Over 4 Million Firms Import 'Significant Amount' of Goods, Services Affected by Foreign Adversary Rule

In a cost analysis of a rule that would provide for Commerce review of transactions for a wide variety of products in the telecommunications and information and communications technology and services (ICTS) supply chains, the Commerce Department estimated that 4.5 million firms import “significant amounts of goods and services” that could be subject to review, with nearly all of those small and mid-sized firms.

The rule allows Commerce to step in to review any proposed, ongoing or pending ITCS goods or services transaction, including imports of goods, involving China, Cuba, Iran, North Korea, Russia or Venezuela's Nicolas Maduro regime, and potentially prohibited it or require mitigation. It could cost affected firms up to $20 billion, the Commerce Department said in the rule released Jan. 14 (see 2101140060). The rule provides for an optional "licensing" process whereby companies can request a review of their transaction and, if approved, get safe harbor. Procedures for the licenses will be published by Commerce in 60 days, the rule said.

The areas covered by the rule are:

• Information or communications technology that will be used in a critical infrastructure sector
• Software, hardware and services integral to wireless local area networks, mobile networks, satellite payloads, satellite operations and control, cable access points, wireline access points, core networking systems, or long- and short-haul systems
• Software or hardware that uses or retains sensitive personal data with more than 1 million U.S. customers
• Certain information technology products that have sold more than 1 million units in the last year to U.S. persons
• Software designed for communicating via the Internet in use by more than 1 million U.S. customers
• Products integral to artificial intelligence and machine learning, quantum key distribution, quantum computing, drones, autonomous systems or advanced robotics.

Businesses and trade groups that commented on the interim rule asked Commerce to limit the definition of “foreign adversary” to specific companies, or entities that are owned by the country on the target list. Instead, it went with the broad “under the jurisdiction of” that country.

Businesses and trade groups asked what the department will consider when determining whether a transaction “poses an undue or unacceptable risk.” There will be 10 criteria, the notice said. “Along with other factors, when determining if an ICTS Transaction poses an undue or unacceptable risk, the Secretary will consider the nature of the information and communications technology or services at issue in the ICTS Transaction, including technical capabilities, applications, and market share considerations; the nature and degree of the direction or jurisdiction exercised by the foreign adversary over the design, development, manufacture, or supply at issue in the ICTS Transaction; and the statements and actions of the foreign adversary at issue in the ICTS Transaction. Other considerations include whether the ICTS Transaction poses a discrete or persistent threat and the nature of the vulnerability implicated by the ICTS Transaction.”

Some asked that Commerce provide technical assistance for parties that are going to be forced to alter their wireless networks. It refused. “The parties to the transaction will bear the responsibility and cost of complying with any prohibition or mitigation measure,” the notice said.