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United States Continues Expansion of Export Control Sanctions on Chinese Companies

February 17, 2023

by Lawrence Ward, Dave Townsend, and T. Augustine Lo

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Ongoing tensions between the United States and China have resulted in an expansion of U.S. export controls and trade sanctions against China. The Biden Administration’s October 2022 National Security Strategy (“2022 NSS”) identified China and Russia as America’s two strategic adversaries and emphasized the United States would be increasingly assertive in its use of export control policies in execution of that strategy:

We must ensure strategic competitors cannot exploit foundational American and allied

technologies, know-how, or data to undermine American and allied security. We are therefore modernizing and strengthening our export control and investment screening mechanisms, and also pursuing targeted new approaches, such as screening of outbound investment, to prevent strategic competitors from exploiting investments and expertise in ways that threaten our national security, while also protecting the integrity of allied technological ecosystems and markets. We will also work to counter the exploitation of American’s sensitive data and illegitimate use of technology, including commercial spyware and surveillance technology, and we will stand against digital authoritarianism.1

 

In the past few weeks, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) has taken several steps against Chinese companies under the Export Administration Regulations (“EAR”) that appear to be implementing forcefully this aspect of the 2022 NSS. BIS has stiffened both U.S. and multilateral export control measures and has further reduced opportunities for Chinese firms to use U.S. technology in ways deemed to be inconsistent with U.S. security interests. 

A Technology Trade Embargo on Huawei

Huawei Technologies Co. Ltd. (“Huawei”) is one of the world’s leading telecommunications equipment suppliers and one of China’s most successful and prominent technology companies. BIS had placed Huawei on its Entity List in May 2019, which would ordinarily have stopped most U.S. technology exports subject to the EAR from going to Huawei. However, BIS tempered that designation with a Temporary General License (“TGL”) for certain activities (e.g., 5G standards development) and also continued to allow certain key U.S. firms such as Intel and Qualcomm to continue supplying Huawei less advanced chips under BIS export licenses. BIS now has begun to inform those U.S. firms that they will no longer receive such export licenses and so must stop exporting even those lower level technology products to Huawei, bringing about the virtual full force and effect of the original 2019 Entity List designation for Huawei.

Additionally, in May 2020, BIS adopted an expanded “foreign direct product” rule (“FDP Rule”) in EAR Section 734.9 that was intended to curtail the ability of Chinese companies such as Huawei to obtain chips and other goods made in third countries through use of U.S.-origin software or technology. Following the Russian invasion of Ukraine in February 2022 and in line with the 2022 NSS, BIS reacted quickly by adding Russia and Belarus to the scope of the FDP Rule (see here for our update as to Russia and Belarus). BIS further bolstered the FDP Rule in October 2022 with revisions specifically aimed at the Chinese advanced computing and semiconductor industries, covering items made in third countries that may be used to benefit China’s growing semiconductor and computer industries. Since the global electronics industry (e.g., in Taiwan, Korea, Japan and various European nations) remains reliant in varying degrees on U.S. software, technology and equipment, especially to design and to produce the most advanced chips, the FDP Rule creates a formidable obstacle to Huawei and other similarly situated Chinese companies from obtaining certain critical types of chips from third countries or even from foreign-owned production facilities within China itself when the end use is advanced computing within China.

More Multilateral Export Control Measures

While the FDP Rule enables the United States to assert some extraterritorial leverage through the EAR, other countries in Asia and Europe do possess their own indigenous chip design and production software and technology that fall outside the reach of the FDP Rule. The United States has therefore ramped up its efforts to persuade certain like-minded nations to adopt their own domestic export controls that parallel U.S. actions to stem the flow of advanced chips and other similar microelectronics products to Chinese firms, especially those that may be closely affiliated with the Chinese People’s Liberation Army (“PLA”) or its various security agencies.

In recent weeks, the United States apparently has succeeded, through closely guarded bilateral talks with both Japan and the Netherlands, to limit the exports of advanced chip production equipment and related electronics items and technology to China from those two key trading nations. While the precise details of these agreements are not yet known, this step seems to build in part upon an earlier announced decision by the Dutch government to limit the export of sensitive photolithography equipment to chip makers in China. It remains to be seen, however, if this further movement by the Netherlands will be followed more broadly across the other European Union (“EU”) countries such that there would eventually be a uniform and harmonized adoption among all the EU Member States of such more stringent export controls on advanced chip production equipment and other microelectronics products and technologies. 

More Chinese Entities Placed on BIS Entity List

With the direct authorization of President Biden, U.S. Air Force fighter jets have recently scrambled from bases across the United States to shoot down a balloon from China and three more “objects” of unknown provenance or purpose flying over North American airspace. These incidents included a balloon with a payload the size of three school buses taken down near Myrtle Beach, South Carolina, on February 4; an object shot down near Deadhorse, Alaska on February 10; another object shot down at the formal request and authorization of Canadian Prime Minister Justin Trudeau over the Yukon Territory in Canada on February 11; and yet another object over Lake Huron, Michigan. Various press briefings by Department of Defense (“DoD”) officials have suggested the Government has been aware for some time of these overflights of North American airspace by such “objects.” However, the stakes seem to have escalated sufficiently with these recent incidents that warranted immediate military action, particularly when the three “objects” were detected floating at altitudes between 20,000 and 40,000 feet (approximately 6,100 – 12,200 meter) where commercial aviation routinely operates.

In response to these kinds of intrusions into U.S. air space, effective as of February 10, BIS named2 six more Chinese entities to its Entity List because they are considered to be supporting China’s efforts to modernize its aerospace programs, including PLA airships and balloons (and related materials and parts) directed toward for intelligence gathering and reconnaissance. The six newly added Chinese entities are:

  • Beijing Nanjiang Aerospace Technology Co., Ltd.
  • China Electronics Technology Group Corporation 48th Research Institute
  • Dongguan Lingkong Remote Sensing Technology Co., Ltd.
  • Eagles Men Aviation Science and Technology Group Co., Ltd.
  • Guangzhou Tian-Hai-Xiang Aviation Technology Co., Ltd.
  • Shanxi Eagles Men Aviation Science and Technology Group Co., Ltd.

As with Huawei and other companies that have been placed on the Entity List, such designated firms will not be allowed to receive any further exports of U.S. goods, software or technology unless authorized by BIS export licenses. These six Chinese entities will now all face that BIS export license requirement and, critically, will be subject to a presumption of denial by BIS of any applications filed for such licenses.

In apparent retaliation against these new Entity List designations, on February 16, China’s Ministry of Commerce announced it was placing two leading U.S. aerospace firms – Lockheed Martin Corporation and the missile and defense division of Raytheon Technologies Corporation – on China’s “unreliable entities list” and would prohibit them from engaging in any import or export activities with China and from being able to invest in China because these two firms had been involved in arms supply deals with Taiwan. The new Chinese sanctions on Lockheed and Raytheon also bar any senior corporate officers of either firm from gaining a Chinese entry visa or from access to any permit to work in China. Finally, the Ministry of Commerce said it would be imposing large fines on the two U.S. firms equal to double the value of the armaments they had sold to Taiwan since late 2020. 

Other Potential Export Control Measures

In addition to the direct U.S. security concerns about China that are outlined in the 2022 NSS, China remains closely engaged with Russia despite the latter’s February 2022 invasion of neighboring Ukraine and the ongoing brutal war that is now nearing its first anniversary. In particular, China has continued to support the faltering Russian economy by massive purchases of petroleum and natural gas from Russia that it can no longer sell to European nations due to their trade sanctions programs. Moreover, Iranian President Ebrahim Raisi has just completed a three-day visit to China at the invitation of Chinese President Xi Jinping for high-level talks to reaffirm the ties between those two nations. Some Chinese companies continue to trade with both Russian and Iranian businesses and government purchasers that have been subjected to western sanctions programs.

The Biden Administration is likely to view China’s continued close linkages to adversary nations such as Russia and Iran with concern and will likely continue to devote significant intelligence efforts to identify any Chinese firms that may be diverting or channeling U.S. goods, technology, or software to Russia or Iran contrary to U.S. law, including any items subject to the FDP Rule targeting Russia and Belarus. In that regard, it should be recalled that BIS initially named both Chinese telecommunications firms ZTE and Huawei to the BIS Entity List because they were alleged to be engaging in elaborate schemes to divert U.S.-origin telecommunications equipment to Iran in violation of U.S. sanctions. In a similar vein, there are various media reports that Ukrainian officials continue to find Russian munitions such as drones and missiles that contain U.S.-origin electronics parts and components that are prohibited from export or reexport to Russia. Undoubtedly, the U.S. intelligence community will continue to monitor these situations and BIS will then apply all available measures under the EAR to deal with such detected violations of U.S. law.

On February 16, Deputy Attorney General Lisa Monaco, the senior official who manages the law enforcement and counterintelligence functions of the U.S. Department of Justice, gave a policy address at Chatham House in London3 regarding the geopolitical threats facing the United States and the United Kingdom, citing the particular risks posed by Russia and China. Among other things, she announced publicly

… the launch of a new initiative – the Disruptive Technology Strike Force. A collaboration of U.S. law enforcement – led by the Justice and Commerce Departments – the Strike Force brings together our top experts to attack tomorrow’s national security threats today. We will use intelligence and data analytics to target illicit actors, enhance public-private partnerships to harden supply chains, and identify early warning of threats to our critical assets, like semiconductors. Our goal is simple but essential – to strike back against adversaries trying to siphon our best technology.

Such a high profile joint effort for a new strike force between the Commerce Department and the Justice Department will likely lead to even broader uses of the EAR and export controls in the future to deal with the diverse threats outlined in the Deputy Attorney General’s speech. Moreover, it seems increasingly evident that such enhanced U.S. law enforcement and counterintelligence efforts will be directed toward controlling and limiting access by Russian or Chinese companies to many different emerging and foundational technologies – especially those that might be considered “disruptive.” 

1 https://www.whitehouse.gov/wp-content/uploads/2022/10/Biden-Harris-Administrations-National-Security-Strategy-10.2022.pdf (p. 33).

2 88 Fed. Reg. 9389 (February 14, 2023).

3 https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-delivers-remarks-disruptive-technologies-chatham 

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On September 29, 2026, the Supreme Court granted certiorari in one case: Department of Homeland Security v. D.V.D., No. 26-426: This case concerns the Trump Administration’s “third-country removal” procedures, where immigrants are deported to countries not listed in the removal orders. In granting certiorari, the Court granted the Government’s application to stay a lower court decision halting the practice, which will allow third-country removals to continue pending resolution of the case. The issues presented are: (1) Whether the district court had jurisdiction over respondents’ claims; (2) whether the district court had authority to enter class-wide declaratory relief and APA vacatur under 8 U.S.C. § 1252(f)(1); (3) whether the Government’s guidance on third-country removals is unlawful under 8 U.S.C. § 1231(b), the due process clause, or FARRA/CAT and its implementing regulations; and (4) such other questions that the Government determines are appropriate for the proper disposition of the case. On October 1, 2026, the Court granted certiorari in three additional cases: Rhoney v. Barbosa da Cunha, No. 26-104: Immigration officials detained Ricardo Aparecido Barbosa da Cunha—a Brazilian citizen who had lived in the United States for approximately twenty years after entering without inspection—and denied him a bond hearing under 8 U.S.C. § 1225(b)(2)(A). The Second Circuit held that his detention was instead governed by § 1226(a), which permits release on bond, because § 1225(b)(2)(A)’s mandatory-detention requirement applies only to noncitizens apprehended while entering the country or shortly thereafter. The question presented is: Whether 8 U.S.C. § 1225(b)(2)(A) mandates the detention pending removal proceedings of aliens who, like Barbosa da Cunha, are present in the United States without having been admitted. Missionaries of St. John the Baptist, Inc. v. Frederic, No. 25-113: A Catholic religious organization sought to build a shrine to the Virgin Mary on land the organization owned adjacent to its church in Park Hills, Kentucky. Local zoning restrictions prohibited the proposed construction. The question presented is: Whether a land-use regulation that prohibits a religious institution from building a religious structure on its own property constitutes a “substantial burden” on religious exercise under the Substantial Burden Provision of the Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc(a). Marschner v. Marschner, No. 25-1349: Under the Uniformed Services Former Spouses’ Protection Act (“USFSPA”), a veteran’s longevity-based retirement pay can be divided in a divorce, but retirement pay based on disability and retirement pay that was waived to receive disability pay are indivisible. The question presented is: Does the USFSPA require state courts to refuse enforcement of indemnification provisions in a divorce settlement agreement?

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EPA Limits Title V Re-Litigation of NSR Permits

Overview On September 25, 2026, the U.S. Environmental Protection Agency (“EPA”) published a final rule that significantly limits the ability of third parties to use the Clean Air Act (“CAA”) Title V permitting process to revisit New Source Review (“NSR”) permitting decisions years after those decisions were made. The rule establishes that NSR permitting determinations generally must be challenged during the original permitting proceeding, thereby providing regulated sources with greater permitting certainty and finality for major capital projects. Published in the Federal Register titled Clarifying the Scope of “Applicable Requirements” Under State Operating Permit Programs and the Federal Operating Permit Program (Docket ID No. EPA-HQ-OAR-2023-0401), the rule amends 40 C.F.R. Parts 70 and 71 to codify EPA’s interpretation regarding when requirements established under other CAA programs may be reviewed, modified, or implemented through the Title V operating permit program. The rule becomes effective 30 days after publication. The rule addresses two principal issues: (1) the relationship between NSR preconstruction permitting and Title V operating permits, and (2) the treatment of the General Duty Clause under CAA section 112(r)(1). Most significantly, the rule provides greater certainty for sources navigating the NSR permitting process. EPA’s amendments are intended to ensure that NSR permitting decisions made through an approved public process are generally not revisited later through Title V permit proceedings. The rule responds to a circuit split between the U.S. Courts of Appeals for the Fifth and Tenth Circuits. In Environmental Integrity Project v. EPA, 969 F.3d 529 (5th Cir. 2020), the Fifth Circuit upheld EPA’s interpretation, concluding that it was consistent with the text, structure, and purpose of Title V. In contrast, the Tenth Circuit reached the opposite conclusion in Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020), finding that the then-existing regulatory definition of “applicable requirement” did not support EPA’s position. By amending the regulatory language on which the Tenth Circuit relied and codifying the interpretation approved by the Fifth Circuit, EPA has established a nationwide framework governing the interaction between NSR and Title V. NSR and Title V: EPA Establishes a Uniform Nationwide Framework At the core of the rule is EPA’s effort to define the respective roles of NSR and Title V. The rule codifies the approach EPA has applied since 2017: once a source obtains an NSR permit under an EPA-approved permitting program, and that permit was issued following public notice with an opportunity for comment and judicial review, the permit establishes the NSR-related “applicable requirements” of the State Implementation Plan (“SIP”) or Federal Implementation Plan (“FIP”) for Title V purposes. Under this framework, Title V is not a vehicle for re-examining underlying NSR permitting decisions. EPA does not intend to use the Title V process to revisit applicability determinations, emissions calculations, control technology determinations, permit conditions, or other issues resolved through the NSR permitting process. This principle applies regardless of the stage of the Title V proceeding; whether the NSR permit was issued pursuant to a SIP or FIP; the type of NSR issue involved; or whether the NSR permit is incorporated into Title V sequentially or concurrently. Limited Exceptions EPA recognizes several circumstances in which NSR issues may still be reviewed through the Title V program: No NSR permit was issued at all; The permit was issued without public notice and an opportunity for comment and judicial review; or The issue involves substantive overlap between Title V and NSR requirements, such as the adequacy of monitoring provisions. As a result, the rule does not insulate unpermitted projects or foreclose review of matters that independently arise under Title V. Key Regulatory Amendments The rule revises the definition of “applicable requirement” in 40 C.F.R. §§ 70.2 and 71.2. Paragraph (1): Where an NSR permit is issued with public notice and an opportunity for comment and judicial review, the permit establishes and defines the applicable SIP or FIP requirements for Title V purposes. Paragraph (2): All NSR permit terms, including terms contained in minor NSR permits, constitute applicable requirements that must be incorporated into Title V permits. Paragraph (4): CAA section 112(r)(1) (the General Duty Clause) is expressly excluded from the definition of “applicable requirement,” while section 112(r)(7) Risk Management Program requirements remain included. EPA also amended 40 C.F.R. §§ 70.8 and 70.12 to clarify that alleged defects in requirements established outside the Title V process generally do not provide a basis for EPA objection to a Title V permit or for a Title V citizen petition. General Duty Clause Exclusion The rule also codifies EPA’s longstanding position that the General Duty Clause in CAA section 112(r)(1) is not an “applicable requirement” for Title V purposes. EPA points to several considerations supporting that conclusion, including the distinction between the General Duty Clause and Title V permit terms, the provision’s origins in the Occupational Safety and Health Act’s general duty clause, and the different enforcement structures applicable to the General Duty Clause and Title V permit requirements. Importantly, excluding section 112(r)(1) from the definition of “applicable requirement” does not eliminate EPA’s authority to enforce the General Duty Clause independently of the Title V program. The final rule instead clarifies that the General Duty Clause need not—and should not—be incorporated into Title V permits as an applicable requirement. Practical Implications for Regulated Sources Greater Finality for NSR Permits  For projects requiring PSD, nonattainment NSR, or minor NSR permits, the permitting process becomes the primary forum for resolving disputes regarding applicability determinations, emissions calculations, control technology requirements, offsets, and permit conditions. Once an NSR permit is issued through a qualifying public process, regulated sources should face substantially reduced risk that those same issues will be challenged years later through Title V permit proceedings. Reduced Risk of Collateral Permit Challenges Stakeholders have sometimes sought to use Title V permit issuance, renewal, revision, or citizen-petition proceedings to challenge underlying NSR determinations. The final rule makes clear that Title V is not the appropriate vehicle for challenging whether an applicable requirement was correctly established in the first instance. This should reduce the risk of permit delays and uncertainty associated with collateral challenges to previously issued NSR permits. The rule does not, however, eliminate all Title V challenges relating to an NSR permit. Challenges concerning the Title V permit itself—including whether it appropriately incorporates applicable requirements or contains adequate compliance provisions—remain possible. Increased Importance of the Initial NSR Proceeding Because Title V generally will not provide a second opportunity to challenge the substantive validity of an NSR determination, the administrative record developed during the NSR process becomes increasingly important. Permit applicants should ensure that applicability analyses, emissions calculations, control technology evaluations, modeling demonstrations, and supporting technical documentation are thoroughly developed during the original permitting proceeding. For significant projects, applicants may therefore have an additional incentive to identify and resolve potential permitting issues before the NSR permit is issued rather than assuming that unresolved issues can be addressed during a subsequent Title V proceeding. Potential Incentive for Broader Public Participation EPA also notes that permitting authorities may choose to provide public notice and an opportunity for comment for a broader range of NSR permits because permits issued through a qualifying public process receive the benefit of the finality framework established by the rule. Some permitting authorities may conclude that greater public participation at the NSR stage is preferable to uncertainty during subsequent Title V proceedings. Conclusion The final rule is principally a permitting-certainty measure. For sources that obtain NSR permits through a public process, EPA has substantially limited the ability of third parties to revisit underlying NSR determinations through the Title V program. As a result, regulated entities should benefit from greater finality regarding key permitting decisions, reduced risk of collateral permit challenges, and increased certainty when planning and implementing capital projects.

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SEC Proposes Expansion of Investment Adviser Performance-Based Compensation Rule

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides an exemption from the general prohibition under Section 205(a)(1) of the Advisers Act on registered investment advisers receiving performance-based compensation (the “Proposal”) so long as performance-based compensation is limited to “qualified clients”.1 Most notably for private fund sponsors, the Proposal would expand the definition of “qualified client” to include any investors that satisfy the “accredited investor” definition under Regulation D. The Proposal may also have implications for private fund managers that rely on exemptions from investment adviser registration under state law because certain state-level investment adviser registration exemptions incorporate or otherwise reference the federal qualified client definition. Expansion of the Qualified Client Definition Under the current Rule 205-3, an investor generally may qualify as a qualified client if, among other alternatives, the investor has at least $1.4 million under management with the adviser or has a net worth exceeding $2.7 million. These thresholds are higher than the financial thresholds applicable to many accredited investors under Regulation D. As a result, an investor may currently qualify as an accredited investor for purposes of investing in a private offering without qualifying as a qualified client for purposes of paying performance-based compensation. The Proposal would expand the qualified client definition to include any natural person or legal entity investor that satisfies the accredited investor definition under Regulation D. The Proposal would also remove the assets under management and net worth thresholds under the current Rule 205-3 qualified client test. For private funds relying on Section 3(c)(1) of the Investment Company Act of 1940, this change could reduce the need to apply a separate qualified client standard to investors that already qualify as accredited investors. Dorsey Observations and Next Steps If adopted as proposed, the expanded qualified client definition could be particularly significant for private fund managers. Most private fund offerings are already limited to accredited investors under Regulation D. However, the Proposal could expand the pool of prospective investors available to emerging private fund managers while reducing the regulatory burden associated with complying with Rule 205-3. The Proposal could also benefit advisers operating below the SEC registration threshold that rely on a state private fund adviser exemption. A number of states have adopted exemptions modeled on the North American Securities Administrators Association (“NASAA”) private fund adviser exemption, which may condition relief for advisers to certain funds relying on Section 3(c)(1) on each beneficial owner satisfying the federal qualified client definition. However, state requirements vary, and any effect of the Proposal would depend on the text of the applicable state exemption and how it incorporates Rule 205-3. Many emerging private fund managers may have a larger network of accredited investor relationships than qualified client relationships during the early stages of their investment advisory business. Currently, under Rule 205-3, private fund managers may receive performance-based compensation from investors who do not satisfy the qualified client definition if those investors were admitted to their private funds prior to registration with the SEC. Following registration with the SEC, however, managers may continue to permit investors that are not qualified clients to invest in future private funds but may not receive performance-based compensation from those investors with respect to such investments. In addition, because the net worth and assets under management thresholds for qualified client status are adjusted for inflation every five years, the pool of qualified client investors may diminish over time as previously eligible investors no longer satisfy the applicable thresholds. The Proposal could provide the dual benefit of greater flexibility for private fund managers to establish and maintain relationships with accredited investors as their businesses scale and they become registered with the SEC, and greater flexibility for certain accredited investors to participate in investment strategies that historically have been restricted to much larger institutional investors. Unless and until the Proposal is adopted, investment advisers should continue to comply with the existing qualified client requirements. If the Proposal is adopted, private fund sponsors should consider whether corresponding changes are appropriate for their subscription documents, investor questionnaires, and other offering materials. Advisers that are state-registered or rely on a state-level exemption should also consult the laws and regulations of each relevant jurisdiction before changing investor eligibility standards or performance-based compensation practices, because adoption of the federal amendments may not automatically modify state requirements. Comments on the Proposal will be due 60 days after publication in the Federal Register. 1 Investment Adviser Performance-Based Compensation Modernization, Investment Advisers Act Release No. IA-7022 (Sept. 30, 2026), available at https://www.sec.gov/rules-regulations/2026/09/s7-2026-28#33-11443proposed.