The White House is preparing restrictions on Russia’s access to American technology

The White House is preparing restrictions on Russia's access to American technology

The Biden administration warned on Wednesday that it had prepared additional measures aimed at cutting off Russia from advanced technologies essential to its economy and its military in the event of a new aggression by President Vladimir V. Putin against Ukraine.

The United States announced on Tuesday sanctions against two Russian banks and restrictions on Russian sovereign debt, effectively isolating the country from Western financing. President Biden too announced new sanctions on the Nord Stream 2 gas pipeline and its corporate officers.

Export controls could increase pressure on Russia by preventing the country from obtaining semiconductors and other cutting-edge technologies used to power Russia’s aerospace, military and tech industries.

“If he chooses to invade, what we’re telling him very directly is that we’re going to cut that off, we’re going to cut him off from Western technology that’s essential to advancing his military, cut him off from Western finance. resources that will be essential to feed its economy and also to enrich itself,” said Wally Adeyemo, assistant secretary of the Treasury, on CNBC on Wednesday.

The Biden administration has not specified what specific restrictions it will impose on products imported from Russia. But the actions and statements of administration officials suggest they may be reusing a new measure the Trump administration has turned to to cripple the operations of Huawei, a Chinese telecommunications company, in 2020, officials said. export control specialists.

The tool, called the Foreign Direct Proceeds Rule, allows U.S. officials to block more than U.S. exports to Russia, which totaled just $4.9 billion in 2020. It also allows officials Americans to restrict exports to Russia from any country in the world. if they use American technology, including software or machinery.

Businesses can apply for licenses to circumvent restrictions, but risk being denied.

Daleep Singh, the deputy national security adviser, said Friday that the administration was “converging on the final package” of sanctions and export controls, and suggested those controls would target tech products.

“We produce the most sophisticated technology inputs across a range of foundational technologies – AI, quantum, biotechnology, hypersonic flight, robotics,” Singh said. “As we and our partners move together to deny these critical technological inputs to the Russian economy, Putin’s desire to diversify away from oil and gas – which accounts for two-thirds of his export revenue, the half of its budget income – will be withheld.”

“He talked repeatedly about a desire for an aerospace sector, a defense sector, an IT sector,” Mr. Singh said of Mr. Putin. “Without these critical technological inputs, there is no way to achieve these ambitions.”

Kevin Wolf, international trade partner at Akin Gump who worked in export controls during the Obama administration, said the White House could adapt its use of export controls to target certain strategic sectors, such as corporations. of the aerospace or maritime industry, while bypassing products used by the Russian population, such as washing machines.

“They are making it clear that they are not trying to take actions that harm ordinary Russians,” Wolf said.

Andy Shoyer, co-head of global arbitration, trade and advocacy for Sidley Austin, said the restrictions appeared likely to focus on semiconductors and semiconductor equipment. The new export controls that the United States has exercised against Huawei have powerful significance when it comes to semiconductors, as even overseas-made chips are mostly manufactured and tested using machines based on American designs, he said.

“It’s not just what’s physically exported from the United States,” Shoyer said. “That could encompass a substantial amount of production, because so much of the semiconductor industry relies on American technology.”

The global semiconductor industry, which has been rocked by shortages and supply chain disruptions throughout the pandemic, could face more disruption given Ukraine’s role in the supply chain. supply of semiconductors.

Stacy Rasgon, senior analyst at Bernstein Research, said Ukraine was an important site for the purification of neon, a gas used in semiconductor production. While neon costs were a tiny fraction of what semiconductor companies pay, “potentially jeopardizing a significant fraction of purification capacity seems somewhat concerning for an industry already struggling with shortages. “, did he declare.

A spokesperson for the Semiconductor Industry Association said the group was still assessing potential impacts related to Russia’s and Ukraine’s roles as materials suppliers. But he said Russia was not a significant direct consumer of semiconductors, accounting for less than 0.1% of global chip purchases, according to the World Semiconductor Trade Statistics organization.

The Biden administration has been consulting with foreign governments on potential technology restrictions, which would curtail business activities around the world, according to people familiar with the discussions.

He also encouraged other governments to organize their own responses to Russian aggression, although many governments are more limited than the United States in the type of export restrictions their national laws allow them to impose. .

In a statement on TuesdayJapanese Foreign Minister Yoshimasa Hayashi said Japan strongly condemns the breach on Ukrainian territory and will cooperate with the international community to “coordinate a firm response”.

In his interview on Wednesday, Adeyemo said the United States was coordinating closely with its European allies in efforts to put pressure on the Russian economy. He added that the tools the Biden administration was about to deploy were more powerful than those used after Russia’s annexation of Crimea in 2014.

Russia just represents 2 percent of world trade, and it has taken steps in recent years to strengthen its balance sheet and foreign exchange reserves to reduce the impact of international sanctions. But it remains dependent on foreign technology in areas like artificial intelligence, quantum computing and aerospace.

“Obviously the export control measures would have a significant additional impact on the economy there,” White House press secretary Jen Psaki said on Tuesday.