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U.S. must take tougher approach on tech to China, says U.S. House committee

FILE PHOTO: G20 summit in Bali

By Karen Freifeld

(Reuters) - The U.S. must take immediate action to stop "the hemorrhaging of sensitive U.S. technology to China" by tightening up enforcement of existing rules and adding new ones, according to a House of Representatives report released on Thursday.

The Biden administration has made numerous efforts to stop the flow of sophisticated U.S. technology to China that can be used to strengthen its military, but the House Foreign Affairs Committee wants a stricter approach taken amid signs technology continues to flow to Beijing.

For example, the U.S. should deny licenses for all exports to China that have been restricted because there is a risk to national security if China receives the product, the report said. Currently some licenses are approved on a case-by-case basis, allowing U.S. technology to go to China.

The report also said companies on the Commerce Department's trade restriction list, known as the Entity List, should not be allowed to use cloud services.

The House report also seeks to tighten loopholes in the way rules are applied. It notes that when a company or entity is added to the entity list, the entire corporate structure should be added, not specific affiliates.

For instance, Chinese artificial intelligence company company SenseTime told investors in 2021 its Beijing subsidiary being added to the Entity List had no material adverse affect, the report says. SenseTime reportedly has been able to buy chips through other subsidiaries and use cloud services.

The report also calls for reforms to the Commerce Department's Bureau of Industry and Security, which oversees export controls.

“If the United States is determined to outcompete China, the fossilized licensing bureaucracy that oversees export controls must break free of its post-Cold War, free trade mentality,” says the report, put out by Republican committee chair Michael McCaul.

A spokesperson for the Commerce Department did not have an immediate comment.

A Committee hearing with Commerce Department officials is scheduled for Tuesday.

(Reporting by Karen Freifeld; Editing by Chizu Nomiyama)

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