Background

New regulations allowing the Bureau of Industry and Security to review and restrict imports and other transactions in information and communications technology and services will likely prove costly to importers and downstream users, according to an analysis from the Department of Commerce.

However, there are ways to mitigate these costs while ensuring compliance. In addition, BIS could modify aspects of these regulations in response to public comments, which are due by March 22. For more information, please contact Kristine Pirnia.

A May 2019 executive order authorized BIS to prohibit imports and other transactions in ICTS that have been designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries and that pose an undue or unacceptable risk to U.S. national security. The new rule (click here for a more detailed summary) creates the processes and procedures BIS will use to identify, assess, and address such transactions. It also identifies China (including Hong Kong), Russia, Iran, North Korea, Cuba, and Venezuelan politician Nicolás Maduro as foreign adversaries, noting that this list may be revised at any time.

The rule will be effective March 22 but applies to ICTS transactions that are initiated, pending, or completed on or after Jan. 19. Further, any act or service with respect to an ICTS transaction, such as execution of any provision of a managed services contract or installation of software updates, is an ICTS transaction on the date it is provided.

The DOC analysis estimates that there are about 4.53 million firms that import a significant amount of goods and services potentially subject to review under this rule. Total costs to these firms of complying with the rule are estimated to run as high as $781.4 million for learning about the rule, $3.52 billion for developing compliance plans, $15.0 billion for implementing those plans, and $10.3 million for compliance with DOC investigations.

The analysis also examines the rule’s potential economic impact, which will depend on the industry sectors affected and the extent to which they are dependent on imports. The analysis finds that imports accounted for more than 50 percent of the total supply in six of 14 ICT sectors: electronic computer manufacturing, computer storage device manufacturing, computer terminal and peripheral manufacturing, telephone apparatus manufacturing, broadcast and wireless communications equipment, and audio and video equipment manufacturing.

In addition, the six nations named above as foreign adversaries account for more than 50 percent of U.S. imports in four sectors (electronic computer manufacturing, computer terminal and peripheral manufacturing, telephone apparatus manufacturing, and broadcast and wireless communications equipment) and more than 40 percent in three others (other communications equipment manufacturing, communication and energy wire and cable manufacturing, and other electronic component manufacturing).

As a result, production costs for firms relying on imports of such goods from adversarial nations will likely increase as they substitute higher-priced alternatives. Other firms in these industries may face higher production costs as well as they compete for a reduced supply of available inputs. As these costs increase, the prices of the products may also increase, resulting in fewer sales, smaller quantities produced, and lower profits.

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