U.S. to impose comprehensive rule targeting technology threats in China

Now the government plans to carry out the rule, people said. Government officials fear that blocking or watering down the rule would send the wrong message about the new government’s approach to China, potentially fueling criticism that it is taking a weaker approach, according to the people.

A person familiar with the matter said that government officials have signaled to the business community that they will not aggressively enforce the rule. This could mitigate the impact, although sales representatives say the rule will still subject companies – especially smaller ones – to significant new compliance costs and uncertainties. Another person familiar with the matter said that the government did not say that it would restrain itself from applying the rule.

The rule is “impractical for American companies in its current form and should not be considered for final publication without significant revisions,” said Business Roundtable, a group of CEOs for large companies on Amazon.com Inc.

and Citigroup Inc.

to Walmart Inc.,

in a comment sent to the Commerce Department in January. International Business Machines Corp.

he said the written rule is “massively broad” and would hurt the economy, while not increasing the national security of the United States.

A Commerce Department official said the agency will continue to accept public comments on the rule until March 22, adding that the rule will end on that date.

“Reliable information and communication technology and services are essential to our national and economic security and remain a priority for the Biden / Harris administration,” said the representative.

The White House did not respond to requests for comment.

The rule could affect up to 4.5 million American companies of all sizes, according to an Commerce Department estimate, potentially requiring them to obtain government authorization for purchases and deals involving sophisticated technology with what the regulation calls ” foreign adversary “or face potential unfolding of negotiations or other application.

The new government oversight would apply to technology transactions involving critical US infrastructure, satellite networks and operations, large data hosting operations, widely used Internet connectivity software and technology used in advanced computing, drones, autonomous systems or robotics advanced according to a draft rule. This can affect sales or, in some circumstances, the use of technology.

The telecommunications and financial services sectors are seen as particularly affected by the rule because they are large users of information technology services and deal with sensitive consumer data, but many other consumer-oriented companies also have a lot at stake.

The rule’s fate is being closely watched as a thermometer of the Biden government’s political orientation towards China. Washington saw a solidified consensus on the economic and security risks posed by Chinese manufacturers of technology equipment and Internet platforms. Republicans in Congress questioned Biden’s cabinet nominees about taking a hard line on China.

Asked to comment, the Chinese Embassy in Washington referred to the comments of a Foreign Ministry spokesman in Beijing in response to President Biden’s order this week to review the security of supply chains for essential materials. The spokesman said that “changing economic law with political force is an unrealistic approach” that will not solve internal problems or benefit global supply chains.

Beijing had previously accused Washington of unfairly discriminating against Chinese companies and tried to leverage access to the large Chinese market to pressure foreign companies to ignore and lobby against American restrictions.

Allowing the rule to go ahead may signal further problems for American companies, which are increasingly trapped in the midst of Washington’s efforts to confront China because of its economic policies and Beijing’s retaliation for US movements.

The Trump administration has banned doing business with several Chinese tech giants, from telecommunications maker Huawei Technologies Co. to platforms like WeChat, although some of these measures have been blocked by the courts. He also tried to force the Chinese owner of the short video app TikTok to sell its operations in the United States to American companies, although that effort has stopped and been shelved for now.

The impending Commerce Department rule was, in some ways, the Trump administration’s most far-reaching action against Chinese technology. This would give the department comprehensive powers to demand licenses for the wide range of technology transactions or to ban them altogether.

Huawei, whose business was hampered by previous U.S. restrictions and which could be hit again by the new rule, questioned the legality of the regulation in its comment and urged the government to adopt a “holistic risk management” approach instead of a ” barrier to specific participants. ”

In recent weeks, business leaders have expected the rule to be postponed at least temporarily, while the Biden administration conducts a review of the Trump administration’s goals for Chinese technology companies, according to several business representatives who are following the matter.

Many business leaders recognize the risks posed by technology from China and other opposing nations and the need to address them. This includes theft of intellectual property, health data and personal financial information, as well as tracking the location of Americans and conducting corporate espionage from within the United States, according to an outline of the rule.

Many business leaders are concerned that the new rule places great responsibility on reducing these risks to companies, along with potentially large costs and uncertainties. Some companies fear being forced to replace equipment already in use, for example.

Total compliance costs can reach $ 52 billion in the first year after implementation, according to the Department of Commerce’s estimate, with annualized costs of up to $ 20 billion.

Dozens of business groups, including several leading technology groups, sent comments urging the government to reduce or postpone the rule.

“We see the proposed rule as vague and highly problematic because, as written, it would give the department almost unlimited authority to intervene in virtually any business transaction between American companies and their foreign counterparts that involve technology, with little or no due process, accountability, transparency or coordination with other government programs that are also designed to protect national security, ”wrote a group of more than 30 business associations in a letter in mid-January, just before President Biden took office. This group included major technology and foreign trade associations, as well as the United States Chamber of Commerce, retailers, restaurants and electric utilities.

Write to John D. McKinnon at [email protected]