Article 08.03.20
Article
Article
08.28.20
The Trump administration has long focused on supply chain risks from foreign countries that directly impact companies around the world, primarily concentrating on the technology, telecommunications and government contracting industries.
On August 6, 2020, President Trump issued two executive orders that will block all U.S. transactions related to popular apps WeChat and TikTok beginning in September. In addition, the administration announced the expansion of the Clean Network program, a comprehensive effort to address foreign risks to the privacy of U.S. citizens and companies.
These are just the most recent in a series of actions with the potential to impact global supply chains for companies in these industries. This list outlines the latest developments.
Effective June 5, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) added 33 Chinese companies and institutions to the list of entities prohibited from receiving certain exports, re-exports or in-country transfers. Weeks later, BIS added to the list another 11 Chinese companies implicated in human rights violations and abuses in the Xinjiang Uyghur Autonomous Region (XUAR), and on August 26, BIS added 24 Chinese companies based on their role in helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea. These updates follow BIS’s October 2019 addition of 28 Chinese public security bureaus and companies to the Entity List based on similar alleged violations.
The administration also has more aggressively targeted telecom and electronics maker Huawei by restricting the company’s access to U.S. technology and components. Huawei was added to the Entity List in May 2019, and one year later, BIS amended its direct product rule to further restrict Huawei and its affiliates’ ability to receive certain semiconductor products. As a result, many companies doing business with the multinational have been required to conduct more extensive reviews of their supply chain risk.
Read our coverage:
U.S. Commerce Department Imposes New Restrictions on Huawei
BIS Adds 33 Chinese Entities to Entity List
BIS Amends Direct Product Rule to Target Huawei but Extends Huawei General Temporary License
A U.S. government-wide ban on contracts with any entity using equipment, systems or services that themselves use products from Huawei, ZTE and other Chinese companies became effective August 13, 2020. It is another in a series of U.S. rules aimed at excluding, and in some cases removing, Chinese-origin equipment from domestic telecommunications networks. Most of these rules apply to U.S. government networks, but some extend to private sector companies that use covered telecom infrastructure and services with no nexus to the U.S. government.
Read our coverage:
U.S. Government Efforts to Eliminate Supply Chain Threats from China to Telecommunications Networks
Supply Chain Threats and Cybersecurity Compliance Issues on the Horizon
On May 29, 2020, the U.S. Department of Defense (DoD) implemented two new contract clauses; one requires contractors to certify they will not use Russian-sourced energy at certain military installations in Europe.
Read our coverage:
DoD Bans Use of Russian-Sourced Energy at U.S. Military Bases in Europe
The DoD has listed 20 Chinese companies operating in the U.S. that the Trump Administration alleges are backed by the Chinese military that may be subject to sanctions imposed by the President pursuant the National Defense Authorization Act.
Should the President impose sanctions, the companies may be subject to asset blocking and visa restrictions. These sanctions equate to inclusion on the Specially Designated Nationals and Blocked Persons List (SDN), which generally prohibits financial transactions with U.S. persons. U.S. persons could face civil or criminal penalties doing business with SDNs.
Effective June 29, 2020, BIS now requires a license for certain exports to military end users in China. Exports to some Chinese companies that conduct activities in support of a military end use also will likely be subject to a license—even if the item itself will be used exclusively for commercial applications. Additionally, the list of items subject to military end use and end user license requirements for exports to China, Russia and Venezuela was significantly expanded.
Also effective June 29, BIS will require an export license for certain telecommunication equipment and computers that are controlled for national security reasons and that previously could be exported without a license to civil end users.
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The U.S. Departments of State, Commerce, Homeland Security and Treasury issued an advisory outlining various supply chain risks for businesses with connections to entities engaged in human rights abuses in the XUAR, including but not limited to using forced labor in the manufacture of goods. The advisory encourages businesses and individuals to evaluate their exposure to these risks and implement policies, procedures and internal controls to avoid reputational and legal risks.
The advisory also encourages financial institutions to assess their exposure to the risk of handling the proceeds of forced labor on behalf of their clients, and, as appropriate, implement a mitigation process.
On July 14, 2020, President Trump signed an Executive Order requiring that Hong Kong be treated as equivalent to China for the purposes of the Arms Export Control Act. Hong Kong is now included under the China entry on International Traffic in Arms Regulation’s (ITAR) prohibited country list, which bars both from receiving exports of defense articles and defense services covered by the ITAR.
Additionally, effective June 30, 2020, BIS suspended all license exceptions for exports, reexports and in-country transfers to and within Hong of items subject to the EAR that provide differential treatment from China. As a result, these items may not be exported, reexported or transferred to Hong Kong unless the transaction would be authorized to mainland China.
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On August 6, 2020, President Trump issued two executive orders prohibiting any U.S. company or person from transacting with ByteDance, TikTok’s Chinese parent company, or with Tencent related to WeChat. The orders take effect after 45 days and are pursuant to Trump’s May 15 Executive Order addressing the security of the information and communications technology and services supply chain. The Secretary of Commerce is expected to issue further guidance on the types of transactions that are prohibited.
Read our coverage:
Executive Orders Target Tiktok and WeChat Application Makers
On August 5, 2020, U.S. Secretary of State Mike Pompeo announced the expansion of the Clean Network program, the Trump administration’s approach to guarding U.S. citizens’ privacy and companies’ most sensitive information from malign actors, including the Chinese Communist Party.
The program has launched five related efforts, though additional regulations are key to understanding how these measures will be implemented:
Clean Carrier: Prohibiting untrusted People’s Republic of China (PRC) carriers from providing international telecommunications services to and from the United States.
Clean Store: Removing untrusted applications from U.S. mobile app stores.
Clean Apps: Preventing untrusted PRC smartphone manufacturers, e.g. Huawei, from pre-installing—or otherwise making available for download—trusted apps on their apps store.
Clean Cloud: Preventing U.S. citizens’ sensitive personal information and businesses’ intellectual property, including COVID-19 vaccine research, from being stored and processed on cloud-based systems accessible to foreign adversaries through companies such as Alibaba, Baidu and Tencent.
Clean Cable: Ensuring the undersea cables connecting the U.S. to the global internet are not subverted for intelligence gathering by the PRC at hyper scale.
On July 31, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the Xinjiang Production and Construction Corp., a Chinese government entity, and its former Political Commissar Sun Jinlong and Deputy Party Secretary and Commander Peng Jiarui in connection with serious human rights abuses against ethnic minorities in the Xinjiang Ugyhur Autonomous Region.