch and below for DRAM and 128 and above for NAND. We allowed some flexibility for allied firms operating in China on a case by case basis for that. And we were working with those firms and that they were not surprised that when this came out. Let me be clear on what the levels for the future would be.

We also put restrictions on components and parts that are needed to make tooling essentially precluding the Chinese from replicating the tools that we are not allowing them to be sold. So again, precluding them from advancing to the most advanced levels for semiconductors. This does not impede their ability to make lower legacy level semiconductors, 28 nanometers and above, things for washing machines and the like. We put a restriction on US persons that facilitate those advanced lines. So that no one can go and calibrate the tool that is a US person. And we're working through some from some additional clarification and guidance on that.

Let me see if I'm missing anything there. I think those are the biggies. We put additional restrictions on 28 firms that are engaged in supercomputer development in China, that were already on the entity list. We added some additional restrictions around those firms and then we added an additional rule at the same time, which says that if we are not allowed to do an end use check on you and you go on the unverified list because the country is not cooperative after 60 days, we can move you to the entity list.

So the country and the companies are on notice that if they don't allow us to do an end use check, in other words, they're going to see whether what was exported to them is still there or being used properly. We can move them to the entity list with additional restrictions. And just being on the [inaudible 00:06:43] list essentially puts licensing requirements on those firms immediately anyway. So there's already restrictions on that.

So that's the bulk of that rule. And again, as I said, that's great for semiconductors. We're not done. I mean, there's other things to be done. There's other technologies and there's other things as technology moves, we're going to stay with it. So let me cover a couple of other things real quick. CNAS just put out a nice report on Russia. We have some stringent export controls on Russia. I think that report says the jury's out on how effective those things are going to be over time. What we're seeing so far is there's impact. The fact that the Russians are looking to alternative client states for their weapons that they used to sell weapons to in and of itself shows where they are. And the fact that, like the Chinese, they're not going to be able to get high end micro electronics. Their ability to have precision guided weapons is going to decline over time. So as I keep calling it, it's like an anaconda slowly squeezing, squeezing, squeezing the ability for the Russian military to reconstitute itself.

With that, let me cover a couple of other things about BIS. I want to just really quickly cover a couple of myths about the way we operate. First, when we do a license to a company, even if it's a company on the entity list, the way the entity list works, it is, I know we all like to say blacklist, but it's really not a blacklist. It's a regulatory tool that could end up being a blacklist depending on the company. But for example, we just put these restrictions, these red lines on the highest end tools to preclude the highest end chips from being made. That doesn't mean that I couldn't sell or allow the sale of a lower end tool to a company that's on the entity list if that's not the structure that we put onto that particular entity.

All of that goes through the inter-agency process. My colleagues at State Defense, DOE, Department of Energy, all get a review on what licenses are out there. So entity list requires that you come in for a license and then we have structures around that. Much of what we just put on was is with the... We want to deny so that they know that we're going to deny those licenses. Like I said, for the Western fabs, it's case by case. For Chinese fabs, it's a presumption of denial. And we will hold to that presumption of denial.

So I've heard that we approve 95% of the licenses to China. The reality is closer to 67%. And that also means a couple things in that. One, companies do not come in for a license because it's a waste of their time and a waste of our time, but it's really a waste of their corporate time to come in for a license that they know they're going to be denied. So if they have clarity and we try to give them clarity that this is not going to be allowed, they are not going to come in for a license for that. So that's not even in those numbers. And then many times we send licenses back and say, "We have lots of questions about this." And so when you see those 90% numbers that send back is not included in that. And usually when we send back, we don't get anything back from them, which essentially ends it. So the numbers are not as clear as one would say when they say we're approving 97% of the licenses.

Three, I keep hearing that we have lack of intel in BIS and I'd say I have a fairly robust intel capability. I have a bunch of analysts, but the highest levels of clearances. My senior staff all has the highest levels of clearances. It's not like the Pentagon where everything is a skiff, but we have a number of skiffs in the building, which I pretty much live in. And then I have one skiff that I own that is stacked up like cordwood with analysts reviewing what's going on in conjunction with the IC where we have tasking authority and we ask them to take looks at things and they do for us. And we work that again with our inter-agency partners who have robust capability. So it's not like I don't have intel capability to draw upon when we make our decisions.

I keep getting asked about export enforcement and I have one export control officer in Beijing. I have one export control officer with the weight of the federal government and the IC behind them and with our allies behind them. So that person is drawing on, hey, his partners in the embassy, but I'm being [inaudible 00:12:22] too because one was in Hong Kong and now my intel analysts here are feeding that person. So it's not just one person on their own trying to figure out what's going on in China, right? It's one person with the breadth and depth of the US government capability and the capability of our allies feeding that person. So again, these are things that I keep hearing out in the press and I figured since I have the national press sitting in front of me, I would take the opportunity to clarify some of those things.

And then the last thing I'm going to say is entity list. People keep asking how people get on the entity list. Here was an article, "Why isn't this person on the entity list anymore?" I operate under the rule of law. We all, when we see something, we look and we start digging. And frankly we need to see evidence more than just a news article that there's something going on there and we dig and dig and dig and if we find something, we take care of it and we don't stop digging. Usually if there's enough smoke, we figure there's fire and we start digging until there's fire. All of this, my final clarification is around national security and foreign policy issues. It is not, despite some of the views out there about economic destruction of China. This is about national security. Our actions are purely about national security. I'll also say we do not balance trade with national security. When I see an action that needs to be taken for national security, I have top-down coverage to go take care of that regardless of the impact. Now we do look to see what's available in the world and whether it makes sense. If I stop a US firm from shipping something that is ubiquitous in the world, I'm really not doing anything. I can feel good about ourselves, but we're not stopping the national security threat.

So we work with our multilateral allies in doing that. I know there's going to be some questions about where's the multilateral and what we just did. And I will say that's a work in progress. We moved out at this point because we felt we needed to for the national security reasons. We were talking to our allies. No one was surprised when we did this, and they all know that we're expecting them to cover likewise, and we're working those details with the specific allies around that. Let me stop there.

Martijn Rasser: All right.

Alan Estevez: I know that was plenty, and look forward to the questions.

Q&A

Martijn Rasser: Well, that was great. I'll want to follow up with you on the question of getting allies on board with this, but also want to make sure that everyone knows that for everyone here in the room, if you have a question, please just raise your hand. We have microphones in the back and we'll get to you. And for folks tuning in, either on cnes.org live, you can use the "ask a question" feature on the page, or if you're on social media, you can post your question with the hashtag CNAS 2022, and it'll show up on my iPad here. And it looks like we already have a question coming in. And so that's great.

So let me follow up with you on the point of allies and multilateral approaches. Now these export controls are unilateral. What's it going to take to get allies, particularly the Netherlands and Japan, which are key players in the semiconductor industry, particularly in semiconductor manufacturing equipment, and what's going to take to get them to follow suit, and how much time do we have for them to do so that we don't put US companies at a distinct disadvantage?

Alan Estevez: So a couple of things there. For the US tools that we put on the list, the 11 or so tools, those are US-only made. There is no foreign competition for those tools. That's not to say that ASML or Tokyo Electron couldn't develop those tools over time. That over time I expect to have a multilateral deal done before that time. I'm not going to put a drop dead timeline. I have the timeline in my mind of what we're working for. And it's not just me, it's the National Security Advisor, the Secretary of Commerce, we're all on the phone working this national security staff, to travel as working this, Kendler.

So we expect to have a deal done in the near term, then this was not a surprise to our allies. What we keep hearing is ensure that you also, US have skin in the game. We've shown we have skin in the game, we've taken action, we've viewed it as a down payment for what we're going to do. And the discussions we're having are good. So I'm very bullish. I have zero confidence that we're not going to have a deal when we go there.

Martijn Rasser: Okay, Excellent. Dimitri has a question.

Speaker 1: Thank you.

Dimitri: Good morning. Can you hear me, Dimitri with Financial Times? Actually, two quick questions. One is, I know it's not just one person in Beijing, but this is a huge rule. It's going to require a lot more work for enforcement. So do you need more resources, whether in the commerce department here or in Beijing or other places, in Asia? And secondly, with the rule like this, it's probably highly unlikely you don't have things that you didn't consider that you look at now and say, Oh, we didn't intend for it to do that. What are a couple of things you've looked at you'd like to actually, if you're writing the rule today, you would change?

Alan Estevez: So let me answer the first one first. Could I use more resources. As a senior federal, I don't hesitate to use the term bureaucrat, but as a senior federal leader and one who's been one in multiple jobs over the course of my career, I'd be remiss ever to say that I couldn't use more resources. And if I was testifying and I'd said this when I was testifying, yes, I could use more resources. Can I use the resources that I have smartly? The answer is yes. Can I bring in some modern tools to help that, including open source tools that'll help identify things, supply chain mapping and the like? Absolutely. And we're moving out on all those things. But I could always use more resources.

And if they gave me more resources, I would use them smartly. But again, it's not just that one person or two people, I'm drawing on the 200 agents. I have the agents. The FBI works this with us. DHS works these things with us. So it's a robust capability. And again, reduce sharing with our allies on this too. Your second question was-

Dimitri: Inadvertent things.

Alan Estevez: Oh, inadvertent things. Yeah. We tried to cover a lot of that by allowing that temporary general license rule where companies could come in and say, Hey, this is where it's going to impact our supply chain. And we did that knowing that we were going to have some issues in allowing people to come in. I think the US persons thing surprised a lot of people. And again, as I said, we're working in FAQ around that so that people would see exactly clarification. I mean, I was not trying to go after the billing clerk. I want people making decisions and I want people working the lines that to be impacted on that.

Martijn Rasser: Great. Thank you. Oh yeah, we have a question back there.

Jean 1: Hi, I'm Jean. I'm Jean Wheland with the Washington Post. Jean from the Washington Post. On the US person's question, do you have a sense of how many US persons have had to leave their jobs or even leave the country as a result of this rule? Is it dozens or hundreds? And were you expecting that magnitude of people to down tools and have to go? And also, what was the point of the US person's rule? Can you talk a little bit about why the BIS went for that approach?

Alan Estevez: Couple of things. One, I actually do not have, I'll be honest, a scope of the numbers. From a national security perspective, which again is the lens that I look at this in, I have the authority to control US person's activities related to exports. Allowing a US person to help the Chinese fab the highest end semiconductors or develop a super computer that they're going to use against us just doesn't seem right to us. So we decided to take that approach.

Martijn Rasser: Oh yeah, we have a question up front here.

John: John Bateman, Carnegie Endowment for International Peace. So you mentioned before that we don't balance trade against national security and that if you have a national security problem, you're going to go after it. Now in this case, if the goal is the national security goal and preventing military advancement in China, still a foreseeable consequence of the regulation is a large scale impact on China's economy, perhaps that impact would even be greater than the impact on China's military. Is that a factor that you balance in your decision making, the proportionality of it and the foreseeable ancillary consequences to China's economy beyond the military and intelligence concerns that were raised in the regulation?

Alan Estevez: That's a good question. And obviously we take a lot of things into account, but coming from my background as being the chief logistician of the Department of Defense and the number two weapons buyer for the Department of Defense weapons, as I keep seeing, and Ash Carter's Obituaries, building capability to defend ourselves against foreign adversaries. Letting a foreign adversary use US technology or allied technology. And I will recognize your article on this point, just goes against the grain for me.

So that could be a consideration but it would be Trump by the national security considerations on that. The other thing I want to note here is, of course, we've really targeted and crafted this rule to go after; was really a subset of the semiconductor business. So we've gone after the highest end semiconductors that you might need for the best sensors, best radar hopping, best seekers, best precision-guided capability, best radar-evading capability, all that and then the autonomous vehicles, AI that they're already using to suppress their own population from a human rights perspective, but it's a subset and we've crafted it at that highest end subset. So while we have impacted the Chinese economy in a small sector, I mean they still have a robust capability to make semiconductors that are going to go into the airbags of cars, which I had no problem with. GM should not be having to park cars while they're waiting to get a chip for an airbag. So we need that in the globe.

Martijn Rasser: Okay. Let's see. We had a question first in the back and then we'll go to you up front here.

Ana: Hi. Thanks. I'm Anna Swanson with the New York Times. We've seen just a huge change in how the US is using export controls in the past year in China and in Russia. And I was wondering if you could just talk a bit more concretely about what enforcing those rules is looking like. Obviously, the China rules are very new but do you anticipate using civil or criminal penalties there or putting companies that would violate that on the Entity List? And then with Russia, how much evasion are you seeing and where is that showing up? What have you done about that?

Alan Estevez: So let me take a couple... Enforcement, we will use our full gamut of capability of both civil and criminal, depending on the nature of the violation to enforce our rules. We'll do that on any export control regardless of it's the October 7th rule, what we've done for Russia. One of the reasons that Secretary Raimondo asked me to come and take this job is because I came in with this kind of mentality, looking at it from a national security perspective. I'm not an export control lawyer. And so we will use our full gamut and we've put out some guidance recently stepping up our enforcement capability in the way we manage penalties around enforcement, including not allowing behind-closed-doors admission of guilt so that others can see what was done, and we'll adjust penalties accordingly on that. And then, I'm sorry, Anna, your other question was?

Speaker 2: I wanted to know if you're seeing much of evasion with Russia and where that's showing up, what you're doing about that.

Alan Estevez: Yeah, I mean I think couple of months ago or a month and a half ago, we put out a number of companies on the Entity List that we saw that we're doing evasion. I read in my read of Intel, we are focused on that. So not massive to date that we've seen, but we're very vigilant about that, and we've been clear if we see firms that are doing that, they are going on the Entity List with a presumption of denial.

Martijn Rasser: Great. We have a question up front here and then we'll go to in the middle. While we wait for the microphone, there's a question from Adam that came in online, and Adam would like to know what is being done or should be done to help align industry incentives around national security priorities as it relates to technology competition?

Alan Estevez: Let me answer that question in a different way. Again, most of this was not complete shock to industry. Many folks in fact had a regulatory regime around this prior to these rules coming out. The feedback that we're getting from industry is actually pretty good. What industry wants is clarity and fairness, and we intend to give them clarity and fairness. And what they also want is in the cases, especially of the semiconductor tool makers, is to ensure that it's multilateral. And again, to my...is to ensure that it's multilateral. And again, to my earlier comments on multilateral, we intend to give them that as well so that it's fair with their competition across the globe and it's fair for their competition with each other, whether you're a chip maker or a tool maker. So adhere to the same standard. If this is the standard that we're going to stop allowing chips to be sold at, no matter who makes the chip at that standard, they want to have the same. That's the feedback that I'm getting from them. No one has come to me and said, "This is going to ruin my business. How could you do that in the name of national security?" In fact, most of them come and say, "Yeah, we're good Americans. We understand the threat. Just be fair."

Martijn Rasser: Okay. Go ahead.

Ellen Nakashima: Secretary Estevez, thank you for doing this. I'm Ellen Nakashima with the Washington Post, Jean's colleague. To follow up on John's great question, I wondered if you could step back and talk a little bit about how your moves at commerce, which you rightly point out were an interagency, whole of government effort, are nested in a broader Biden administration strategy towards China, which it seems to me is taking a... it's in part building on what Trump administration had started, but a decisive shift towards using export controls as a tool of national security, as you say. But of course those controls had to have the consensus, the input of the economic agencies, the trade people. And so how do you all take account of all of the various equities? And what does this move say about where this administration is placing its emphasis in its competition with China right now in the technologies and national security versus economic ties and trade and the economy? That's my first one.

Alan Estevez: Sure. A couple of ways I'll answer that. One, of course the national security strategy just came out, pointing out China as a competition and threat, an adversarial competition. The national security advisor, when he rolled that out, talked about export controls. He talked about it a week before. Having the national security advisor out there talking about export controls, to my earlier comment about making BIS a agency as part of that. So we have guidance from the top to protect our technology and those of our allies.

No one has ever come to me and said, "Go balance this with our trade requirements." I do not go and coordinate with Marisa Lago when I start to do something, my trade counterpart in the Department of Commerce. And the guidance I have from the secretary is, "Go protect national security." Now again, as I alluded to in the earlier comments, we are not looking at a decoupling. That is not where our focus is. I think the way I would put it is protect what we must, promote where we can. And so that's the framework that we're operating under.

Ellen Nakashima: And what types of responses are you looking for or anticipating from China that they were, in a sense, remarkably muted after this rule? They put out the usual long reach of the American technology. But what kinds of counter moves are you anticipating perhaps?

Alan Estevez: Yeah. And of course they went into the party congress right after this, so they were... I don't want to conjecture what they're going to do. Our hope is that we put a restraint requirement out there to protect our national security. To my answer to your earlier question, it's not a massive shutdown of Chinese industry. It is a targeted shutdown of using our capability against us. And we hope they would, if they're going to respond, take that into account.

Martijn Rasser: Great. Let's see. I think, okay, we'll go over here first. And then we'll go to you, Debbie.

Eric Martin: Alan, good to see you again. Eric Martin with Bloomberg News. I wanted to ask you about the US Persons Rule... I'm going to take... sorry. Hear me a little bit better. I wanted to ask you about the US Persons Rule and its application as an export control going forward. And is this something like with the FDPA, where... sorry, Foreign Direct Product Rule, where we are likely to see this used in other contexts as well? Would this make sense to apply not only in a China context but with other potential threats, adversaries as well?

And just your views on the overall package that we saw announced on October 7th, and the early returns and the early data about how successful this has been. And whether it's something that... do you expect that the success of the overall package will diminish over time in terms of, you all are regulators. The producers are always trying to stay ahead of the regulation. Do you see efforts? Do you anticipate efforts to try to circumvent this? Thanks.

Alan Estevez: There's a lot there. Circumvention, of course they're going to try to circumvent this. And we'll look for ways to close it off. US persons, BIS has a whole bunch of tools in its toolbox, in its regulatory toolbox. ECRA gave us these tools, the Export Control Reform Act. Still fairly new. The ink is almost still wet in government terms on it. 2019. I have an incredible staff at BIS that knows how to use these tools both on the legal side and on the regulatory side. And as we look, in this industry there's US persons involvement, and we decided that that shouldn't be allowed. So it'll depend on the industry, depend on what we're focusing on. We intend to use all our tools in managing the production of national security around technology.

Martijn Rasser: So Debbie, Brendan, we'll get to you in just a moment. I do want to touch on some questions that I'm getting in from our online audience. Several folks are asking about other technology areas that may be subject to future export controls. And some specific areas that people are mentioning, quantum information science, biotechnology. People are also asking about AI software. Would you consider controls on algorithms as well?

Alan Estevez: All those are areas that the national security advisor mentioned when he was talking about export controls. Of course they are technology areas that are on my radar. Will we be looking at controls? As I said, we have a whole China assessment going on. I meet with my staff once a week and say, "Okay, what's next? What are we going to do next? Who's being bad? Where is the technology area that we need to address?" I also have a requirement under ECRA to do identification of emerging and foundational technologies. So will we end up doing something in those areas? If I was a betting person I would put down money on that.

Martijn Rasser: Okay. All right. Debbie, let's go to you and then we'll go to Brendan.

Debby Wu: Hi. Debby Wu from Bloomberg News. My question is, you were saying that there will be a multi-lateral deal to be reached in the near term, but why are you confident that it can be in reached in near term? Because we have seen American companies like Lam Research coming out saying that their sales from China is going to take a significant hit next year. And then how are you going to convince allies, including Japan and the Netherlands, that the lay should be sustaining a similar damage without any sort of compensation? So what is the US telling allies that they should try to align with US national interest in this aspect? Thank you.

Alan Estevez: I'd say that the threats from Chinese developments and Chinese advancement and Chinese military civil fusion, Chinese human rights transgressions don't just impact the United States, they impact the United States and its allies. And we will share that threat information with our allies, many of whom seen much of it anyway. And they need to protect themselves too.

Martijn Rasser: I saw Brendan had a question.

Brendan Bordelon: Hey there, Brendan Bordelon from Politico. You mentioned at the top that basically the beatings are going to continue until China changes its behavior, right? Export controls are going to keep being layered on over time. I guess one question follow up there is just, what does China need to do, in your view, in order for these export controls to first be halted and then be rolled back? And realistically, does BIS actually see any capability or likelihood that China will change its behavior? And if not, is this really just about maximizing pain? I guess my question is, are you guys really looking to see China change its behavior or is this just... that's the reason why you guys are saying you're doing this, but in reality this is just to make sure that China-

Alan Estevez: The reality is I'm doing this because I have national security threats that I need to cover down on. There's a whole litany of things that China would have to do to change to be not threaten its neighbors. Let's start there. Not suppress its own... violate human rights with western technology, not steel IP. I can go on and on. Not do economic coercion on companies. My job is not to change their behavior. I'm not here as a diplomat, I'm here as a technology protective, the chief technology protection officer of the United States. And my job is to protect national security. And where we see national security threats from the use of western technology against us, we're going to try to close those gaps.

Martijn Rasser: We've got a higher level question from David, one of our online viewers. The administration released its unclassified national security strategy last week, and it contains a text box on integrated deterrents. And David is interested to know in how you think about the department's role generally when it comes to integrated deterrents, and then specifically BIS's role in that broader concept.

Alan Estevez: Integrated deterrents, using the full gamut of American power capability, the way I look at our export controls in that is sort of a shaping mechanism. Back to the question on, do I expect change in behavior? But it is really a mechanism to help shape behavior. The Russia situation, where we dropped those export controls on October 25th, Russia had an idea of what was coming. We gave them notice that these are the type of things. Should something start occurring in the Straits I would expect to see us start taking additional actions. So I would look at export controls as part of the gamut of integrated deterrents and certainly what used to be called phase zero in our campaign plan.

Martijn Rasser: Okay. Excellent.

Alan Estevez: And I know the Department of Defense doesn't use phase zero anymore, but it's still the shaping capability.

Martijn Rasser: Doug has a more specific question on the US person provisions. He's wondering if these restrictions include sales and legal services to entities in China.

Alan Estevez: Decisions about that, I'd say yes, for sure. We're working through where our real lines are on that. And as I said, we expect to have some guidance coming out on that shortly.

Martijn Rasser: Okay. Excellent. So we'll keep an eye out for further guidance. A question on US universities. And this is coming from Peter. There's been long-standing concerns over US academic institutions as being a vector for unwanted technology transfer, improper exports. How are you viewing that issue? And exports, how are you viewing that issue, and how much did that factor into the decision making on the rule that you put forward?

Alan Estevez: Didn't factor into the decision making on the rule, let me go there, but we have concerns about universities. There is R&D carve-outs in the way ECRA is managed, but I'll note that my assistant secretary for export enforcement, Matt Axelrod, was out speaking at Oregon State yesterday or the day before yesterday about this very topic and about the threats and what should be shared and what shouldn't be shared and ensuring that universities comply with export control rules. And in fact, I've signed out letters to some top research universities in the last month pointing out that I have export officers around the United States, field officers, that have liaison capability with top universities and they'd be happy to come in there and work with them on protections.

Martijn Rasser: Okay. Excellent. Question for you on the unverified list. Can you tell us in some more detail the process of an entity moving from the unverified to the entity list? Or if a company is on the unverified list, what would you need to see in order to take them off? And do you see that type of cooperation forthcoming from Chinese authorities?

Alan Estevez: On the last question, we'll see. Again, they're just coming out of Party Congress whole thing. They're still absorbing, frankly. For a party to come off the unverified list, they'd have to have an end use check that is not just go in and look at that piece of equipment. It's looking at records. It's looking at who you're shipping to. There's a whole series of things in that the Chinese have not been cooperative around. But you would have to allow a end use check and pass the end use check. It's not just allow it. You have to pass it to come off the unverified list. How do you move from it? We didn't have that mechanism. We just put out that mechanism. Of course, it applies anywhere in the world. Doesn't just apply for China. But we then have the discretion for you're on the unverified list, 60 days clicked, you didn't allow an end use check or you didn't pass it, we can move you.

Martijn Rasser: Okay. All right. So we have a few minutes left here. If anyone here in the audience has a further question. Emily?

Emily Kilcrease: Thanks. Emily Kilcrease, director of the Economics and Security Program here at CNAS. I wanted to come back to the questions around the Foreign-Direct Product rule and the conversations with allies. You noted at the top that the rule was business as usual, but of course, as you know, the Foreign-Direct Product rule expansion in this set of rules is not business as usual. It's a pretty one could say clever and expansive use of this authority, but it is very extraterritorial. There have been instances in the past where either in export controls or sanctions, extraterritorial application of US authorities has caused friction with allies rather than convincing them to come on board. So curious how you respond to any pushback that you're receiving from allies. And also are there any plans to offer a carrot, like what we did with the Russia export controls, where there was carve-outs for countries that impose substantially similar controls?

Alan Estevez: So the answer to all that is yes. If they had similar controls, yeah, we'd give them a carve-out on that. And for the instances of the CHIPS, we had detailed discussions with our allies and frankly with the companies and we didn't get friction. We got... But for the most part, frankly, in some regards, I think some of those countries like us to be the bad guy versus them doing it. It gives them an out to some degree. The threat's real. And I think especially for countries in that neighborhood, they understand the threat. But I will say my belief is to be judicious in the use of the FDPR. It shouldn't be used... I think I said willy-nilly or something like that in one of my testimonies. But it is a tool in the toolbox, just like the US Persons tool. And when we have to use it, we're going to use it.

Martijn Rasser: One final question I have for you is about timing. So why now? So we've been in discussions in particular with the Dutch and Japanese governments for some time. Why announce this in October? Why not let the discussions go for a little longer to try and get them on board and not have to act unilaterally?

Alan Estevez: The timing just worked out, frankly. We've been working on this for a while. It's a very, very complex rule. Might be our record of complexity for a single rule or two rules that came out at the same time. We made the decision that, as I said earlier, we were willing to go this alone as a down payment and show that we had skin in the game while we're having the discussions with our allies. We had the rule ready and we decided to execute it.

Martijn Rasser: Okay. Yeah. That just prompted two more questions. So let's go to John and then we'll go to Dmitri.

John: Yeah. Sure. Thanks. I wanted to ask about your predictions for a couple possibilities that people have raised. One is that the use of the Foreign-Direct Product rule could encourage companies to over time engineer US inputs out of their products. And then the other is the possibility that this restriction on China could, again, over a longer period of time actually encourage and induce China to indigenize more effectively. And I know there's lots of counter-arguments for those, but I guess I'm curious if your department or the inner agency has done any assessments of these possibilities. What's your prediction about those?

Alan Estevez: We always do an assessment of will they engineer out? Is it going to be detrimental over the time? That's why you, of course, we make agreements with countries, not companies. We talk to companies. We need to understand their business while we're doing that, but we make agreements with countries. So if those countries put on similar rules, I don't need to Foreign-Direct Product rule at that point, and then that problem goes away. On indigenization, look, they're putting a lot of money into this. I wouldn't discount Chinese ingenuity and capability. One of the reasons that we stopped the components and the ability to make tools with US components is to slow that down.

To the national security advisor's point, we're in a different place where we're not trying to keep two generations ahead. We're now just trying to keep ahead. And so I think that we've put enough breaks into the ointment right now. I know that's not a good analogy, but we've slowed them down enough. The flip side of that is, of course, we need to ensure that we in the United States and we and our allies advance the technology and stay ahead. There's an offense and a defense game to this CHIPS act is part of the offense of that. So there's a holistic strategy here.

Martijn Rasser: And Dmitri has a question as well.

Dmitri: I just wanted to follow up on what you said about allies. Did you get to a point with the allies where you said to them, "I know you're kind..." They're shrugging their shoulders and go, "We'd prefer you to be the bad cop, but if by a certain date you reach an agreement with us, we will hold back on some of the rules that we're going to put out. If you don't reach an agreement to us, October 7th's going to be a really fun day."?

Alan Estevez: I'm not going to go into details of discussions that we have had with our allies, and we don't go into these discussions in a coercive manner. They are our allies. I will say I like sake and I like Dutch bear. So...

Dmitri: You better say you like soju or you'll get in trouble with the South Koreans.

Alan Estevez: That too.

Martijn Rasser: All right. Excellent. Oh. One final question.

Alan Estevez: And I've traveled to all those places in my past life too. So...

Paul S.:Hi. Paul Scharre from CNAS. Thank you, Secretary Estevez, for coming for this event today. Question for you about the chips. So the restrictions on the chips themselves are focused on very high-end chips, but of course what's cutting edge today will be legacy chips over time. Do you envision that restriction on chips moving as a sliding scale as we see them advance or that being a sort of line in the sand that would continue to be the line technically over time, even as we see more chips advance?

Alan Estevez: We stand a floor, expect to be standing on that floor.

Martijn Rasser:Oh. One more question from Jean.

Speaker 4: Did you want to follow up [inaudible 00:52:10]?

Speaker 3: You can.

Speaker 4: Just a clarification. When you say that you're looking for a multilateral deal and you expect to get one, can you just be a little more specific on exactly what that deal would say? That's on the tools part, right?

Alan Estevez: Well, we look at the whole gamut, frankly, because there are fabs and chip makers too. But on the tools, it would be restrictions on tools, just like what we put on tools that can make 14 nanometers and below. And again, we're realistic here. I know that a tool that's used for a 68 nanometer line, can be used over and over and over, not for scalable, but it can be used. But tools that are designed for 14 nanometers and below and tools for the memory chips that are on the parameters that I said, we would expect our allies to come in and put the same controls on, tools in the place. Same thing with the chips. And which entails a couple of different countries involved there.

Speaker 3:[inaudible 00:53:15] you already have the FDPR on the chips but also [inaudible 00:53:18]-

Alan Estevez: Yeah. The question, if they invoke a similar control, then I don't need to use FDPR and we can grant them the leeway like we did in Russia.

Martijn Rasser: All right. Brendan, you get the final question.

Brendan Bordelon: Very quick. Yeah. And really an extension of the multilateral question. Regarding the comments you made about additional export controls on quantum computing, AI, algorithms, that kind of thing, is there an effort ongoing... You mentioned put money down that we're going to see that.

Alan Estevez: I have a job to protect technology. That happens to be technology.

Brendan Bordelon: Yes. Obviously, there's an effort to bring allies into, I think more aggressively, into the chip controls that have already been put in place. Is there an effort ongoing to make those quantum controls, AI controls multilateral as well? Can we expect to see sort of a multilateral announcement on that? Or is this going to be similar where the US goes first and then [inaudible 00:54:07]?

Alan Estevez: If I was working on a quantum control, I would be working that in conjunction with my allies.

Brendan Bordelon: Okay. Thanks.

Martijn Rasser: All right. Well, Alan, thank you so much for being with us today. It's been a real pleasure hosting you. And thank you very much for your insight and your candor today. I want to thank everyone here. This was actually the first in-person event that I've done in quite some time. So it was a lot of fun to actually have real people looking at me as opposed to a Zoom screen. And to all of you joining us online, thank you so much. Sorry I didn't get to all your questions. I did my best to get through as many as I could. So we'll look forward to seeing you at our next event soon. So thank you all very much. And thank you.

Alan Estevez: And thank you, Martin, for giving me the opportunity to raise the profile of the BIS.

Martijn Rasser: Absolutely.

Watch:

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