By: John Black
In the December 23, 2014, Federal Register the Bureau of Industry and Security (BIS) amended the EAR controls in 3A001 and 3A611 to address the controversial controls on microwave monolithic integrated circuits (MMIC) and discrete microwave transistors, and other items. This rule change addresses a classic export control dilemma: How should the US Government control items that have both sensitive military applications and non-sensitive commercial applications. How should the US control radar used in both military and civil applications? Where should the government draw the lines of control?
In the July 2014 USML and CCL military electronics changes, which entered into force on December 30, 2014, certain mimics and discrete microwave transistors (we will focus our conversation on these items to illustrate the issues) became subject to must stricter export controls because of US Government concerns about the sensitive military radar and other military applications for these items. This change did not upset a lot of US companies because not many companies make these things, however, several US companies who manufacture these devices were quite unhappy with the change. For starters, the items that they had long been selling under less stringent export controls were going to be subject to strict export controls under 3A611 which controls “military electronics.” And nobody likes to have to get export licenses, especially for things that did not previously require licenses.
But there is much more to this story—More even than I will talk about here. The MMICs and discrete microwave transistors are used in a wide range of non-sensitive applications such as cellular telephone communications, commercial satellite communications (e.g., direct individual access to internet via satellite, passenger aircraft access to satellite internet connections), telecommunications test equipment and civilian maritime, air traffic and weather radar. Unfortunately for manufacturers and exporters, the same devices also have very sensitive military applications in radar and other items. You might say a classic dual-use item in the Wassenaar sense of the word. (OK, you probably wouldn’t say that, but I am sure some people would.)
By putting the MMICs and discrete microwave transistors into 3A611, the Commerce Department made the export and reexport of the items to China require a license that would be subject to a presumption of denial. This would prevent US manufacturers from selling these items for use in non-sensitive commercial communications equipment manufactured in China. To make matters worse, some of the devices in question are available from non-US sources, for example, Singapore and Japan, who do not have the same extensive and restrictive export controls on these devices. And adding icing on the matters worse cake, the European Union member countries are far behind schedule in implementing even the current Wassenaar agreed controls on electronics which are much less stringent than the new US 3A611 controls, so it is unlikely that the EU would implement controls following the US approach on these devices anytime soon, if ever.
Add up all those things that make matters worse, and we end of the sum of all worse matters, which equals China telecomm manufacturers buying the devices from non-US suppliers, increasing the prospect that US manufacturers end up sending their manufacturing know-how to other countries to have the formerly US items made abroad where the foreign made duplicates of the US devices would be subject to less stringent US controls, including no US controls on the foreign devices that are duplicates of US devices once they would be incorporated into foreign telecomm equipment.
Enter the Great US MIMIC Depression of 2015.
OK, well, the depression was narrowly avoided as the US Government decided to modify its July 1 military electronics changes that would have entered into force December 30, by publishing in the December 23 Federal Register a change to the July 1 change. Without getting into the important and complex details of the change to the change, what we more or less ended up with is a middle ground approach to control for these devices. The devices largely will be classified as 3A001 and have the standard, flexible 3A001 licensing requirements when destined for civil telecommunications use. For all other uses, the items will be subject to an export/reexport license requirement when destined for any country other than Canada.
And that is just the quick summary of the complicated and interesting situation. This situation is a classic example of balancing national security concerns and economic concerns, a balancing act made more complex by the fact that national security concerns and economic concerns sometimes agree with each other and sometimes do not. On the one hand, there are the national security concerns because of the highly sensitive military applications of the devices and the concerns that China and other countries could use these devices to strengthen their military capability and, thus, harm US national security.
On the other hand is the interest in keeping the US manufacturers of these advanced technology devices strong and thriving by not imposing controls that could cause them to lose market share vis-à-vis their non-US competitors while the availability of non-US sources means US controls would not prevent China and others from getting the devices anyway. The classic analysis comes down to the fact that it is sometimes better to have US companies selling sensitive devices under a flexible level of US controls than having strict, unilateral US controls that foster the development of foreign sources of the sensitive items. Foreign sources will sell free from any level of US controls and take money out of the hands of US suppliers. Nobody in the US wins when that happens.
It supports US national security to have US companies excel in making devices such as these and having US companies profit from doing so will allow them to continue to develop new and better technologies to develop new and better devices for US military applications and commercial applications too. That strengthens US national security. And all of this is good for the US economy.
So, in a way, it all comes full circle: Sometimes we can serve both national security interests and economic interests by having US companies who make sensitive and valuable technologies thrive while targeting our controls at those specific exports that could obviously and directly give the adversaries of the United States a military advantage. Sometimes flexible controls are a win-win for national security and economic interests.
Kum-ba-ya my friend. Kum-ba-ya.
Don’t miss Felice Laird’s Export Controls on Electronic Components, Telecom & Infosec: 2015 Update Webinar which will cover this topic.