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US restricts exports to companies on its 'Entity List'

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The new rule also captures subsidiaries of the named

companies

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50% ownership triggers the restrictions

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China slams rule, says it undermines global supply chains

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Rule may affect Huawei, DJI, Hikvision

(Adds details, comments, background)

By Karen Freifeld

Sept 29 (Reuters) - The U.S. on Monday cracked down on

companies in China and other countries that use subsidiaries or

other foreign affiliates to get around 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 percent or more by a

company on the list, according to a 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 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.

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 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

the U.S.'s recent loosening of controls on AI chips to China

like Nvidia's H20.

If a company is owned 50 percent or more by an entity on the

list, licenses will be required for U.S. exporters to ship goods

or technology to the subsidiary, just as they are for listed

entities, with many licenses likely to be denied.

The affiliates rule is similar to the "50 percent rule" for

entities sanctioned by the Treasury Department's Office of

Foreign Assets Control.

The Commerce Department did not respond to a request for

comment.

Though companies around the world are on the Entity List,

the change will most significantly impact Chinese entities,

experts said. Factories that produce legacy chips and are

affiliated with listed companies may be captured, as well as

other sectors, including aircraft, they said.

Chinese tech giant Huawei, video surveillance company

Hikvision and drone manufacturer DJI are three

examples of companies that may be impacted, one expert said.

Many Huawei subsidiaries are already on the list, but not all.

An analysis by Kharon, a Los Angeles-based data and

analytics company, found the expected rule could pull thousands

of hidden subsidiaries in nearly 100 destinations around the

world into "export-control crosshairs."

"While Russia and China account for the majority of

subsidiaries tied to already-listed entities, Kharon's analysis

uncovered that hundreds more are located in major trade and

finance hubs - including the EU, the United States, the UK,

Singapore, Switzerland, Japan, Canada, Australia and India," the

company said in a brief in June in anticipation of the rule.