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US exporters attempt to head off new content restrictions

The Commerce Department is expected to propose new rules that lower the U.S. content threshold for licensable reexports and when foreign-made products are subject to U.S. export controls.

Trade associations warn that proposed changes to U.S. content rules for licensable exports could drive innovation out of the country. [Photo Credit: Shutterstock]

A group of 10 trade associations has asked the Commerce Department to weigh carefully the long-term impact of a proposed regulatory change to substantially reduce the U.S.-made content or “de minimis” amount required for U.S. reexports to be licensed.

The concern among U.S. technology exporters regarding this change follows the Commerce Department’s attempts to tighten its export controls on Huawei Technologies Co. Ltd. The Chinese company has been deemed a national security threat by the Trump administration and many lawmakers in Congress.

“The administration is considering significant changes to the Export Administration Regulations (EAR), specifically to existing de minimis and foreign product rules,” the trade organizations said in a Dec. 6 letter to Commerce Secretary Wilbur Ross. “The proposed rules under consideration could negatively impact a wide range of commercial transactions involving items that are not sensitive for any national security reason.”

Currently, for exports to Huawei in China, a foreign-made product is not subject to the EAR if it contains 25% or less U.S. origin “controlled content,” a policy that has been in place in the U.S. for the past 30 years. The amount of U.S.-controlled content determines whether an export requires an export license from the Commerce Department.

The Commerce Department is considering lowering the threshold from 25% to 10% or potentially nonzero U.S. content, meaning that any U.S. content whatsoever would count toward the percentage threshold.

Foreign-made products are currently subject to the EAR when exported to China, if they are controlled on the Commerce Control List for national security and produced directly from U.S.-origin software or technology. However, the Commerce Department wants to add the term “direct product,” meaning the product was made using U.S. technology and software. This regulatory change would effectively prohibit any foreign product made using U.S. technology from being exported to Huawei.

“Creating a special rule for one set of targeted entities sets a dangerous precedent for future rules, while also increasing the compliance risk for U.S. exporters, big and small,” the trade associations warned.

“Both proposed changes undermine the administration’s national security objectives to promote American prosperity and preserve our nation’s lead in research, technology invention and innovations,” they said.

In a Dec. 2 interview with The Globe and Mail newspaper of Toronto, Huawei Founder Ren Zhengfei said his company plans to move its U.S. research center at Santa Clara, California, to Canada. “According to the U.S. ban, we couldn’t communicate with, call, email or contact our own employees in the United States,” he told the newspaper.

The trade groups asked the Commerce Department to consider stakeholder input before changing the existing de minimis and foreign direct product rules.

The trade groups that signed the letter to Ross were BSA/The Software Alliance, Computing Technology Industry Association, Information Technology Industry Council, IPC, National Association of Manufacturers, National Foreign Trade Council, SEMI, Semiconductor Industry Association, Software & Information Industry Association and U.S. Council for International Business.

Chris Gillis

Located in the Washington, D.C. area, Chris Gillis primarily reports on regulatory and legislative topics that impact cross-border trade. He joined American Shipper in 1994, shortly after graduating from Mount St. Mary’s College in Emmitsburg, Md., with a degree in international business and economics.