USCBC Comment on Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities

The US-China Business Council (USCBC) welcomes the opportunity to submit comments to the Department of Commerce regarding the Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities interim final rule (henceforth the “Affiliates Rule”). USCBC’s membership comprises around 270 American companies that do business in China. Our membership includes some of the largest and most iconic American brands, in addition to small and medium-sized enterprises. US trade with and sales of goods and services in China bring many important benefits to the US economy and American workers.

USCBC fully supports efforts to protect US national security and prevent the diversion of sensitive technologies. USCBC recognizes the attempt of the Bureau of Industry and Security (BIS) to deter circumvention by extending controls to affiliates, drawing on aspects of the Department of Treasury’s Office of Foreign Assets Control (OFAC) 50% ownership framework; however, that construct does not translate cleanly to the Export Administration Regulations (EAR). OFAC operates a blocking regime with a single consolidated list, government-generated ownership intelligence, and strict liability. The Affiliates Rule is a licensing regime that aggregates multiple list types, applies a most restrictive overlay that can extend the foreign direct product rule (FDPR) and other policies to all items subject to the EAR, and places on companies the burden of resolving indirect and aggregated ownership in jurisdictions with limited disclosure. In practice, this causes US firms to adopt a conservative approach and pause or terminate a broad array of commercial relationships that extend beyond directly implicated entities, particularly for benign and medical items, because ownership information is incomplete or unobtainable and Red Flag 29 compels a license-or-halt posture. To preserve the anti-circumvention objective while tailoring the rule to the export control context, we recommend a knowledge-based standard with a defined safe harbor for commercially reasonable due diligence and a 365-day reliance period; publication of an indicative affiliates dataset and a clear evidence menu; confirmation that the most restrictive flow-down, including FDPR, attaches only where a controlling, footnoted owner is present; and focus on technologies and use cases that present identifiable national security risks.

We have significant concerns that the scope and implementation of the Affiliates Rule as written are overly broad, lack sufficient clarity, and will impose unintended operational burdens across a range of industries without a commensurate security benefit. The Affiliates Rule’s immediate effective date, coupled with a narrow and short-lived Temporary General License (TGL), has forced companies to suspend transactions while they attempt to verify multi-tier beneficial ownership in jurisdictions where reliable data is unattainable. The resulting compliance burden is not confined to the estimated more than 20,000 Chinese entities directly covered by the rule; it chills activity across entire supply chains as US exporters adopt conservative defaults and pause shipments to avoid inadvertent violations. The rule has prompted a broad-based decoupling of US-China commercial ties in areas extending far beyond the intended sensitive technologies, gifting market share to foreign competitors that are not subject to the same ownership-tracing obligations, leading to design-outs and long-term supplier substitutions. The net effect is a rapid and durable erosion of market share and ecosystem influence for US firms in China without a commensurate security benefit.

Many US companies depend on China’s market to enhance and undergird their global competitiveness, such as through globally integrated supply chains that improve efficiency and lower costs for American consumers. According to our annual member survey, 91% of respondents say China is important for their global competitiveness, among which 28% of respondents say their firm would not be globally competitive without China. It is crucial that BIS evaluate export controls with these considerations to ensure that restrictions do not inadvertently damage US competitiveness and, by extension, US national security.

We recommend narrowing the rule’s scope to create more realistic compliance objectives and streamline implementation. In our survey, 62% of member companies identified due diligence as a primary export controls compliance challenge, and 53% cited delayed or unclear administrative processes. To keep the system workable from both a compliance and administrative perspective, BIS should consult with industry to tailor its rules to areas of national security and foreign policy concern. Absent such calibration, the Affiliates Rule will unilaterally disadvantage US firms with unrealistic compliance burdens and reinforce a perception among Chinese customers that American suppliers are unreliable. In our survey, 56% of respondents reported losing sales to Chinese competitors due to export controls, signaling increased Chinese indigenization and reduced US visibility into technology ecosystems.

BIS should continue to assess foreign availability before adding controls. Without multilateral coordination, US companies will also be displaced by foreign suppliers: in our survey, 49% of respondents reported losing sales to international firms, underscoring the importance of multilateralism and the limits of unilateral tools. This dynamic is especially acute for US products that are widely available and uncontrolled by other countries, such as EAR99 items.

The Affiliates Rule has also destabilized diplomacy with China amid ongoing trade negotiations, creating another escalatory cycle. The rule has already prompted severe retaliatory actions from China’s Ministry of Commerce targeting US companies with a host of restrictions, complicating the administration’s efforts to reach a trade agreement with China that will benefit US companies and reduce the trade deficit.

We propose an initial 120-day stay of implementation, retroactively effective from September 29, and offer concrete adjustments that preserve national security aims while restoring administrability and predictability to protect large swathes of legitimate trade in the US-China commercial relationship.