The steady pace of commercial and investment restrictions continued yesterday with the Biden Administration’s latest Executive Order, “Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China”. This latest Executive Order follows the same pattern of accelerated industrial policy we’ve been detailing as the uptick continued throughout 2020 and into 2021. However, there are some notable differences with this Executive Order that only adds to the growing complexity of the regulatory landscape as geopolitical and national security concerns intersect with economic and industrial policy, with widespread ramifications across supply chains.
An All of Government Approach
There has been a growing all-of-government focus on supply chain and cybersecurity resilience, with an unprecedented focus on excluding or banning commercial or investment relationships with specific companies (and often their subsidiaries and affiliates) deemed either a national security threat or facilitators of human rights violations, or at times both. From the Department of Commerce’s Bureau of Industry and Security Entity Lists to Section 889 of the 2019 National Defense Authorization Act to the Department of Treasury’s Office of Foreign Assets Control, there have been over 350 Chinese entities with whom U.S. companies and/or federal government partners are prohibited from engaging in commercial or investment relationships.
Subtle Changes from Previous Orders
This Executive Order similarly includes investment restrictions, however there are some nuances that do deviate from previous additions. It builds upon November’s Executive Order 13959 which prohibited financial transactions from entities identified by the U.S. government as “Communist Chinese military companies”. That November Executive Order, in turn, was informed by several lists produced by the Pentagon last year and in January in accordance with Section 1237 of the 1999 National Defense Authorization Act requirement for the Pentagon to produce and update a list of Chinese companies identified by the Pentagon with links to the Chinese military. However, some of the entities on the Section 1237 lists have since sued the U.S. government for inclusion on the list, and Xiaomi has since been removed from the list following their lawsuit.
In the latest Executive Order, the companies listed under last year’s Executive Order, also referred to as the Non-SDN Communist Chinese Military Companies List (Non-SDN CCMC), have been superseded by the Non-SDN Chinese Military-Industrial Complex Companies (Non-SDN CMIC) list introduced by yesterday’s Executive Order. To this end, several companies previously listed on the Non-SDN CCMC list are no longer listed on the Non-SDN CMIC list. However, there are 59 companies in total on the Non-SDN CMIC list introduced in yesterday’s Executive Order and the scope was expanded beyond just those with connections to the Chinese Military to also include those in surveillance and technology, including Huawei and Hikvision. Moreover, the Non-SDN CMIC list will be fully under the purview of Treasury, rather than Defense, and will take effect on August 2, 2021.
What Comes Next?
With a focus on countering surveillance and repression, yesterday’s Executive Order demonstrates a continued focus on building trustworthy and secure supply chains, especially in the areas of emerging technologies. In fact, with a G7 Summit only a week away, the U.S. may take the opportunity to coordinate industrial policies and restrictions on capital flows with allies and like-minded partners. As geopolitical tensions continue and vulnerabilities and dependencies across supply chains emerge, these kinds of restrictions are likely to persist as the new normal in a post-pandemic global order. Unfortunately, there is yet to be an openly available, one-stop-shop integrating these lists. Interos continues tracking and updating our restrictions data and analysis, providing holistic and evolving insights into this ever-changing global regulatory landscape.