Commerce Considering Tighter Restrictions on Foreign Sales Containing US Goods, Official Says

The Commerce Department is considering a host of expanded restrictions on foreign shipments to Huawei containing U.S. technology, said Rich Ashooh, Commerce’s assistant secretary for export administration. The agency is discussing expanding the Direct Product Rule -- which subjects certain foreign-made products containing U.S. technology to U.S. regulations -- and a broadened de minimis rule, Ashooh said during a Dec. 10 Regulations and Procedures Technical Advisory Committee meeting. Ashooh’s comments confirmed details in a Nov. 29 Reuters report that said the U.S. was discussing ways to restrict more foreign exports to Huawei (see 1912040014).

“We are looking at those two and many others,” Ashooh said of changes to the direct product rule and the de minimis. He said the U.S. has entered a “new realm when it comes to export controls,” especially after Commerce added Huawei to the Entity List in May (see 1905160072), which spurred discussions within Commerce about the “potential” of the Entity List. “That has led to conversations about what are the limits of the [Export Administration Regulations],” Ashooh said. “We’ve been examining nearly every aspect of how we do business.”

Commerce has been having substantial discussions about the rule changes, Ashooh said, suggesting the talks are not merely hypothetical. “I will share with you that these are profound subject discussions,” he told the committee. “It goes beyond the interagency.”

Ashooh’s comments came less than a week after 10 technology trade associations wrote to Commerce Secretary Wilbur Ross with concerns about the potential changes. Expansions to the foreign direct product rule and the existing de minimis rule “could negatively impact a wide range of commercial transactions” that do not have national security implications, the Dec. 6 letter said. The groups, including the Semiconductor Industry Association, the Information Technology Industry Council and the National Association of Manufacturers, said more export restrictions “in the face of foreign availability of interchangeable goods from non U.S.-sources” would harm companies that operate in the U.S. “without effectively restricting such items to end users of concern.”

Commerce’s proposals could hurt U.S. industry’s competitiveness, the groups added. It would encourage “the design-out of U.S. technology by non-U.S. firms, while also imposing massive new compliance burdens for U.S. and non-U.S. companies alike,” the letter said. The groups also said the rule changes could set a “dangerous precedent.” Commerce should ask for comments from stakeholders before issuing any changes, they said.

While Ashooh doesn’t “want to get ahead of the steps we might take,” he said any potential rule changes would likely be subject to public comment before being implemented, which follows Export Control Reform Act guidelines. “To me, the default is to go seek the public support,” Ashooh said.

The effort is part of a broader approach within Commerce over the past two years that involves a “real exploration of our export control system,” Ashooh said. Commerce has been forced to adapt its controls to a rise in new technologies, which are causing businesses that weren’t previously in “the national security business” to suddenly fall under scrutiny. The “explosion in technology” has “really created this overlap between national security concerns and technologies that have nothing to do with national security at their outset but touch people’s lives every day,” he said.

Although he said Commerce has discussed changes to the direct product rule and the de minimis, Ashooh declined to provide details about the scope of the discussions. “I can’t really say very much about the details of what we’re doing, just that it’s a very, very robust conversation,” he said.

He did say, however, that Commerce recently began speaking with European Union officials about export controls to “share lessons and experiences” as the EU tries to improve its export control procedures. Ashooh recently met with his EU counterparts in Brussels and said Matt Borman, Commerce’s deputy assistant secretary for export administration, is traveling there this week. He called the meetings “very, very substantive,” saying the line of communication may also help the two export regimes coordinate on controls. “I think that this is a positive thing for those of you who do business globally,” he said, “and especially those who are concerned about multilateral controls.”