In a rule published and effective October 9, 2019, China’s key manufacturers of video surveillance products have been added to the Bureau of Industry and Security (BIS) Entity List by an interagency End-User Review Committee (ERC) comprised of representatives of the Departments of Commerce State, Defense, Energy and, where appropriate, Treasury. The Entity List (15 CFR, Subchapter C, part 744, Supplement No. 4) identifies entities believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.
Our July article forecasted that additional Chinese companies would be added to the Entity List this year. There are now some 200 entries, not including subsidiaries, under the mainland China section of the Entity List. China, accounting for over 15.7% of the U.S. total trade in goods in fiscal year 2018 according to the Census Bureau, has become a veritable minefield for U.S. exporters in the high technology sector.
These additions essentially mean that all exports to the listed entities that are subject to the Export Administration Regulations (EAR) (15 CFR §§730-774) will require a license and, further, that such a license application will likely be denied. Specifically, BIS imposes a license requirement for all items subject to the EAR and a license review policy of case-by-case review for Export Control Classification Numbers (ECCNs) 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983, e.g. protective and detection equipment and software employed to enable such equipment. BIS will also apply a policy of case-by-case review to items designated as EAR99 that are described in the Note to ECCN 1A995. Finally, BIS has adopted a license review policy of presumption of denial for all other items subject to the EAR.
What Triggered the Rule?
The ERC determined that the Xinjiang Uighur Autonomous Region (XUAR) People’s Government Public Security Bureau, eighteen of its subordinate municipal and county public security bureaus, and one subordinate institute engage in activities contrary to the foreign policy interests of the United States. Eight commercial entities are believed to be enabling activities contrary to the foreign policy interests of the United States. On the whole, these entities are implicated in human rights violations and abuses in connection with China’s campaign of repression, mass arbitrary detention, and high-technology surveillance of Uighurs, Kazakhs, and other members of Muslim minority groups in the XUAR.
Screen Your Customers Immediately
In addition to Hikvision and Dahua, several other artificial intelligence (AI) and facial recognition firms relevant to the video surveillance space were added to list, including IFLYTEK; Megvii Technology; Sense Time, Xiamen Meiya Pico Information Co. Ltd.; Yitu Technologies; and Yixin Science and Technology Co. Ltd. This action will have an immediate and lasting impact on both U.S. and non-U.S. companies that engage in business with the aforementioned companies. A license is now required, and will likely be denied, for the sale or transfer of any hardware, software, or technology subject to the EAR, irrespective of the situs of such a transaction. As noted above, certain items and technology related to the detection of or protection from chemical, radioactive, and biological agents will be reviewed on a case-by-case basis.
What Items Are Impacted?
This listing impacts the sale or transfer of any items subject to EAR, which include:
- All U.S.‑origin items wherever located in the world;
- Any item exported from the United States (even if it is not of U.S. origin);
- Any foreign-made item that contains more than 25% controlled U.S.-origin content (the “de minimis rule”); and
- Any foreign-made item that is the direct product of certain controlled U.S.-origin software, technology, or major plant or equipment located abroad.
It is unlikely that BIS will issue any reprieve in the form of temporary general license to alleviate the economic impact on the U.S. suppliers affected by this rule. Therefore, it is crucial for industry to obtain the necessary guidance with regard to the de minimis rule. Product-specific origin and value review analysis should be conducted with experienced trade counsel prior to engaging in any transactions with the listed entities, whether from the United States or operations abroad.