U.S. Commerce Department expands restrictions on tech sales to China

Foreign Affairs

News lost among the noise of the last two weeks: On April 28, the U.S. Department of Commerce published a new set of rules restricting “exports, reexports, and transfers (in-country) of items intended for military end use or military end users in the People’s Republic of China (China), Russia, or Venezuela.”

When announcing the rules, U.S. Commerce Department Secretary Wilbur Ross explained the reasoning: “Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands.”

Restricted items include: Software, highly accurate machine tools, a broad range of electronics, sensors, lasers, chemicals, microorganisms, depleted uranium, and just about anything to do with nuclear power, propulsion systems, and space vehicles.

There were already such restrictions in place, but the new rules specifically restrict exports to Chinese “military end users,” in addition to those for “military end use.” In other words, restricted technologies may not be sold to any Chinese entity that has military ties, even if the technology will not be used for military purposes. Because many Chinese research institutions, universities, and companies have some kind of tie to the Chinese military, the new rules could prevent sales to a much bigger number of organizations, some of which may be existing customers of U.S. firms.

How will the new rules affect American companies? “The new rules will create significant issues for U.S. tech companies that currently make a lot of money licensing software and hardware in China for civilian use,” said John Scannapieco, chair of the Global Business Team at the U.S. law firm Baker Donelson: “If they want to remain in compliance, they’ll have to really investigate who their customers are: not just the company or organization itself, but who it is connected to. That’s a really difficult thing to do in China, so many SMEs might not be able to afford to continue such business.”

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