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Congress, Trump Administration Continue to Move Ahead with New Controls on Emerging Technologies and Exports to China Despite Shutdown

This week’s release of the 2019 National Intelligence Strategy and the introduction in the new Congress of the “Fair Trade with China Enforcement Act” (S. 2, H.R. 704) signal that pressure to move ahead with new export controls and other measures designed to restrict Chinese access to the U.S. market and U.S. technology and intellectual property has been largely unaffected by the federal government shutdown. Companies with investments in these technologies, Chinese operations, or tie-ups with Chinese investors should closely monitor these developments.

As previously discussed, the Trump administration is forging ahead with plans to implement new export controls on “emerging and foundational technologies” as required by last year’s National Defense Authorization Act (NDAA). Comments on an Advanced Notice of Proposed Rulemaking were submitted on January 10, and are currently under review. An additional rulemaking to begin the process of defining new export controls on “foundational technologies” is expected to be issued soon after the government shutdown ends.

The 2019 National Intelligence Strategy that the Director of National Intelligence issued on January 22, 2019, continues this focus, highlighting developments in “emerging technologies” such as artificial intelligence, automation, high-performance computing, nanotechnology, and biotechnology as trends that “have the potential to pose significant threats to U.S. interests and security.” It calls on the U.S. intelligence community to be prepared to monitor and warn of the strategic effects and adapt to meet new threats arising from this area. Given this focus, it is likely that these concerns will be in the fore during the ongoing rulemaking process to define new export controls on emerging and foundational technologies.

At the same time, a bipartisan group of House and Senate lawmakers, led by Senators Marco Rubio (R-FL) and Mark Warner (D-VA) and Representatives Tim Ryan (D-OH) and Mike Conaway (R-TX), have introduced legislation explicitly designed to address “profound national and economic security risks to the United States” from China’s trade and industrial development policies. This legislation would continue last year’s trend of more closely linking U.S. national and economic security interests to address perceived threats from China through several new mechanisms. In particular, the proposed legislation would:

1. Ban the export to China of “any national security sensitive technology or intellectual property (IP) subject to the jurisdiction of the United States.”

  • This export ban would include technologies subject to U.S. export controls for national security reasons, as well as all “patents, copyrights, trademarks, or trade secrets” deemed sensitive by U.S. authorities.
  • The export ban would also apply to the export of technologies and IP related to industries that are supported by the Chinese government through Chinese policies such as “Made in China 2025,” including:
    • Civil aircraft
    • Autos and other motor vehicles
    • Advanced medical equipment
    • Advanced construction equipment
    • Agricultural machinery
    • Railway equipment
    • Diesel locomotives
    • Freight handling
    • Semiconductors
    • Lithium battery manufacturing
    • Artificial intelligence
    • High-capacity computing
    • Quantum computing
    • Robotics
    • Biotechnology
  • The United States Trade Representative would be required, on a yearly basis, to review Chinese policies to identify any additional technologies and industries that should be added to the above list.

2. Prohibit all Chinese majority ownership of U.S. corporations involved in the technologies and industries subject to the export ban (listed above). This provision seeks to clamp down on the use of U.S. subsidiaries of Chinese companies or investments in U.S. companies to transfer U.S. technology to China in strategic industries.

3. Ban U.S. government procurement of any equipment, system or service that uses telecommunications equipment or services produced by designated Chinese companies, including Huawei. This ban echoes similar restrictions in the NDAA passed last year.

4. Amend the U.S. trade remedy laws to enable the U.S. Commerce Department to apply countervailing duties to merchandise imported from China in the above-listed industries based on a statutory presumption that such merchandise is subsidized by the Chinese government. Further, the U.S. International Trade Commission would be required to find that producers in the United States are automatically materially injured or threatened with material injury by such imports from China.

5. Eliminate certain preferential income tax withholding rates for persons who are deemed residents of China under the U.S. tax laws, as well as tax exemptions on income from U.S. debt held by the government of China.

Prospects for passage of the above legislation remain uncertain, but the significant bipartisan support it has garnered thus far suggests that the chances of at least some of the above provisions being enacted into law – or, at a minimum, shaping the Trump administration’s approach to the regulation of Chinese investment in and acquisition of “emerging and foundational technologies” and sensitive IP – are fairly high. 

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About this Author

Nate Bolin, Drinker Biddle Law Firm, Washington DC, Litigation Law Attorney
Partner

Nate Bolin has significant experience advising clients in compliance, transactional, litigation, policy and regulatory matters involving U.S. export controls, U.S. International Traffic in Arms Regulations (ITAR), economic sanctions, and related areas of national security and international trade law.

In corporate transactions and mergers and acquisitions, Nate regularly advises buyers, sellers and investors on the impact of U.S. export controls, customs laws, trade remedy laws, existing bilateral and multilateral trade...

(202) 230-5888
Mollie Sitkowski, Drinker Biddle Law Firm, Chicago, Trade Law Attorney
Associate

Mollie D. Sitkowski assists clients in ensuring their internal processes meet Customs' "reasonable care" standard. She assists clients with various aspects of trade law, including valuation, classification, free trade agreements, country of origin determinations, and auditing their import documentation to identify potential issues and risk areas. Mollie also supports clients with export compliance, including advising on export screening and classification, and filing license classification requests and voluntary disclosures with the Bureau of Industry and Security (BIS) and the Directorate of Defense Trade Controls (DDTC). She works with clients to obtain beneficial outcomes from Customs' administrative processes by filing PEAs and Protests, submitting ruling requests, and filing prior disclosures. Additionally, Mollie assists in drafting briefs to the Court of International Trade and Court of Appeals for the Federal Circuit concerning tariff classification disputes for firm clients.

In General. Mollie earned her law degree from Chicago-Kent College of Law, where she was a Chicago-Kent Honors Scholar and on the Dean’s List. While in law school, Mollie was a paralegal with the firm’s Customs & Trade practice. She earned her bachelor’s degree cum laude from University of San Diego.

312-569-1502
Associate

Qiusi Y. Newcom assists clients with navigating emerging issues and regulatory compliance in telecommunications laws and international trade laws. She is an associate with the Telecommunications Team and the Customs and International Trade Team.

Prior to joining Drinker Biddle, Qiusi was an associate with a boutique employment law firm where she handled labor and employment matters before federal courts and federal agencies, including the Equal Employment Opportunity Commission. Qiusi also gained valuable litigation experience...

202-230-5370