US intensifies export blacklist to target Chinese subsidiaries in crackdown

US Government Strengthens Export Restrictions on Companies’ Subsidiaries

In a significant move to tighten export controls, the United States has expanded its Entity List to include subsidiaries owned 50% or more by companies already facing export restrictions. Announced by the Commerce Department, this new rule aims to prevent firms from bypassing regulations on critical goods and technologies, including semiconductor manufacturing equipment.

Key Changes Under the New Export Control Rule

Effective immediately, the updated regulations impose strict requirements for U.S. exporters dealing with these subsidiaries. The following points highlight the main aspects of this rule:

• Any company that is at least 50% owned by an Entity List firm will now require a license for exports from the U.S.
• The new regulations significantly increase the complexity of compliance for exporters, as they must ascertain ownership levels before proceeding with transactions.
• A 60-day grace period has been introduced, during which certain transactions may still be permitted.

Global Implications and Industry Reaction

As expected, the reaction from China has been critical. The Ministry of Commerce condemned the decision, arguing that it undermines international trade stability and disrupts global supply chains. They labeled the U.S. actions as “egregious,” asserting that they infringe on the rights of affected enterprises.

Industry experts suggest that this change will have a profound impact on Chinese firms, notably:

• Huawei
• DJI
• Hikvision

Notably, while many subsidiaries of Huawei are already listed, the new rule could bring additional entities under restrictions, further complicating international operations.

Wider Effects on Global Trade and Supply Chains

This expansive rule is expected to affect not just technology companies but also industries involved in manufacturing older semiconductor chips, aircraft, and medical equipment. An analysis by Kharon, a data analytics firm, indicated that thousands of subsidiaries in nearly 100 countries could now fall under U.S. export control scrutiny.

The report highlighted that while China and Russia account for many of these subsidiaries, significant numbers are located in key international trade centers, including the EU, the UK, Singapore, and Japan.

Conclusion and Future Outlook

The U.S. government’s decision to expand its Entity List reflects a growing trend of stringent trade controls aimed at safeguarding national security. Since its inception in 1997, the list has evolved to address new challenges posed by international trade dynamics. As companies adapt to these changes, the regulatory landscape will continue to evolve, making compliance a critical focus for exporters globally.

As experts suggest, despite the rule’s intention to prevent avoidance of export controls, companies may still find ways to restructure operations, leading to an ongoing cycle of regulatory adaptations.