In June 2021, President Biden issued two executive orders designed to address risks allegedly posed by Chinese technology companies. One order rescinds President Trump's orders banning TikTok, WeChat, and other Chinese apps—bans that never took effect because they came too late or were enjoined by courts. The other order prohibits U.S. investment in specified Chinese companies that "undermine the security or democratic values of the United States and [its] allies." The two orders from President Biden shift—but do not completely overhaul—U.S. policy toward Chinese technology companies.
ICT Supply Chain Risks, TikTok, WeChat, and the June 9, 2021, Executive Order
On June 9, 2021, President Biden issued an order that rescinds President Trump's 2020 bans of TikTok and WeChat and builds on a 2019 order concerning U.S. critical information and communications technology (ICT). See, e.g.,
The 2019 Trump order, Executive Order 13873, declared a national emergency based on an "unusual and extraordinary" national security threat posed by the possible use of technologies created or provided by companies under the control of foreign adversaries to compromise critical U.S. ICT. The order authorized the Secretary of Commerce to ban certain transactions with these companies.
Invoking this emergency, President Trump issued three orders prohibiting transactions with (1) TikTok and its parent company, (2) WeChat and its parent company, and (3) other Chinese apps. None of these orders took effect: In litigation where DWT represented groups of TikTok and WeChat content creators, courts blocked the TikTok and WeChat bans. (DWT argued successfully that these bans likely violated users' First Amendment rights and the International Emergency Economic Powers Act (IEEPA); that the government had not demonstrated an actual risk to national security from either app; and that the government had not demonstrated that a flat ban of either app was necessary to address any threat from the apps.) The Biden Administration never implemented the third Trump order.
Rather than rescind or change Executive Order 13873, President Biden relied on the declared national emergency as the basis for the June 9, 2021, order—but took a different approach. The June 9 order revokes the orders banning TikTok, WeChat, and other apps and instead requires the government to look at "potential indicators of risk" before banning transactions, including:
- "[O]wnership, control, or management by persons that support a foreign adversary's military, intelligence, or proliferation activities" are "subject to coercion or cooption by a foreign adversary" or are "involved in malicious cyber activities";
- Use of the software to conduct espionage, including by allowing a foreign adversary to access sensitive government, business, or personal data;
- "[A] lack of thorough and reliable third-party auditing of connected software applications";
- The "scope and sensitivity" of the data the software collects;
- The number and sensitivity of the application's users; and
- "[T]he extent to which identified risks have been or can be addressed by independently verifiable measures."
The Secretary of Commerce must continually evaluate these risks, and where they are "undue" or "unacceptable," may prohibit related transactions.
The June 9 order also targets human rights abuses, stating that "[i]f persons who own, control, or manage connected software applications engage in serious human rights abuse or otherwise facilitate such abuse, the United States may impose consequences on those persons in action separate from this order."
Finally, the order directs the Secretary of Commerce to provide recommendations to protect sensitive data from the unrestricted sale, transfer, or access by persons or companies of foreign adversaries and on additional executive and legislative actions to address risks of connected software developed in such countries.
Investments in Chinese Companies in Military and Surveillance Sectors Under June 3, 2021, Order
On June 3, 2021, the Biden Administration issued Executive Order No. 14032 that prohibits U.S. investments in a specific list of Chinese companies. A fact sheet accompanying the order states that the listed companies "undermine the security or democratic values of the United States and [its] allies."
The order targets companies involved in "military, intelligence, and security research" or that develop or provide surveillance technologies "to facilitate repression or serious human rights abuses." The prohibitions took effect August 2, 2021, and current investors must divest their holdings by June 3, 2022.
The June 3 order builds on Executive Order 13959 issued by President Trump in November 2020, which found that China was developing its military, intelligence, and security capabilities through its large, "ostensibly private" economy, including by compelling civilian companies to support and modernize its military apparatuses. Executive Order 13959 prohibited investment in certain listed "Communist Chinese military companies" (CCMCs) or others designated by the Secretaries of Defense or Treasury.
The June 3 order largely preserves the core of Executive Order 13959, prohibiting investment in specified companies that "operate or have operated in the defense and related materiel sector or the surveillance technology sector of the economy of the PRC." There are, however, three notable differences:
- The June 3 order includes companies in the "related materiel" sector, possibly an effort to address claims that a company's relationship with the Chinese military is too attenuated to justify inclusion on the list—claims that two companies have successfully made.
- The June 3 order prohibits transactions with companies operating in the "surveillance technology sector." The accompanying fact sheet states that the order "expand[s] the U.S. Government's ability to address the threat of Chinese surveillance technology firms that contribute—both inside and outside China—to the surveillance of religious or ethnic minorities or otherwise facilitate repression and serious human rights abuses."
- The Secretaries of Defense and Treasury no longer have the power to unilaterally designate companies as CCMCs. Instead, the responsibility lies principally with the Secretary of Treasury, who must consult with the Secretary of State and may, if they deem appropriate, consult with the Secretary of Defense.
The Annex to the June 3 order lists 59 companies—many overlapping—to supersede and replace the list of 44 CCMCs maintained under Executive Order 13959. The new list will be called the Non-SDN Chinese Military-Industrial Complex Companies list (CMIC list) instead of the CCMC list.
Although it is early in the Biden Administration, the June 2021 executive orders suggest three guiding principles shaping U.S. policy on technology companies operating in China. First, the Biden administration believes threats from China are real, significant, and must be addressed.
Second, the Biden Administration will take a more nuanced approach to specific threats. ByteDance and Tencent—owners of TikTok and WeChat—sought to address the Trump Administration's concerns through a series of targeted measures, but the administration rejected those efforts. The June 9 order suggests that such measures may be sufficient in the future.
Third, the Biden Administration will focus not only on security risks from Chinese companies, but also those companies' involvement in human rights abuses.
Similar trends are emerging from the Biden Administration's enforcement of existing regulation of international trade and foreign investments. The Biden Administration's review of foreign investments and transactions under the Committee on Foreign Investment in the U.S., for example, remains equally rigorous after substantial expansion of the Committee's jurisdiction under the Trump Administration.
U.S. companies must be increasingly cognizant of both investments in and investments from foreign entities under this administration, especially in the technology, infrastructure, and identifiable data sectors.
Michael T. Borgia and David M. Gossett are partners in the Washington, D.C. office of Davis Wright Tremaine. Ambika Kumar is a partner in Seattle and Thomas R. Burke is a partner in San Francisco. Kelly Valencia was an associate at Davis Wright Tremaine and is now Senior Counsel at Gilead Sciences, Inc.
This article was originally featured as a privacy and security advisory on DWT.com on June 14, 2021. Our editors have chosen to feature this article here for its coinciding subject matter.