Connected Vehicle Ban, ICTS Rules Will Be Compliance ‘Challenge,’ Lawyer Says

LONDON -- New U.S. import bans on certain connected vehicles and car components from China are just the start of a host of import restrictions the U.S. is likely to impose under its Information and Communication Technology Services-related authorities, said Meredith Rathbone, a trade lawyer with Steptoe. Rathbone also said many companies may not yet realize the extra compliance burdens the new rules will pose, adding that some importers could decide to nix certain transactions because of the challenge of gleaning information about where cars or car parts are sourced.

“I’ve talked to a lot of companies who do not have the ICTS rules on their radar screen,” she said during a defense industry conference this week hosted by SAE Media. “It’s started to change a little bit, I'd say, in the last year or so. But this is really under the radar still for a lot of people.”

The Biden administration earlier this month unveiled the proposed restrictions, which could eventually ban the import and sale of vehicles with hardware or software that facilitates communication to GPS satellites and drivers' cellphones, or software and hardware that allow driverless operation, if those goods come from China or Russia (see 2409220002).

Though the restrictions are unlikely to take effect for several years, Rathbone noted that the government could use the ICTS authorities -- under a separate, future action -- to impose retroactive restrictions over other types of imports. That could force U.S. companies to “go in and pull this stuff out of” products that have been manufactured or sold in the U.S., even if they contain parts imported years ago.

“What that means is that companies really need to start thinking now of what types of ICTS [devices] they may have that are incorporated into their products that they bring into or use in the United States,” she said. “Because if you don't get ahead of this, it's very possible that there will be some costly rules that come into force down the road.”

Rathbone called the ICTS authorities “very, very, very broad” and said there's an “endless supply of items that can be targeted” for future import bans. “This rule, it's just going to proliferate,” she said.

Asked specifically about the import compliance challenges companies may face when trying to comply with the upcoming ban on Chinese connected vehicles, she said importers may struggle to generally understand “where things are coming from, what their link is to a foreign party.”

She was also asked whether a Chinese company could try to sell connected vehicles or parts to the U.S. by setting up a front company in a third country that isn’t subject to the restrictions. Companies will “of course” try to evade the restrictions, Rathbone said, which will likely call for “additional vigilance” by U.S. importers.

“That goes back to the due diligence discussion,” she said. “How much is enough? How do you find out what the ownership is? What is the control of this company? It's a challenge.”

She said U.S. importers may soon be asking themselves: “Are the costs of compliance worth the benefits, the perceived benefits that they're going to receive? Or will there be so many workarounds, or so many things that are missed that it's just a huge compliance cost without a commensurate benefit?”

ICTS restrictions are “just one tool in a much broader panoply of policy steps that the U.S. government is taking to try to address supply chain risks,” Rathbone said. But “I think it has the potential to be a particularly challenging one.”

It could also increase compliance challenges for non-U.S. companies, she said. For example: a German car manufacturer incorporating connected vehicle parts or software into its cars and selling to the U.S. will “need to be on the lookout for potential suppliers who may create problems," Rathbone said. “Probably a significant portion of ICTS from China in particular is going to get designed out of those cars.”