The Department of Commerce added five Chinese entities to its Entity List, restricting exports, reexports and retransfers of certain products to these entities because they raise national security concerns.
The new rule took effect on June 24, 2019 and follows restrictions imposed in May on business dealings with global telecom leader, Huawei, and many of its subsidiaries, severing the tech giant from its American suppliers after allegations that it reexported U.S. items to sanctioned countries in violation of U.S. law.
The newly added entities are:
- Chengdu Haiguang Integrated Circuit
- Chengdu Haiguang Microelectronics Technology
- Wuxi Jiangan Institute of Computing Technology
These entities operate in the fields of supercomputers, integrated circuits, electronic information systems, software development, computer system integration and computer chips.
The following products (“Controlled Products”) cannot be exported, reexported or retransferred to these entities without a license from the Department of Commerce, provided the review policy for a license is a presumption of denial:
- All U.S. origin items, wherever located
- All items located in the United States
- Foreign-made items or software that contain more than de minimis amounts (typically 25%) of controlled U.S. hardware or software by value
- Foreign-made technology that is commingled with U.S.-origin technology
- Foreign-made direct products of U.S. origin technology or software
Controlled Products do not include published items, technology or software arising from fundamental research, and technology published in patents or published patent applications.
What should exporters and reexporters that are doing business with these entities do?
All companies that are exporting or reexporting Controlled Products must stop all exports and reexports to the five prohibited entities. Such companies should also make sure that they are not inadvertently exporting or reexporting technical data to these entities. Any shipments that were aboard a carrier to a port as of June 24 may proceed to their destination, however, no new shipments may be made. Although any company can apply for a license to do business with the prohibited entities, the presumption is one for license denial.
The U.S. Government currently views Chinese advanced tech companies with high scrutiny, especially where their technologies could have military applications. A number of U.S. companies are protesting the ban on doing business with these companies. An international shipping company has filed suit in federal court against the Department of Commerce, calling its Huawei ban overbroad, unconstitutional and impossible to comply with. Despite these protests, for now it is likely that we’ll see more Chinese tech companies added to the blacklist.
An earlier version of this article was originally published on Fox Rothschild’s Alerts.
Nevena Simidjiyska (LAW ‘07) is co-chair of Fox Rothschild’s International Trade Group where she advises clients on export licensing, economic sanctions, and related internal controls. Nevena also advises both public and private companies on transactional and corporate finance matters as well as provides general corporate counsel services to emerging growth companies.