February 28, 2023
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On February 14, 2023, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) added six Chinese entities to its Entity List for their contribution to components retrieved from the Chinese High Altitude Balloon (the “Balloon”) shot down on February 4, 2023 off the coast of South Carolina after crossing Alaska, parts of Canada, and the continental United States.
The Entity List identifies companies the U.S. government has reasonable cause to believe are, have been, or pose significant risk of becoming involved in activities contrary to U.S. national security or foreign policy interests. Parties on the Entity List are restricted from obtaining U.S. items or technology without prior authorization from BIS. The United States is targeting the six newly added entities for their support of China’s military modernization efforts, including airships, balloons, and related materials and components used by the People’s Liberation Army (the “PLA”) for intelligence and reconnaissance.
BIS imposed these restrictions only ten days after the Balloon was destroyed and only a day after the payload of the downed Balloon was recovered from the ocean bottom. The Biden administration confirmed after recovering the wreckage of the Balloon that the Balloon was equipped with surveillance technology and could conduct signals intelligence collection operations. The administration indicated that this Balloon was part of a fleet of Chinese balloons under the direction of China’s PLA that has entered the airspace of more than forty countries on five continents.
The Chinese government initially expressed regret over the incident, indicating that the Balloon was a civilian research vessel that strayed off course. However, the Chinese government later accused the U.S. of sending U.S. balloons over Chinese airspace. Then, on February 16, China’s Ministry of Commerce countered the U.S. entity listing by adding two prominent U.S. defense businesses to China’s “unreliable entities list.” China’s list bars the named military contractors from importing goods into China or making new investment in the country. China’s Ministry of Commerce justified the move against the American companies as a response to their current and past contracts to supply Taiwan with military equipment, but it is not hard to assume that the timing points to a tit-for-tat response to the BIS action against the Chinese firms. The Chinese Foreign Ministry indicated as early as February 2022 that it would impose sanctions on the two companies for supplying Taiwan.
The new BIS restrictions are only the latest in a series of moves aimed at curtailing the ability of Chinese companies to access sensitive U.S. technology. Beginning in 2019, BIS added Huawei Technologies Co., Ltd. and many of its non-U.S. affiliates to the Entity List. And, in early October, BIS rolled out new restrictions on advanced computing and semiconductors, which prompted China to announce in December that it would initiate a complaint at the World Trade Organization against the United States for the measures.
BIS is also partnering with the U.S. Department of Justice (“DOJ”) to proactively enforce these new measures against foreign adversaries. On February 16, 2023, BIS and DOJ announced the creation of a joint Disruptive Technology Strike Force. The Strike Force will use classified intelligence, advanced analytical techniques, and partnerships with the private sector and foreign governments to investigate and prosecute criminal violations of export laws and enhance administrative enforcement of U.S. export controls. Led by BIS and DOJ, the Strike Force will incorporate officials from U.S. Attorneys’ Offices across the United States, the FBI, and the U.S. Department of Homeland Security.
The developments discussed above reflect the U.S. government’s sustained focus on the national security risks stemming from the transfer of advanced technology and, as DOJ Deputy Attorney General Lisa Monaco recently put it, the “datasets, software, and algorithms” underpinning that technology. In those same remarks, Monaco emphasized the U.S. government’s traditional tools for combating these risks, including export controls and screening of inbound investment by the Committee on Foreign Investment in the U.S. (“CFIUS”). But she also noted the need to “ensure that our own ‘outbound investment’ in dual-use technology doesn’t provide [U.S.] adversaries with a national security advantage.”
U.S. companies engaged in international trade and investment should continue to monitor these new developments and keep apprised of their obligations under U.S. export control and foreign investment laws.