B. Nine entities added to Entity List – June 5, 2020 (85 Fed. Reg. 34503)

The Department of Commerce announced the designation of the following nine entities on May 22, 2020, and stated they are “complicit in human rights violations and abuses committed in China’s campaign of repression, mass arbitrary detention, forced labor and high-technology surveillance against Uighurs, ethnic Kazakhs, and other members of Muslim minority groups in the Xinjiang Uighur Autonomous Region (XUAR).” See BIS Press Release (May 22, 2020). The action supplements BIS’ first tranche of Entity List designations in October 2019 involving 28 parties engaged in the XUAR repression campaign in Xinjiang. Id.

For the following nine entities, BIS will now be imposing a case-by-case licensing review policy for items controlled under Export Control Classification Numbers (ECCNs) 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983. Case-by-case review will also apply to items designated as EAR99 described in the Note to ECCN 1A995, specifically, items for protection against chemical or biological agents that are consumer goods, packaged for retail sale or personal use, or medical products. A licensing review policy of denial will apply to all other items subject to the EAR for these nine entities. No license exceptions are available for exports, reexports, or transfers (in-country) for the nine entities. See 85 Fed. Reg. 34503.

• China
  • Aksu Huafu Textiles Co., including two aliases (Akesu Huafu and Aksu Huafu Dyed Melange Yarn)
  • CloudWalk Technology, including four aliases (Chongqing Cloudwalk Technology Co., Ltd.,; Guangzhou Yunshang Information Technology Co., Ltd.; Yun Cong Information Technology Co. Ltd.; and Yun Cong Technology)
  • FiberHome Technologies Group, including eight aliases (FiberHome; FiberHome International Technology Co., Ltd.; FiberHome Networks; FiberHome Networks Co. Ltd.; FiberHome Telecommunication Technologies Co., Ltd.; Haohuo Xiangyun Network Technology Co., Ltd.; Wuhan Fiberhome International; Wuhan Institute of Posts and Telecommunications)
  • Intellifusion, including two aliases (Shenzhen Yuntian Lifei Technology Co., Ltd.; Yuntian Lifei)
  • Is’vision, including six aliases (Chengdu Yinchen Netcom Technology Co., Ltd; Isvision Tech; Is’vision Technologies Co., Ltd.; Shanghai Is’vision Co.; Shanghai Isvision Technologies Co., Ltd.; Yinchen Technology)
  • Ministry of Public Security’s Institute of Forensic Science of China, including two aliases (Forensic Identification Center of the Ministry of Public Security of the People’s Republic of China; Material Identification Center of the Ministry of Public Security of the People’s Republic of China)
  • Nanjing FiberHome Starrysky Communication Development Co., including two aliases (Fiberhome StarrySky Co., Ltd.; Nanjing Fenghuo Xingkong Communication Development)
  • NetPosa, including three aliases (Dongfang Netpower Technology Co.; Dongfang Wangli Technology; NetPosa Technologies Ltd.)
  • SenseNets, including six aliases (Deep Net Vision; Deep Network Vision; Sensenets Corporation; Shenzhen Net Vision; Shenzhen Shenwang Vision Technology Co., Ltd.; Shenzhen Vision)

On July 1, 2020, the Commerce Department joined U.S. Departments of State, Treasury and Homeland Security and issued a supply chain business advisory (the “Advisory”) for businesses with potential exposure in their supply chain to Xinjiang or to facilities outside Xinjiang that use labor or goods from Xinjiang. The Advisory describes the “harsh repression” suffered by more than one million Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and members of other Muslim minority groups in Xinjiang and directs businesses to implement human rights-related due diligence policies and procedures. The U.S. government provides a clear warning in the Advisory: “Businesses, individuals, and other persons, including but not limited to academic institutions, research service providers, and investors … should be aware of reputational, economic, and, in certain instances, legal, risks associated with certain types of involvements with entities that engage in human rights abuses…”.  The Advisory identifies heightened risk factors for such businesses and individuals to consider in assessing potential business partnerships with, investing in, and providing other support to companies operating in or otherwise linked to Xinjiang, or employing the labor of individuals from Xinjiang.  The risk factors include but are not limited to certain activities, goods, services and technology with a nexus to surveillance (such as activities with cameras, tracking, technology, and biometric devices) as well as certain indicators of forced labor or labor abuses. 

II. China’s “Unreliable Entity List” regime

On May 31, 2019, with a stated intention of protecting the national security and interests of China, the Ministry of Commerce of the Peoples’ Republic of China (MOFCOM) announced that China would introduce an “Unreliable Entity List” regime. The “Unreliable Entity List” regime will be established pursuant to the PRC Foreign Trade Law, the PRC Anti-Monopoly Law, the PRC National Security Law, and other relevant PRC laws and regulations. China has yet to release the names of the companies on the list and the detailed enforcement measures against the companies.

The following four factors will be considered when determining whether a foreign entity or individual should be added to the Unreliable Entity List:

i. Whether the entity has implemented any measures to boycott or cut off supplies to Chinese companies, or has taken any other specific discriminatory actions against Chinese companies; 

ii. Whether these actions are taken for noncommercial purposes, and in breach of market rules or contract obligations; 

iii. Whether these actions cause actual damage to the Chinese companies and relevant industrial sectors; and 

iv. Whether these actions threaten or potentially threaten China’s national security.

A. China’s actions in response to BIS’ Entity List designations

China strongly objected to the recent U.S. designations of 33 Chinese entities on the BIS Entity List. Lijian Zhao, spokesperson of the Ministry of Foreign Affairs, stated that the United States has broadened the concept of national security and is abusing its export control measures.¹

Regarding the designation of nine Chinese entities related to human rights abuses in Xinjiang, Zhao emphasized China’s position that the alleged human rights issues are China’s internal affairs and should not be intervened by any foreign countries. Zhao added that to maintain peace and security in Xinjiang, China has adopted various measures on countering terrorism and deradicalization, such as providing legal and compliance trainings, and setting up vocational education and training centers and police enforcements to protect people’s human rights and other interests. Zhao stated that the measures taken by the Chinese government and the entities are legal under the PRC rules and regulations, and are supported by the 25 million people of all ethnic groups living in Xinjiang.

III. Key takeaways

• Exports, reexports, or in-country transfers of all items “subject to the EAR” will now require a BIS export license for the 24 entities addressed in section I.A, subject to a licensing review policy of denial. 
• Exports, reexports, or in-country transfers of items under the specified ECCNs (1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983) are now subject to case-by-case review for the nine entities addressed in section I.B. A licensing review policy of denial will apply for the export, reexport, or in-country transfer of all other items subject to the EAR for these nine entities.
• Companies with potential supply chain exposure to Xinjiang should review the multi-agency U.S. government business advisory published with respect to doing business in or with ties to Xinjiang and should implement due diligence procedures with respect to those activities.
• Companies engaging in business with the designated entities should immediately review whether they must submit a license application for future exports, reexports, or in-country transfers.
• Companies that now find themselves affected by these measures and designated on the BIS Entity List may submit a petition to the Department of Commerce to request removal from the list.
• The recent designations may have a significant impact on companies involved in both U.S. and Chinese supply chains. If your company has been affected by the recent designations, or you have any questions about the material covered in this client alert, please reach out to one of the authors of this client alert or your usual contact at Reed Smith.

1.  “Lijian Zhao’s Regular Press Conference on May 25, 2020,” Ministry of Foreign Affairs of the People’s Republic of China, May 25, 2020, fmprc.gov/t1782502 and fmprc.gov/t1782571.

Client Alert 2020-442