iUnder an interim rule published in the Federal Register on Friday, September 9, 2022, the Commerce Department’s Bureau of Industry & Security (BIS) is loosening restrictions on the sharing of specific technology with blacklisted firms, to maintain the United States’ lead in setting international standards. Under that rule, no license will be required to export certain items subject to the Export Administrative Regulations (EAR), including certain encryption software and technology, to entities listed on BIS’s Entity List (EL), for standard-setting purposes.
The rule arose from the need to let US companies participate in standard-setting discussions with certain companies on the EL on information-security standards. During the Trump Administration, Commerce officials identified certain Chinese technology companies and their non-American affiliates as national security threats and added them to the EL, which curtails their access to critical US and non-US suppliers with items subject to the EAR. The policy led US and non-US companies to limit their participation in standards-related activities at a time when Chinese companies appear to be ramping-up theirs. Throughout congressional consideration of the recently-enacted China competition bill, Members of Congress raised major concerns that China’s government and its largest companies have been taking a larger role in such organizations, which determine how technology is designed and applied globally, theoretically giving them a competitive edge in the international marketplace.
Coupled with the recent agreement between US and Chinese securities regulators on a framework that would ensure that Chinese companies listed in US exchanges comply with US audit-reporting requirements, this development could be viewed as favorable for international businesses invested in the responsible management of the bilateral relationship. Indeed, in light of upcoming meeting between President Biden and President Xi expected later this year, the timing of the rule’s roll-out might not have been a coincidence despite that industry has been expecting this rule for a while.
Finally, the interim rule may support the narrow proposition that, in a case (or in cases) where prohibiting exports to a Chinese technology company is wholly unrelated to the underlying reason why Commerce originally decided to put a given company on the EL, Commerce may be open to granting limited and targeted relief. Such cases may be strongest where given relief would in fact benefit US suppliers and their ability to compete globally, or further broader US geopolitical objectives—as in this case, maintaining US leadership in standards-setting bodies by ensuring US entities are not hamstrung by EL restrictions.
However, given the overwhelming concern that Members of Congress expressed in connection with the recently enacted China bill about China’s manipulation of international standard-setting organizations, certain lawmakers could rail against the Administration and this rule, holding it out as benefiting blacklisted Chinese technology companies and try to push responsive legislation, including provisions that each chamber passed in their versions of the China bill that were not adopted in the final. Nonetheless, considering the long list of competing year-ending legislative priorities for both the House and Senate, their ability to do so may be limited.
