BIS May Grant Authorizations to Avoid Ban on Chinese Connected Vehicle Hardware

The Commerce Department issued a pre-publication version of the notice Sept. 23, and will accept comments through Oct. 28 on both its rule and methods of compliance with it. Chinese or Russian software in these categories would be banned starting in model year 2027, and hardware, which is more commonly imported from China, would be banned for model year 2030 or Jan. 1, 2029, for vehicles that don't have model years. The prohibition would cover telematics control units, Bluetooth, cellular, satellite and Wi-Fi modules, and advanced battery management. It would apply to cars; motorcycles; trucks, including class 8 commercial trucks; RVs; and buses, but not agricultural equipment or mining equipment.

Even if connected cars did not import hardware from China for these systems, if the companies that manufactured those cars were majority owned by Chinese companies or investors, they would be in the scope of the ban -- and that includes Volvo cars with networking capabilities, and all Polestar cars, even those made in South Carolina, a senior administration official confirmed to International Trade Today. "But we welcome the opportunity to work with those companies on mitigation measures and specific authorizations," the official said.

Representatives from Volvo Cars and Polestar, which are majority Chinese-owned, both told ITT they were analyzing the impact of the rule, and neither acknowledged it would apply to its U.S. operations.

The proposed rule said hardware importers and connected vehicle manufacturers would need to submit declarations of conformity to attest they aren't importing prohibited goods. Under the rule, BIS would offer advisory opinions on whether a prospective transaction is banned; it would also have a process to inform those parties that specific authorization may be required. Those specific authorizations could be allowed "including because the associated undue or unacceptable risks have been, or can be, mitigated."

National Security Adviser Jake Sullivan, on a call with reporters ahead of the notice's release, said that "connected vehicles," as the Commerce Department calls them, can be connected to "critical infrastructure," such as electric charging stations and smart roads, and, he added, "We've already seen ample evidence of the [People's Republic of China] pre-positioning malware on a critical infrastructure for the purpose of disruption and sabotage. And with potentially millions of vehicles on the road, each with 10- to 15-year life spans, the risk of disruption and sabotage increases dramatically."

Sullivan said many allies "are contemplating taking their own measures to mitigate these risks."

The proposed rule follows an advance notice of proposed rulemaking that drew 57 comments (see 2405060040) from carmakers, trade groups representing parts suppliers and carmakers, two foreign governments, and others.

The agency said most agreed that connected vehicles have systems that could be compromised, and most thought "substantial lead time" would be needed "to implement a regulation given the difficulty of sourcing alternative suppliers, the breadth and depth of data collected by information and communications technology integral to Connected Vehicles, and the potential negative impact such a regulation could have on long-term U.S. innovation, competitiveness, and health and safety."

However, commenters disagreed on which components should be regulated, how much risk was involved in those systems, and how to best mitigate risk.

Commenters asked Commerce to clearly define what companies would be considered Chinese (or Russian), and the department gave 21 examples of firms that would be covered by the rule. Even minority ownership or a Chinese board member could fall within the scope of the rule, in certain circumstances, according to those scenarios.

A senior U.S. official on the call with reporters said there is minimal Chinese and Russian software in automotive use, which is why the software phase-in period is shorter. "There is more Chinese hardware. For that, we've allowed a four-year phase-in timeline." She said supply chains will have to shift toward "a more trusted infrastructure."

Alliance for Automotive Innovation CEO John Bozzella said, "Important context: there’s actually very little technology -- hardware or software -- in today’s connected vehicle supply chain that enters the U.S. from China. But this rule will require auto manufacturers in some cases to find alternate suppliers.

"The lead time included in the proposed rule will allow some auto manufacturers to make the required transition but may be too short for others."

He praised BIS for its thoughtful consultation, and said that AAI will comment again as the agency develops its final rule.

A senior administration official said the administration is planning to release that final rule before President Joe Biden leaves office Jan. 20.

The notice said: "to address concerns about the resources small businesses are able to devote to compliance, BIS is proposing a general authorization that would permit certain small businesses to engage in otherwise prohibited transactions. BIS also emphasizes that this rule would narrowly target the specific automotive systems that pose the greatest risk when designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of certain foreign adversaries. As such, the rule would not broadly prohibit the import of connected vehicle technologies from foreign adversary nations, nor would it require market participants to alter supply chains for low-risk or unconnected components."

For BIS to have enough visibility into these supply chains to be sure there are no prohibited transactions, BIS is planning to require that importers and manufacturers submit declarations of conformity that provide detail about the goods -- it is asking for comments on whether it is necessary that these declarations be made when the imports are from firms that are not tainted by Chinese or Russian influence.

"BIS also seeks comment on the availability and efficacy of any alternative approach that would require a narrower set of [connected vehicle] hardware importers and completed connected vehicle manufacturers to submit Declarations of Conformity," the notice said.

Commerce Secretary Gina Raimondo, in the call with reporters, said that modern cars that allow voice controls and connections to your cellphones "can record where you go, what you do, what you say." She said China could shut down all the cars it controls at the same time, and the rule was needed before Chinese cars become widespread in the U.S.

"This is not about trade or economic advantage," she said.