Lawyers Say Sino-US Conflict Over Technology Will Continue to Grow
Three Sheppard Mullin lawyers, across two continents, say the outcome of the new aggressive stance against China's rising technological manufacturing sector is yet to be seen, but that they don't expect the Biden administration to back away from the most significant export control actions taken under President Donald Trump.
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Reid Whitten, managing partner of Sheppard Mullin's London office, said during a Nota Bene podcast released last week that possibly the biggest change in export controls in the last few years was the restriction on foreign indirect products of U.S. technology sold to Huawei. He said that not only are these goods manufactured outside the U.S., they also don't have any U.S. components, though they may run U.S. software, or be built with chips or other content made with U.S.-designed or -built machines. “It expanded its jurisdiction substantially in a way that has never been seen before,” Whitten said. “It's probably not something the Biden administration is going to back away from.”
The lawyers also talked about how much deference courts give to U.S. decisions made under national security rationales. While Xiaomi won an injunction in U.S. federal court, to block a rule that would have made it illegal for U.S. residents to buy its stock, Huawei is not likely to get a court-ordered reprieve, Whitten said.
Still, he said, the Commerce Department is awarding licenses for European and Chinese companies that sell to Huawei with the benefit of indirect U.S. technology. “We’re seeing signs Huawei may be able to still develop smartphones,” Whitten said. He said the department does not look favorably on licenses for Huawei networking equipment; goods used in making the phones are “the kinds of things getting approvals in export licensing schemes.”
Whitten also repeated the quote he recently gave to The Wall Street Journal about the Committee on Foreign Investment in the United States, saying, “It was sort of a sleepy sheriff's office, and now it's a buzzy SWAT team.” He warned companies that if they get an e-mail asking about past investment, to retain counsel before answering. “It is not an invitation for a chat, it is a call from the cops,” he said.
Michael Cohen, the podcast host, said China is not taking these moves lying down, and has passed data privacy laws with extraterritorial sweep, its own investment restrictions, and, in January, passed a blocking statute, which would allow companies affected by U.S. sanctions or export controls to sue for damages. Cohen said he thinks the actions and counter actions “are going to bring things to a head.”
Scott Maberry, a partner in the firm's international trade practice, said American and Chinese strengths and weaknesses are so different from each other that it's hard for each side to even grasp the other's capabilities. “We’re so deeply divided internally … that’s one of the things we have to overcome” in order to formulate a successful industrial strategy, he said. He said America's challenge is to “avoid a civil war internally, and fight a global economic trade war, and figure out a way to win or settle both of those.”