International Regulatory Enforcement (PHIRE)

Commerce Department Adds Thirty Three Companies to the Entity List as Trade Tensions with China Escalate

June 08, 2020

Behnam Dayanim, Jon Drimmer, Scott Flicker, Charles Patrizia, Talya Hutchison

On Friday, May 22, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) announced via press releases that it would be adding a total of 33 new companies to the Entity List based on national security concerns involving activities in China.  These public announcements came a full two weeks before BIS formalized the addition of the companies by publishing a notice in the Federal Register on Friday, June 5, 2020.
The thirty-three companies are comprised of two groups.  BIS added twenty-four companies to the Entity List after the U.S. Government deemed the companies to be a risk of supporting procurement of items for military end-use in China.  These twenty-four companies include twenty companies in China, three in Hong Kong, and two in the United Kingdom (one entity is listed in both China and Hong Kong).  The list of these entities can be found in the Federal Register notice here: https://www.federalregister.gov/documents/2020/06/05/2020-10869/addition-of-entities-to-the-entity-list-revision-of-certain-entries-on-the-entity-list.  BIS also added nine companies to the Entity List based on a determination that these companies were engaged or complicit in human rights violations and abuses against Uighurs, ethnic Kazakhs, and other members of Muslim minority groups in the Xinjiang Uighur Autonomous Region.  The list of these designated entities can be found in the Federal Register notice here: https://www.federalregister.gov/documents/2020/06/05/2020-10868/addition-of-certain-entities-to-the-entity-list-revision-of-existing-entries-on-the-entity-list.
Any person who seeks to export, reexport, or transfer any item subject to the U.S. Export Administration Regulations (“EAR”) to a company on the Entity List must first secure a license from BIS; license exceptions are generally unavailable for such shipments.  Moreover, applications for the required specific authorization are subject to a presumption of denial in most cases.[1]  Items that are subject to the EAR include those that are: (i) located in the United States; (ii) of U.S. origin; (iii) foreign-made items that incorporate U.S.-origin goods, software, or technology (often above a specified threshold); and (iv) certain other items that are “direct products” of U.S.-origin technology or software.  Because restrictions on the export, reexport, and retransfer to a person on the Entity List apply to the item, those restrictions will reach transactions and suppliers wherever originated or located.  Accordingly, even non-U.S. companies that seek to export, reexport, or transfer covered items to these listed entities will be barred from doing so absent a license from BIS.

These additions to the Entity List come at a time when tensions between China and the United States are escalating.  As the Department of Commerce has broad discretion to add to the Entity List any person “reasonably 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,”[2] there may be more such designations in the future.

[1] In the case of the nine entities designated on the Entity List for involvement or complicity in human rights abuses, Commerce has indicated that it will review license applications on a case-by-case basis for nine types of items specified by the Export Control Classification Numbers (“ECCNs”) 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983, and for EAR99 items described in the Note to ECCN 1A995.  License applications for all other items subject to the EAR will be treated with a presumption of denial.

[2] 15 CFR § 744.16.

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