U.S. Blacklists Eight Chinese Technology Firms Over Alleged Human Rights Issues

On the eve of a new round of U.S.-China trade talks in Washington on October 10, the U.S. Department of Commerce has added eight major Chinese technology firms – all deeply rooted in the surveillance and artificial intelligence sectors – to the U.S. “Entity List,” along with twenty regional and municipal Chinese government entities.

In its notice, the Commerce Department alleges that the technologies and products of the eight firms – including Dahua Technology; Hikvision; iFLYTEK; Megvii Technology; Sense Time Group, Ltd.; Xiamen Meiya Pico Information Co. Ltd.; YITU Technologies; and Yixin Science and Technology Co. Ltd. – have been used to enable the Chinese government entities’ surveillance, detention and repression of Uighurs, Kazakhs and other Muslim minority groups in Western China.

License Requirement; Applications Subject to “Presumption of Denial”

The action, which applies to all exports, re-exports or transfers (in-country) to any of the listed entities of all items subject to the Export Administration Regulations, has the effect of forbidding U.S. companies from supplying U.S. components to the listed entities unless the Department of Commerce grants a license authorizing such transactions.

The Department’s notice states that applications for such licenses generally will be subject to a “presumption of denial,” although a narrow class of items will be subject to review on a “case-by-case basis,” and that most license exceptions will be unavailable.

It remains to be seen whether, as occurred in the case of Huawei, the U.S. will follow this action by granting a “temporary general license” (TGL) for a short period of time, e.g., 90 days, to permit the orderly cessation of business by U.S. persons with the listed entities. In Huawei’s case, the TGL was extended for an additional 90 days and will soon expire.

Sanctions Shift from National Security to Human Rights Concerns

This action marks a new path in the U.S. government’s application of trade sanctions against the Chinese economy. Prior actions — against ZTE, Huawei and others — were based principally on perceived threats posed by those companies to U.S. national security and foreign policy concerns through, e.g., trading with U.S.-sanctioned countries such as Iran or creating risks to U.S. security through actual or potential theft of, or interference with, critical U.S. technology and infrastructure.

In the present case, the U.S. has based its action on alleged human rights violations by the listed governmental entities and alleged “enabling activities” by the listed corporate entities.

Business Strategies Moving Forward

Companies affected by this action will want to consider possible strategies for dealing with the effects of these new Entity List designations. Those strategies could include, e.g., applying for a limited license to conduct a specific transaction in particular locations or circumstances that may present a compelling basis for partial relief from the blacklist, and considering whether any foreign subsidiaries or affiliates of affected companies may be deemed not to be subject to the entity listings and license application restrictions.

Unfortunately, if the Commerce Department’s recent actions with respect to Huawei are any guide, the prospects of securing such relief are quite limited.