US expands export blacklist in crackdown on Chinese subsidiaries

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By Karen FreifeldThe on Monday cracked down on companies in and other countries that use subsidiaries or other foreign affiliates to circumvent export curbs on chipmaking equipment and other goods and technology.The Commerce Department issued a new rule expanding its restricted export list, known as the Entity List, to automatically include subsidiaries owned 50% or more by a company on the list, according to posting in the U.S. Federal Register. The action greatly increases the number of companies that require licenses to receive American goods and services.The rule is likely to disrupt supply chains. It also makes it more difficult for companies to determine whether exports to a customer or supplier are restricted, and places more of a burden on the exporter to figure out ownership before moving forward. According to the rule, certain transactions may be allowed during a 60 day grace period. China's Commerce Ministry strongly criticized the rule. "This move by the U.S. is extremely egregious in nature," the ministry said in a statement. "It seriously infringes upon the legitimate rights and interests of the affected enterprises, severely disrupts international economic and trade order and gravely undermines the security and stability of global industrial and supply chains."The Commerce Department said the rule "closes a significant loophole."The timing of the rule's release is somewhat surprising, given that the U.S. and China are in the midst of trade talks. The action strengthens export controls on China, a contrast to Washington's recent loosening of controls on chips to China like Nvidia's NASDAQ:NVDA H20. If a company is at least 50% owned by an entity on the list, licenses will be required for U.S. exporters to ship goods or technology to the subsidiary, as is the case with listed entities, with many licenses likely to be denied.The affiliates rule is similar to the "50% rule" for entities sanctioned by the Treasury Department's Office of Foreign Assets Control.AIRCRAFT, CHIP, MEDICAL EQUIPMENT SECTORS MAY BE AFFECTEDThough companies around the world are on the Entity List, the change will most significantly impact Chinese entities, experts said. Factories that produce older, less sophisticated chips may be affected, as well as other sectors, including aircraft and medical equipment. Chinese tech giant Huawei, video surveillance company Hikvision ...

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