The U.S. will suspend certain export license exceptions for shipments to Hong Kong and ban exports of U.S.-origin defense goods to the region, the Trump administration said June 29. The administration also plans to further restrict sales of dual-use technologies to Hong Kong to bring those measures in line with restrictions imposed on exports to mainland China. The administration said it is imposing the restrictions because of China’s infringement in Hong Kong’s autonomy (see 2005290047).
Exports to China
The Bureau of Industry and Security stressed the importance of increased due diligence measures in a guidance (see 2004280052) on its new export licensing restrictions for military-related exports, saying industry must be careful to avoid shipping goods to entities with any nexus to the Chinese military. The newly issued guidance touches on due diligence best practices and addresses shipments to distributors and universities but does little to address the “unmanageable” compliance burdens industry said the rule will cause (see 2006150031, 2006180035 and 2005050035). BIS also did not grant a request by at least 20 industry groups to delay the rule’s effective date (see 2006150031). The rule took effect June 29.
It's unclear how a President Joe Biden would try to use policy to shape the global supply chain, but the Atlantic Council's Asia Security director said that since Biden prefers a multilateral approach, he “might be less likely” to impose tariffs or export controls. Miyeon Oh, who was speaking during an Atlantic Council webinar June 26, said he might try to get allies to coordinate an effort “to rebalance the global supply chain,” and he might seek to use American participation in the Trans-Pacific Partnership as a way to do so.
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The Committee on Foreign Investment in the U.S. is closely monitoring Chinese investors who are trying to take advantage of struggling U.S. companies, trade lawyers said. CFIUS is also focusing on the semiconductor sector, where Chinese entities are hoping to evade recent U.S. rules that impose more strict license restrictions on sales of semiconductors and other technology to China and Huawei (see 2005150058), the lawyers said.
Less than a week after signing a bill that will sanction Chinese officials for human rights abuses, President Donald Trump said he had held off on the sanctions so as not to interfere with the U.S.-China trade deal, a June 21 Axios report said. The report comes amid a series of U.S. and China steps that have further deteriorated the trade relationship, including threats of U.S. sanctions and moves by China to reduce agricultural purchases.
The Bureau of Industry and Security's increased restrictions on shipments to military end-users (see 2004270027) presents “significant questions” for industry, which may struggle to comply with the new due diligence expectations, said Ajay Kuntamukkala, an export controls lawyer with Hogan Lovells and a former BIS official. Kuntamukkala said the rule will “significantly impact business transactions” with Chinese entities.
Amid rising U.S.-China technology competition, Congress will continue to push for increased restrictions on inbound Chinese investment, said Rep. Darin LaHood, R-Ill. LaHood also said the Trump administration -- which has experienced success using tariffs and export controls to gain ground in trade negotiations -- will likely continue to leverage those measures, particularly against China.
A Chinese national was sentenced to three years in prison after trying to illegally export a radio designated as a defense article to China, the Justice Department said in a June 12 press release. Qingshan Li bought the export-controlled radio -- a U.S. military Harris Falcon III AN/PRC 152A -- in the U.S. and picked it up from a San Diego storage unit last year. Li intended to take the radio to Tijuana, Mexico, in order to ship it to China from there because of Mexico’s lack of export control rules. Li was eventually stopped by U.S. authorities, who found the radio and other military equipment in his bag, the Justice Department said. Li said he knew the radio was export controlled, the agency said.
Companies operating in Hong Kong and mainland China should be reviewing their portfolios in preparation for increased U.S. export controls, which could impact a wide range of global firms, a Mayer Brown trade lawyer said. Aside from sanctions against Chinese officials for interference in Hong Kong’s autonomy, the U.S. is likely to align export control policies for Hong Kong with its policies toward mainland China, creating a significantly more restrictive trade environment, the lawyer said.