The Nikkei Asian Review reported Friday (April 16) that the U.S. government will require companies to hold licenses to use information technology equipment and services from China or other countries considered hostile as early as May, a move that could affect as many as 4.5 million businesses.
Regulations introduced by the Commerce Department in March require Washington to review such companies’ purchases or use of technology, and to prevent leaks of sensitive U.S. information, will prohibit transactions that present high risks. The Commerce Department is preparing to offer licenses or pre-approvals to ease the burden on businesses.
These rules do not only affect companies that work with the government, but also private companies operating in the United States. The Commerce Department estimates that three-quarters of the roughly 6 million companies in the United States use foreign technology, including the U.S. subsidiaries of overseas firms.
Washington has previously restricted companies within its jurisdiction from doing business with Chinese technology firms. Last August, the U.S. banned companies using technology from five Chinese firms, including Huawei Technologies, ZTE and surveillance camera maker Hikvision, from bidding on government contracts.
However, the new rules introduced in May have a much broader impact, including any company acting “under the jurisdiction or direction of these (hostile) nations. Hostile countries include China (Communist Party of China), Russia, North Korea, Iran, Venezuela and Cuba, and given the size of China’s economy, Chinese companies are expected to be the majority of those subject to the new rules.
Companies will be required to submit information on any questionable IT equipment or services to the Commerce Department to ensure that they do not pose an “inappropriate or unacceptable risk. Companies have the right to dispute the results of the review, or take steps to reduce the risk to a more acceptable level. However, companies that do not comply with the ban or mitigation agreement may face civil or criminal penalties.
The Commerce Department’s impact analysis estimates that the move may result in $10 billion in annual corporate compliance costs. Given this burden and the lack of clarity, business groups such as the U.S. Chamber of Commerce have urged Washington to delay implementation of the new regulations.
Companies using Chinese-made IT equipment or services may be targeted
The rules were implemented under Executive Order 13873 (Securing the Information and Communications Technology and Services (ICTS) Supply Chain), signed by former President Donald Trump (Trump) in 2019.
The Biden administration had said he would continue to enforce the Trump-era rules against Chinese technology companies seen as a threat to the United States, despite opposition from U.S. businesses.
The Commerce Department subsequently issued subpoenas to several Chinese companies in March and April for information about their U.S. operations “in support of a review of trading activity.
“Trustworthy information and communications technologies and services are critical to our national and economic security and remain a top priority for the Biden/Her own administration. The Administration is steadfast in its whole-of-government approach to ensure that untrusted companies cannot steal and misuse data and that U.S. technology does not support the malicious activities of China (Communist Party of China) or other countries.” Commerce Secretary Gina M. Raimondo said in a statement related to the subpoena.
The Commerce Department said unrestricted access to or use in the United States of information and communications technologies and services designed, developed, manufactured or supplied by persons owned, controlled, or subject to the jurisdiction or direction of a hostile country poses a significant threat to the national security interests of the United States.
Information and communications technologies and services include hardware and software used in critical infrastructure and telecommunications networks, as well as artificial intelligence and quantum computing technologies; also covered are services that process personal information, and surveillance equipment such as Internet surveillance cameras, sensors, and drones.
In other words, companies that use Chinese-made routers in their internal U.S. networks, Chinese cameras in their factories, or Chinese cloud services to process customer data could face scrutiny from the Commerce Department.
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