The U.S. government has increased the level of technological sanctions against Chinese companies. It has blocked the pathway for Chinese companies on the ‘blacklist’ that were unable to import sensitive U.S. technology from circumventing these sanctions through subsidiaries.
On the 29th (local time), the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce announced a regulation that automatically applies export controls to companies where entities on the export control list hold more than a 50% stake.
Until now, even subsidiaries of companies under export control would not be subjected to such controls if their names were not listed. This allowed companies like China’s Huawei, which are under U.S. sanctions, to bypass the sanctions by creating subsidiaries to import technology.
The new regulation also obligates exporters to pay special attention not to violate export control regulations when exporting sensitive technology to companies where an export-controlled company has a “significant minority interest” or “substantial relationship.”
The U.S. Department of Commerce compiles a list of foreign companies and institutions that could pose a threat to national security and requires government permission or effectively bans the export of dual-use technologies that could be used for military purposes to companies on this list. This regulation applies to affiliates of companies listed on the ‘Entity List,’ which includes companies engaged in activities contrary to U.S. national security or foreign policy interests, and the ‘Military End-User List,’ which includes companies that could use the technology for military purposes.
Jeffrey Kessler, Under Secretary for Industry and Security at the Department of Commerce, stated, “For too long, loopholes have enabled exports that undermine U.S. national security and foreign policy interests. Under this administration, BIS is closing these loopholes to ensure export controls work as intended.”
This regulation will be officially published in the Federal Register on the 30th and will take effect 60 days after publication.
The Wall Street Journal (WSJ) reported that thousands of companies around the world could potentially be affected by this measure, but many industry managers view Chinese tech companies as the primary target. The U.S. has aggressively expanded export controls to prevent China from accessing advanced technologies that could be used for military purposes.
However, it has been difficult to completely block the supply of U.S. technology to Chinese companies like Huawei, which have numerous subsidiaries and global business partners. WSJ noted that officials from the Trump administration were particularly concerned about the possibility of U.S. technology aiding Chinese companies because of the AI competition between the U.S. and China.
There is also a possibility that companies established through joint ventures between third-country companies, like those from South Korea, and Chinese companies on the export control list could be affected. WSJ highlighted potential supply chain disruptions and compliance costs.
Meanwhile, this measure could impact ongoing U.S.-China trade negotiations. China’s Ministry of Commerce issued a statement expressing “strong opposition” to the U.S. measure and vowed to take necessary steps to protect the legitimate rights and interests of Chinese companies.