US Expands its Export Blacklist to Include Curbs on Subsidiaries

The US government on Monday cracked down on companies in China and other countries that use subsidiaries to get around curbs on chipmaking equipment and other 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 a posting in the US Federal Register.

The action greatly increases the number of companies that require licences to receive American goods and services.

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The rule is likely to disrupt supply chains. It will also make it more difficult for companies to determine whether exports to a customer or supplier are restricted. According to the rule, certain transactions may be allowed for 60 days.

The affiliates rule is similar to the “50% rule” for entities sanctioned by the Treasury Department’s Office of Foreign Assets Control.

If a company is owned 50% or more by an entity on the list, licences will be required for US exporters to ship goods or technology to the subsidiary, just as they are for listed entities, with many licences likely to be denied.

China’s Commerce Ministry expressed “strong opposition” on Monday to the US expanding its restricted export list and vowed to take necessary measures to safeguard the legitimate rights and interests of Chinese enterprises.

In a statement, the Chinese ministry urged Washington to “immediately correct its wrongful action” and stop its “unreasonable suppression of Chinese enterprises.”