Telephonic Press Briefing with Matthew Borman, U.S. Commerce Department Deputy Assistant Secretary for Export Administration

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Moderator:  Good day from the U.S. Department of State’s Asia Pacific Media Hub in Manila.  I am the Hub Director, Zia Syed, and I want to thank you all for joining this briefing.  Today, we are pleased to be joined from Washington, D.C., by Matthew S. Borman, U.S. Commerce Department Deputy Assistant Secretary for Export Administration.   

We will begin today’s call with opening remarks from Mr. Borman.  We’ll try to get to as many questions as we can during the time that we have, which is approximately 30 minutes. 

Finally, as a reminder, today’s call is on-the-record, and with that, I will turn it over to Deputy Assistant Secretary Borman.   

DAS Borman:  Thank you, Zia, and thanks to all who have joined the call.  As Zia said, I want to start off with a couple of opening remarks and then happy to take questions. 

So, Russia’s actions are an immediate danger to those living in Ukraine, but also pose a real threat to democracy throughout the world.  By acting decisively and in close coordination with our allies and partners, we are sending a clear message that the United States of America and our allies will not tolerate Russia’s aggression against a democratically elected government.  The Biden administration has worked to rally our allies to impose sweeping economic sanctions that restrict Russia’s ability to obtain items it needs to wage war.  These export controls are only effective because of the work the administration did to secure the coordination of our allies across the world. 

Prior to Russia’s invasion, senior officials at the Department of Commerce as well as the Department of State and other agencies engaged in more than 50 working-level discussions with partner nations.  Cooperation from allies and partners is a significant force multiplier for the effectiveness of our controls.  Our strong and growing coalition includes 33 of the most powerful economies in the world, and the actions by private companies have been an additional force multiplier for the effectiveness of these controls. 

For example, the Russian military relies on chips made with U.S. software or manufacturing tools.  Our export controls go a long way towards cutting off Russia’s ability to access chips they need for military equipment, while working with our allies and partners ensures that Russia can’t find workarounds by procuring chips from European countries, Japan, and South Korea, for example.  This is just one example of many, and the impact of these actions will have even greater impact over time. 

The United States is grateful for the partnerships we have with the governments and companies in the Asia Pacific region, and we hope to continue to grow our coalition.  Working in collaboration with allies helps to ensure an even playing field for all, while also enhancing the effectiveness of restrictions on trade with Russia. 

So, with that, I’m happy to take questions. 

Moderator:  Thank you very much.  We will now begin the question-and-answer portion of today’s call. 

Our first question will go to Evelyn Cheng from CNBC in Beijing. 

Question:  Thank you.  My question is about U.S. companies operating in China – what are specific items that they should be aware of regarding these sanctions on Russia?  And is there any communication with China’s commerce ministry on this front?  Thank you. 

DAS Borman:  Thank you, Evelyn, for the questions.  First, we have had discussions with Chinese Ministry of Commerce representatives in their embassy in Washington to explain the scope of the controls.  And then, as far as U.S. companies or, frankly, any companies in China or elsewhere, the requirements are that they make sure that they understand whether items they seek to export to Russia from China directly, or even indirectly, are subject to our jurisdiction.  And so what they have to do is two analyses: one, if they have more than a de minimis amount of U.S. content in their items – and de minimis means more than 25 percent of the value of the overall product – and it’s going to Russia, then it’s likely caught by our restrictions and would need a license; and also, if the foreign-made product – even without that U.S. content – is based on U.S. software or technology or produced on a line that uses a U.S. tool or piece of equipment, then that direct product going to Russia may also be subject to these restrictions.  And we have done an industry outreach event for companies in China already on this topic. 

Moderator:  Thank you.  Next if we could go to Tom Westbrook from Reuters in Singapore.   

Question:  Good morning.  Thank you.  I was just wondering, how should companies in this region be thinking about purchasing Russian goods, perhaps through non-Russian middlemen, Russian commodities?  Is this going to be an issue for them? 

DAS Borman:  So, our restrictions primarily – that I’ve described primarily – go to the export to Russia of items, not so much the export of items from Russia.  We do have some restrictions on import into the United States of certain items from Russia.  And then of course, the Treasury Department has a range of financial sanctions that deal with certain types of transactions with Russia.  So, the companies in the region that are looking to procure items from Russia, I think most directly need to make sure that they fully understand and comply with the Treasury financial sanctions. 

Moderator:  Thank you.  Next if we could go to Kathrin Hille from the Financial Times in Taiwan.  Kathrin, please go ahead. 

Question:  Thanks very much for taking my question.  So there has been the assumption among some analysts that Chinese companies that are already under U.S. sanctions, specifically using the foreign direct product rule, such as Huawei, might have certain incentives to not be sanctions-compliant in working with Russia, using the argument that they would have not so much to lose.  So, I was wondering, since the U.S. administration has said that they were warning China specifically against that kind of thing, what the U.S. could do – or is prepared to do – if Chinese companies are found to be in violation of these Russia sanctions.  What could punishment, or additional sanctions, in that case be?  Thank you. 

DAS Borman:  Thank you.  So there’s two things that could flow from that.  One would be actions against any other parties that are facilitating that Chinese or other company’s failure to comply with the Russia restrictions.  And secondly, the entity list at the end of the day imposes a license requirement, and a requirement to seek authorization.  We could also then move to take actual enforcement action against any party that is in violation, and if found liable or guilty of a violation, then it is an even more severe consequence which could result in fines or even jail time if the party can be found subject to U.S. jurisdiction.  But if not, essentially a complete ban on any kind of transactions.  Right now, even with the foreign direct product rule or entity list listings, there is the possibility that items could get approved through a U.S. Government authorization, but that if there was a violation, then that would all change and would really be a complete prohibition on not only trade, but related activities like financing and servicing, at least by U.S. persons or even, frankly, foreign persons for that matter, through a denial order. 

So, for example, the denial order that was imposed on ZTE and then suspended as part of their settlement agreement, which is the most severe sanction we can apply in the export control area. 

Moderator:  Thank you very much.  Mr. Borman, let me ask you a question that we received in advance.  Angela Tan from the Business Times in Singapore wrote in to ask: “Are you concerned about ‘sanctions fatigue’ setting in?  How do you measure success of sanctions when compliance has been a big challenge?” 

DAS Borman:  So, I think the sanctions have already had a very significant impact, and we’re just a month into them.  So to distinguish a little bit, the financial sanctions of course had a very immediate impact and that’s demonstrated by any number of indices in the Russian economic realm.  But on export controls, we’ve already seen substantial press reporting on impact.  For example, Russian manufacturing facilities – including those that are involved in manufacturing military vehicles – have had to shut down production because they are not able to get the components, particularly semiconductors, that they need for their products.  We have seen a significant impact on the Russian civil aerospace industry.  And those will only grow over time.  So, in terms of the impact, I think you’ve already seen some, and continuing. 

And in terms of “sanctions fatigue,” unfortunately, as long as Russia continues its war in Ukraine, I think there is very strong will among the allies, certainly, to continue the sanctions, look at additional sanctions that might be appropriate, and strong collaboration on ensuring that they’re robustly implemented.  And then we continue to talk to other countries about potentially joining alignment on sanctions.  So, I think there will be a strong, strong incentive to continue to really make sure that the sanctions continue to be effective. 

Moderator:  Thank you very much.  Let me go ahead and ask another question that was sent in in advance.  Tim Culpan from Bloomberg in Taipei wrote in to ask: “What methods and resources does the U.S. Government have to actually monitor compliance by companies such as foreign chipmakers who may be subject to these export controls?” 

DAS Borman:  So, we have a number of resources available to us.  First, we are doing significant industry outreach in the region.  We’ve just finished a call that was organized by the American Chamber of Commerces in Singapore and Malaysia that had, I think, close to 900 participants.  We’ve done an event with industry in China.  We’ve done one with industry in Korea.  So that’s step one – that outreach which we will continue to do. 

Secondly, of course, we have our allies who will be doing a lot of the enforcement of their own controls.  And then we have export control attachés stationed in a number of countries in the region who can do both onsite inspections, as well as coordinate with their host governments.  And then we’ll be continually monitoring the trade press, for example, which I think is often a very effective source for information on the semiconductor and other areas, as well as classified information, and then certainly U.S. companies and foreign companies that feel they’re complying with the restrictions but their competitors are not typically provide that information for us. 

So, we have quite a bit in the way of resources to monitor compliance.  And then, as I mentioned earlier, certainly we have authority to take action that could have significant impact on parties that may not be complying with the restrictions.  Because, by definition, if they’re subject to our restrictions, they are using U.S. input in some way, U.S.-origin input, and then if we see that they’re not in compliance, we can take action to cut off the sources, the U.S. sources, that they’re relying on. 

Moderator:  Excellent, thank you very much.  Next if we could go to Philip Heijmans from Bloomberg News in Singapore.  Philip, please go ahead. 

Question:  Hi there, thanks for doing the call.  I was wondering if you might be able to describe a bit whether you’re finding compliance issues in Asia.  Just in broad strokes, whether you would characterize them as being a big issue or – and you mentioned in your statement at the top regarding workarounds, and I’m curious as to how that might be playing out if there’s a more typical way for companies or countries to do this.  Thank you. 

DAS Borman:  Sure.  The restrictions have been in place for roughly a month, a little bit over a month, and we certainly haven’t seen any indication that there’s noncompliance.  In fact, we’ve seen the reverse.  You all have probably seen press reporting on the 300-plus companies that have stopped engaging in business activities in Russia and with Russia, and certainly a significant chunk of that is directly due to the restrictions, but I think there’s also a fair amount of additional self-sanctioning, if you will, by multinational companies operating in Russia. 

So certainly, the major, major players know that there’s a significant risk to their business if they don’t comply because of the various actions we can take ranging from restricting U.S. and, frankly, allied exports to them or inputs to them, all the way through to potential fines and even criminal penalties. 

So, this is something we’ll just be continuing to be very vigilant on and monitor.  We know that Russia is quite dependent upon foreign supplies for some key inputs like semiconductors, so I think it will be relatively readily apparent if there is noncompliance, and then the task will be to sort of trace that back to its origin.  But so far, I think we’ve seen very substantial demonstrations of compliance – again, either allied governments imposing their similar controls, which means we don’t have to be as concerned about exports from those countries; and then for the countries that haven’t, continuing to see a lot of companies doing their own self-sanctioning, if you will. 

Moderator:  Thank you.  Next, if we could go to Alyssa Tan from BusinessWorld in the Philippines. 

Question:  Hello.  Which countries is the U.S. looking to reach out to, to increase allies implementing said sanctions?  And what do you think could be the long-term consequences of these sanctions to the world economy after the war? 

DAS Borman:  The countries that we’re reaching out to are the ones you might imagine, particularly those in the region that have substantial production, testing, packaging in the electronics area, countries that have aircraft maintenance repair operation facilities.  Countries that have those kind of technical capabilities within their borders are among the ones that we’re continuing to discuss this issue with.  And of course, we welcome any country that can impose comparable controls. 

In terms of the long-term relationship or the impact, I should say, on the world economy, I mean, I think it – that really depends on how this plays out and whether Russia draws back from what it’s been undertaking.  In many respects, at least in the sectors we’re talking about, Russia is not that significant a player, so there’s not generally speaking a significant market impact.  And I think countries are generally appalled, frankly, by what Russia has done and the impact its actions have had on the rule of law.  So that’s probably where I think the impact may not be perhaps as much as some might think, because it’s really upholding the rule of law, which ultimately is the basis for the global economic system. 

Moderator:  Thank you.  Next if we could go back to Kathrin Hille from the Financial Times in Taiwan.  Kathrin, please go ahead. 

Question:  Thanks so much.  I just had a quick kind of fact-checking, legal question on this.  There seems to be quite a bit of disagreement, even among lawyers, over whether smartphones do or do not fall under the license requirement, or whether there might be smartphones that don’t fall under that.  Could you maybe help us understand that a bit better? 

DAS Borman:  Sure.  So, our restrictions certainly would, of course, affect any smartphones going from the U.S. directly to Russia.  But more to I think your question, if they’re smartphones that are manufactured outside of the United States, then again there’s two analyses that would have to be done: first, do they contain more than 25 percent by the value of the phone content that now requires a license from the U.S. to Russia – so the analysis would have to look at content from the U.S. in that space; but most relevant would be the foreign direct product rule, and if that smartphone or the chips in them that – or the chips that go into the smartphones are caught by the foreign direct product rule because the chips are designed using U.S. software or technology, or are manufactured on a fabrication line using a U.S. tool, that chip itself is now caught.  So, of course it’s caught if it’s going directly to Russia, but also if the chipmaker knows that it’s going into a product that is then going to Russia, that also would catch it. 

Now, having said that, to the extent smartphones are caught by the restrictions, we do have two general authorizations – we call them license exceptions – that allow them to go to Russia under defined circumstances.  And the circumstances are if it’s a consumer communication device, those, even if caught by the restrictions or covered by the restrictions, can go to individuals and independent NGOs in Russia under this general authorization; they cannot go to government officials or end users.  And similarly, if the product, like a server or a router, is caught because of its level of encryption, there’s a license exception called encryption that allows that to go essentially to U.S. and Western subs and individuals in Russia under a general authorization. 

So, that’s a bit of a complicated answer, but it depends on some specific facts as to whether smartphones are caught or not, and if they’re caught, under what circumstances could they nonetheless go to Russia. 

Moderator:  Thank you.  Next if we could go to Isabelle Leong from The Vibes in Malaysia.  Isabelle, please go ahead. 

Question:  Hi there.  Thank you so much for taking my question.  So basically [inaudible], you mentioned that as long as Russia continues its war in Ukraine, U.S. and other allies would continue sanctions and additional sanctions.  Could you elaborate on the additional sanctions that you were talking about? 

DAS Borman:  So, I guess there’s kind of three potential baskets.  First, in terms of exports, there are some categories of items that are currently only subject to restrictions if they’re going to named military end users in Russia.  Those could be expanded to all end users in Russia.  There certainly is more that could be done on the imports side – in other words, restricting more categories of imports from Russia – and there’s certainly more that could be done in the financial sector as well, and that’s without prejudice to whether any of those will be done, but certainly those are all possibilities. 

We’re also looking at different – and continually looking at parties, in our case, that are in Russia’s defense industrial base to add to our restricted list, which covers all items subject to our jurisdiction, not just the categories specified in the current restrictions. 

Moderator:  Thank you.  We’ll be wrapping up soon, but let’s maybe take one or two more questions.  If we could go back to Alyssa Tan from BusinessWorld in the Philippines, who has a follow-up question. 

Question:  Okay, just wanted to ask:  What exactly is the main call to action of the U.S. to Asian countries when it comes to the Russia-Ukraine war? 

DAS Borman:  Well, I think to certainly condemn Russia’s invasion as a breach of international law.  And then also, align their trade restrictions or their transactions with Russia with those of the allies, including those in Asia, that have already done so, to really demonstrate the disapproval of the Russian action as well as make their restrictions even more effective.  So that’s what we are interested in from other countries in Asia – and around the world, for that matter. 

Moderator:  Okay, I think that just about wraps up all the questions that we have.  Mr. Borman, would you like to give some closing remarks before we wrap up for the day? 

DAS Borman:  Yes, thank you, Zia.  I think I’d like to leave all of our participants with two overarching messages.  One is that we’re certainly looking for all companies around the world, but particularly in Asia since this is the focus of this discussion, to make sure that they do their due diligence so that any transactions that they are contemplating undertaking with Russia are consistent and compliant with our requirements – and we’re always available to answer specific questions from companies on that score.  And secondly, certainly, we’re always willing to work with any government in Asia to explain in more detail our actions and help them understand them so that they can help also explain it to their industry and consider taking comparable action to align their strategic trade policy with those of us and our allies.  Thanks. 

Moderator:  Thank you very much.  That concludes today’s call.  I want to thank Matthew Borman, U.S. Commerce Department Deputy Assistant Secretary for Export Administration.  I also would like to thank all of you for participating in this briefing.  Please stay on the line for information regarding access to an audio recording of the call.  Also, please be aware that a transcript of the call will be posted to our social media platforms and sent out to all of you within a day.  If you have any questions about today’s call, you may contact the Asia Pacific Media Hub at AsiaPacMedia@state.gov. Thank you.