O'Melveny Insights 2023

20 National Security conditions are designed to simultaneously grow and safeguard the domestic semiconductor industry—a direct intervention by the United States in the market that represents a marked shift in industrial policy. Wielding another regulatory stick, Commerce is in the final stages of implementing its information and communications technology supply chain regulations to address threats posed by the use of certain foreign technology and software applications in the United States. The regulations will establish a regime for reviewing and potentially prohibiting the use of certain foreign technology, particularly where it creates a risk that adversaries could exploit Americans’ sensitive data. Industry & Security. In October 2022, the Biden Administration took another step toward undermining Chinese advances in high tech by implementing new restrictions on China’s access to US semiconductor technologies. Commerce’s Bureau of Industry and Security imposed a series of controls on the export of advanced computing and semiconductor manufacturing items to China as well as transactions related to supercomputer end-uses in China. Aimed at addressing US national security and foreign policy concerns over China’s strategic and military goals, these measures seek to restrict China’s “ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.” They supplement prior rulemakings designed to restrict exports for military use and to firms that further Chinese strategic interests, as well as economic sanctions and import restrictions designed to counter perceived systematic Chinese government human rights violations. FCC. In November 2022, the Federal Communications Commission issued a Report and Order that will severely restrict the import and use of certain foreign technology perceived to be a national security threat—namely, telecommunications and video surveillance technology produced by Huawei, ZTE, Hytera, Dahua, and Hikvision. The order builds on Trumpera restrictions that prohibit the use of these technologies by the US government and federal contractors. It would effectively prohibit the American public from using this technology based on national security concerns, an approach that is markedly broader than the existing restrictions. The National Security Strategy asserts that the United States “must invest in our innovation and industrial strength, and build our resilience, at home.” Between semiconductor restrictions, export controls and economic sanctions, CHIPS Act implementation, and supply-chain restrictions, national security concerns are increasingly driving US economic policy. As businesses evaluate their risk and commercial growth strategies, they should consider how national security issues—particularly those related to technology—will shape the regulatory and competitive environment. As the Biden Administration pursues “responsible competition” with China, companies should anticipate that US national security strategy will continue to shape how the government regulates domestic and foreign technology.