*

Thousands of export license applications held up at

Commerce,

sources say

*

Backlog hurting US exporters, industry asserts

*

License woes signal deeper dysfunction at Commerce,

sources say

By Karen Freifeld and Alexandra Alper

Aug 1 (Reuters) - Thousands of license applications by

U.S. companies to export goods and technology around the globe,

including to China, are in limbo because turmoil at the agency

in charge of approving them has left it nearly paralyzed, two

sources said.

While U.S. Commerce Secretary Howard Lutnick has become a

familiar face touting President Donald Trump's tariff and trade

deals, sources said the export bureau under Lutnick's command

has failed to issue expected new rules, stifled communications

with industry representatives, pushed out experts, and lost

staff through buyouts and resignations.

Shipments of artificial intelligence chips from Nvidia ( NVDA )

to China are the most high-profile example of licenses not being

swiftly approved. The company said July 14 the government

assured it licenses would be granted for its H20 chip, and it

hoped to start deliveries soon. Lutnick and other officials

confirmed sales would be allowed.

But sources said this week no licenses have yet been issued, and

billions of dollars of AI chip orders are at stake.

One U.S. official said the backlog of license applications

is the lengthiest in more than three decades.

A spokesperson for Nvidia ( NVDA ) declined to comment. The

Department of Commerce did not respond to a request for

comment.

The turmoil and resulting inaction at an agency tasked with

promoting overseas trade and safeguarding American technology

are alarming both those seeking tougher restrictions on exports

to China and companies trying to sell their wares abroad.

"Licensing is how the U.S. does business and competes

globally," said Meghan Harris, who served on the National

Security Council in the first Trump administration and has

worked at Commerce. "Delays and unpredictability put us at an

unnecessary disadvantage."

The Commerce Department's Bureau of Industry and Security

averaged 38 days per export license application in fiscal year

2023, the most recent data available, denying 2% of 37,943

applications.

The license process enforces U.S. export restrictions in an

effort to make sure sensitive goods and technology do not reach

countries or entities whose use of the items could harm U.S.

national security.

Some staff have criticized Jeffrey Kessler, who became BIS

undersecretary in March, saying he has micromanaged the bureau

and failed to communicate adequately.

Kessler did not respond to a request for comment.

At a staff meeting soon after he took office, Kessler urged

BIS staff to limit communications with company representatives

and industry officials, according to two additional sources, who

said he later asked for all meetings to be entered on a

spreadsheet.

Getting approval from Kessler's office to attend meetings

with other government agencies has also been tricky,

those sources said.

Sources spoke anonymously because they were not authorized

to speak publicly.

FRUSTRATION AMONG EXPORTERS

Frustration is growing within U.S. industry.

"We're seeing whole sectors where there is no movement or

indication if or when licenses will be issued," including

license applications for semiconductor manufacturing equipment

worth billions of dollars, said Sean Stein, president of the

US-China Business Council.

While the clock is ticking on license applications, "Chinese

companies are exploring and doing deals with suppliers in China

and other countries," he said. "The longer we have the delay,

the more market share we're going to lose."

Jim Anzalone, president of Compliance Assurance, a

Florida-based trade consultancy, said he has seen delays in

license approvals for sensors, radars, and sonar to Latin

America and other parts of the world. "There's nothing official

about what the policy is and when the backlog would be cleared,"

he said.

He has received denials sporadically after submitting some

two dozen applications months ago to export semiconductor

manufacturing equipment to China, including four denials on

Wednesday, he added.

Sources stressed that some licenses are getting approved,

especially exports to allied countries, and they noted that some

communication with companies continues, especially around

license applications.

Commerce is also delaying regulatory changes. The agency said in

May it would rescind and replace a Biden administration rule

before it went into effect that month restricting where AI chips

can be exported, but the agency has not done so yet.

Other rules, which sources said have been drafted for

months, have not been published, including one to expand export

restrictions to subsidiaries of companies already banned from

receiving controlled U.S. exports.

Meanwhile, important staff vacancies such as China-based

export control officers have not been filled, and high-level

career employees have resigned. A retirement party was held this

week for Dan Clutch, acting director of the BIS Office of Export

Enforcement, the latest experienced staff member to leave.