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Commerce Department Issues Rule Securing Digital Supply Chains Against Foreign Adversaries

posted by Jennifer Diaz February 16, 2021 0 comments

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Co-Authored by Sharath Patil

Background on Securing Information Technology & Communications Supply Chains

Protecting and cultivating critical technologies in the United States has been a policy priority of the Trump administration. In October 2020, the White House released a landmark report titled the “National Strategy for Critical and Emerging Technologies.” The report outlined how the United States would promote and protect its competitive edge in fields such as artificial intelligence, energy, communication and networking technologies, and semiconductors. The Trump administration also released a National Space Policy to drive U.S. leadership in space commerce and a regulatory system for strengthening the public health industrial base.

As part of this policy priority, President Trump signed Executive Order 13873: Securing the Information and Communications Technology and Services Supply Chain on May 15, 2019. EO 13873 sought to curb the exploitation of vulnerabilities in the U.S. information and communications technology and services (“ICTS”) sector by foreign adversaries by implementing a screening and monitoring mechanism for ICTS-related transactions. The text of the EO recognized the importance of maintaining an open investment climate in the ICTS sector but emphasized the need for the U.S. government to do more to secure ICTS supply chains from foreign adversaries who seek to “commit malicious cyber-enabled actions, including economic and industrial espionage against the United States and its people.” The EO also declared a national emergency regarding this threat.

Specifically, EO 13873 grants the U.S. Secretary of Commerce the authority to prohibit certain ICTS transactions that have been “designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries” and that pose an undue or unacceptable risk to the national security of the United States.

Commerce’s Interim Rule Securing ICTS Supply Chains

Pursuant to EO 13873, the Commerce Department issued an interim rule published on January 19, 2021. The rule creates a set of transaction screening procedures that the Commerce Secretary will use to “identify, assess, and address… transactions… between U.S. persons and foreign persons that involve information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary, and pose an undue or unacceptable risk.”

The Commerce Department intends to provide more explanation and greater certainty on the licensing process for potential transactions by publishing proposed procedures within 60 days of the publication of this interim rule. This publication is expected to provide greater certainty regarding the licensing process, the scope of the new rule, retroactivity on the rule’s applicability, and exclusions.

The interim rule does specifically identify the “foreign adversaries” that will be covered under the new licensing procedure. EO 13873 defines “foreign adversary” as “any foreign government or foreign non-government person engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or security and safety of United States persons.” The interim rule identifies the following foreign adversaries:

Outgoing Commerce Secretary Wilbur Ross issued the following statement:

“Since day one, President Trump has been committed to protecting the national security of all Americans, and the implementation of this rule is a pivotal moment in this Administration’s efforts to put America First and hold bad actors accountable. Aggressively securing the ICTS supply chain will protect American citizens and businesses from vulnerabilities that could undermine the confidentiality, integrity, and availability of their personal information or sensitive data by malicious foreign adversaries and those who wish harm on the United States.”

As of this writing, the Biden administration is yet to provide any guidance on this proposed interim rule. The Biden administration could revoke the underlying executive order and thereby invalidate the ICTS rules. However, the Biden administration may amend the ICTS licensing program, it is not expected to remove the program altogether because the program’s stated national security priorities are consistent with Biden’s announced policy priorities. While Biden has committed to taking a more multilateral approach on geopolitical matters, many experts expect Biden to continue Trump’s policy priority focusing on establishing a level playing field for U.S. and Chinese firms and continue to view China as a strategic threat to U.S. industries. For more information, check out our forecast of Biden’s trade priorities.

What You Should Do

The interim rule will be effective 60 days from publication, and Commerce will issue a subsequent final rule. The Commerce Department will implement procedures for a licensing process 120 days from publication. Diaz Trade Law will be monitoring developments in this new licensing mechanism. We have significant experience on trade compliance, licensing, and transaction-vetting matters. If you have questions about how your current or future investments, acquisitions, imports, or exports will be impacted by this new system, we are available to evaluate your situation. Furthermore, Diaz Trade Law has demonstrated experience in submitting comments for federal rulemaking. Comments on the rule must be received on or before March 22, 2021. Diaz Trade Law is available to prepare comments for submission for your business.

Diaz Trade Law’s Upcoming Webinar: Forecasting the Next 4 Years of Biden on Trade

On March 3, 2021 at 12:00 PM, Diaz Trade Law is hosting a webinar on Forecasting the Next 4 Years of Biden on Trade. The webinar will provide a retrospective overview of U.S.-China trade relations under Trump, explain where we are now, and forecast U.S.-China relations under Biden. Specifically, the presenters will discuss how exporters and particular industries will be affected and forecast the impact of a Biden administration on U.S. Customs and Border Protection trade issues. Our featured speaker, Todd Owen, Former Executive Assistant Commissioner for the Office of Field Operations at U.S. Customs and Border Protection, will be our featured speaker. Todd will be joined by Diaz Trade Law’s president, Jennifer Diaz, and Associate Attorney Sharath Patil.

Contact Us

If you questions about how the new regulations will impact your business or want to submit comments, contact us today at info@diaztradelaw.com and 305-456-3830.

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