US Department of Commerce Proposes Rules-Based Approach to Banning Transactions with Chinese Telecom Equipment Manufacturers Deemed a Security Threat

Following the Federal Communications Commission’s Order to deny federal funds to carriers using foreign technology deemed a national security risk, Commerce Secretary Wilbur Ross has proposed a fact-based, case-by-base framework through which the Commerce Department can enforce an executive order by President Trump to protect the country’s communications supply chain from foreign adversaries. 

The Commerce Department said on November 26, 2019 that its proposal will allow it to effectively block or mitigate deals involving technologies that could undermine the country’s security through cooperation with Federal agencies. The process will involve arriving at a preliminary conclusion on a problematic transaction, whose parties will be notified about the determination. The transaction parties will then be given an opportunity to submit their position before a final decision is made by the Commerce Secretary, who has sole discretion over who is determined a foreign adversary. 

To help aid in decision-making, the Secretary will use tools including assessments developed by the Secretary of Homeland Security and the Director of National Intelligence. 

The Commerce decision comes a week after the FCC issued an order banning carriers from using federal money to purchase or work with technology from companies deemed a national security threat.  The agency initially identifies Huawei Technologies Co. Ltd. and ZTE Corp. and their subsidiaries and affiliates as such companies. The ban broadly includes all equipment and services produced by the two companies, no matter where in the network they are deployed. and even if sold under a different brand. That order was paired with a consultation seeking to address how the FCC would go about compensating companies that are required to remove and replace problematic technologies from their networks. 

In May, President Trump signed an Executive Order that gave the Commerce Secretary the power to immediately block or mitigate a transaction in the information and communication technologies (ICT) sector after evidence suggesting foreign cyber operations infiltrating the country’s communications lines. 

The Commerce proposal adds yet another method through which the government, through various agencies and departments, is increasingly seeking to limit the influence of foreign powers in the country’s critical infrastructure ahead of next year’s election. It should also alert affected companies to months of consultation and consideration as to how they can prepare operations to mitigate the fallout of regulatory enforcement.      

Comments on the proposal are due in 30 days, and can be filed through the Federal eRulemaking Portal at http://www.regulations.gov.  If your company is impacted by the proposed rule changes and would like to participate in the rulemaking process, please contact Jonathan Marashlian, Managing Partner of Marashlian & Donahue, PLLC, at jsm@commlawgroup.com or 703-714-1313 or Michael Pryor of Brownstein Farber Hyatt Schreck, at mpryor@bhfs.com or 202-383-4706.