Trump Rule on China Tech Transactions to Remain in Place

March 1, 2021 by Reece Nations
Chinese president Xi Jinping listens during the closing session of the National People's Congress. (Photo by Kevin Frayer/Getty Images/TNS)

WASHINGTON — A Trump-era regulation allowing the Department of Commerce to block technology-related business transactions determined to be national security threats will remain in place, against the wishes of some of the country’s business stakeholders.

The rule, scheduled to take effect this month, derives from a 2019 executive order from former-President Donald Trump. The department will hear public comments on the issue through March 22, at which point the rule becomes effective. 

“Trustworthy information and communications technology and services are essential to our national and economic security and remain a top priority for the Biden-Harris administration,” a Commerce Department representative said in a written statement.

The rule was designed to secure domestic supply chains from foreign threats, specifically from China. Previously, the Commerce Department under the Trump administration issued rules prohibiting foreign companies from selling American-made computer chips to the Chinese technology company Huawei without federal approval. 

Business Roundtable, a stakeholder group consisting of CEOs from major U.S. companies, said the rule as it was written was overly broad and would lead to adverse economic consequences without improving supply chain security. The association warned against expanding the Commerce Department’s authority to review and block transactions without a benchmark or notice of what types of transactions fall under the rule. 

“If implemented in its current form, the Proposed Rule will create uncertainty and confusion that could undermine both U.S. competitiveness and national security objectives,” BRT said in a written statement. “Foreign partners will do less business with U.S. companies given the open-ended risk that a wide range of completed transactions could fall within the Proposed Rule regime and be disrupted without notice. Such an approach could weaken U.S. economic leadership and competitiveness in the (information and communications technology and services) sector and undermine the national security benefits of this leadership.” 

BRT, in its comments, suggested the department propose a new rule that would specify the types of transactions that would be covered and excluded, adjust the criteria designating foreign adversaries, and contain an optional safe harbor process to preserve business’s transactional confidence.

Further, the association said the rule should include measures that avoid redundancies with existing national security statutory and regulatory entities and designate which technologies are of concern. 

“IBM strongly urges the incoming Biden administration to suspend immediately the Commerce Department interim rule on IT supply chain security that was issued in the midnight hour of the outgoing administration,” the company said in a written statement. “The Commerce Department ignored volumes of input from the business community. 

“The interim rule would subject hundreds of billions of dollars of legitimate U.S. commerce to vague and arbitrary government regulation without enhancing national security in a meaningful and targeted way. It will damage the U.S. economy, boost foreign competitors and violate due process protections.”

In January, the U.S. Chamber of Commerce submitted a letter to Commerce Secretary Wilbur Ross with similar objections to the rule. In the letter, the chamber contends the rule grants the Commerce Department “nearly unlimited authority” to interfere with commercial transactions and that it lacks substantive measures aimed at transparency and accountability. 

In addition to these objections, the chamber stated the proposed rule does not account for existing national security programs designed to minimize economic harm. The chamber suggested the rule be amended to narrow its scope, ensure accountability, protect confidentiality in the review process and outline more procedures for waivers, appeals, and mitigation. 

“The chamber and our members agree with the department that the ICTS supply chain ‘is an attractive target for espionage, sabotage, and foreign interference activity,’” the text of the letter read. “However, securing the ICTS supply chain cannot be done without the U.S. business community’s involvement, and this proposal leaves U.S. businesses with little in terms of how to plan around potential threats or evaluate their own efforts (which are often done in coordination with other federal efforts) to secure the ICTS supply chain.” 

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