Dealmakers are hoping for more certainty when the Treasury Department finalizes regulations for its August executive order on outbound investment restrictions, which may force companies to make difficult investment decisions without assurances that their deals won’t be later unwound.
Exports to China
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China and the EU held the "10th EU-China High-Level Economic and Trade Dialogue" on Sept. 25, discussing the effect of Russia's war in Ukraine on global economics, food and energy security. Also discussed were "EU concerns on access to the Chinese market," prospects for rebalancing the EU-China trade relationship "on the basis of transparency," and predictability and reciprocity, the European Commission said.
Rising U.S.-China tensions are causing all-time highs in uncertainty and pessimism for U.S. companies doing business in China, and are driving U.S. companies to reduce investment in China in record numbers, according to an annual member survey released by the U.S.-China Business Council on Sept. 26. More than a third of companies said they have either stopped investing in China or have scaled back.
The Bureau of Industry and Security added 28 entities to the Entity List this week for various reasons, all falling under the umbrella of “acting contrary to the national security or foreign policy interests of the United States.” The final rule, effective Sept. 27, adds entities in China, Finland, Germany, Oman, Pakistan, Russia and the United Arab Emirates. It also modifies entries for two entities and removes a Military End User List entity.
The House Financial Services Committee advanced legislation this week that could apply full blocking sanctions on a host of Chinese companies in what Rep. Andy Barr, R-Ky., described as the “most severe set of financial restrictions the House of Representatives has ever considered.” Barr’s bill, the Chinese Military and Surveillance Company Sanctions Act (see 2302060005 and 2306130062), could lead to new financial sanctions on companies subject to certain U.S. investment restrictions and export control licensing requirements, including China’s Semiconductor Manufacturing International Corp., Huawei and other major Chinese technology companies.
The Bureau of Industry and Security needs more resources to investigate export control violations, Commerce Secretary Gina Raimondo said this week. She also said a potential government shutdown would be “crushing” for the agency’s enforcement efforts and work on semiconductor export regulations.
A new Defense Department policy memo and guidance on foreign influence within American research institutions could exacerbate already complex export control due diligence challenges at universities, said Jackson Wood, director for industry strategy at Descartes. It also could lead to larger compliance risks for universities pursuing DOD-funded research, said Kit Conklin of compliance risk advisory firm Kharon.
Republicans are asking the Biden administration to strengthen export controls against Huawei and Semiconductor Manufacturing International Company after Huawei this month unveiled a new smartphone that may have been made through means that violated U.S. export restrictions (see 2309120005). They said both technology companies should be subject to “full blocking sanctions” and their executives should face criminal investigations, adding that the Commerce Department should revoke all of their existing license applications, add all their subsidiaries to the Entity List and take other measures to cut off a broad range of shipments to both firms.
The upcoming U.S. outbound investment restrictions (see 2308090066 and 2308100045) should be overseen by the Office of Foreign Assets Control, not the agency that heads the Committee on Foreign Investment in the U.S., Republicans said this week. Several lawmakers, including Patrick McHenry, the top Republican on the House Financial Services Committee, said the new outbound investment restrictions are similar to a sanctions program as opposed to the case-by-case review process overseen by CFIUS for inbound investments, and said OFAC is better suited to prevent China from benefiting from sensitive American investments.