WASHINGTON: The United States has intensified its crackdown on companies in China and other nations that use foreign affiliates to bypass export restrictions on chipmaking equipment and other technologies.
A new Commerce Department rule now automatically extends its Entity List restrictions to subsidiaries owned 50% or more by a listed company.
This action substantially increases the number of firms requiring licenses to receive American goods and services.
The rule is expected to disrupt global supply chains and complicate compliance for exporters.
China’s Commerce Ministry condemned the measure as a severe infringement on corporate rights and a disruption to international trade.
“This move by the US is extremely egregious in nature,“ the ministry stated.
It further warned the rule gravely undermines the security and stability of global industrial and supply chains.
The Commerce Department defended the action as closing a significant regulatory loophole.
The timing is notable given ongoing US-China trade talks and contrasts with recent looser controls on AI chips.
US exporters must now obtain licenses to ship goods to these subsidiaries, with many applications likely denied.
This affiliates rule mirrors the Treasury Department’s existing 50% rule for sanctioned entities.
Experts predict Chinese companies will be most significantly impacted by the change.
Factories producing older chips and sectors like aircraft and medical equipment may be affected.
Specific companies potentially impacted include Huawei, Hikvision, and DJI.
Many Huawei subsidiaries are already listed, though not all affiliates were previously covered.
An analysis by Kharon anticipated the rule could affect thousands of hidden subsidiaries worldwide.
While Russia and China host most subsidiaries, hundreds operate in major hubs like the EU and UK.
The Entity List currently includes approximately 1,100 Chinese entities among 3,400 total parties.
This represents the first major expansion of Entity List application since its 1997 creation.
The Commerce Department expressed concern about diversionary schemes using new foreign companies.
The change also applies to the Military End-User list.
A trade lawyer noted Entity List companies may restructure to evade the new restrictions.
“The game of whack-a-mole will continue,“ he observed. – Reuters
