US 'Misunderstood or Miscalculated' BIS 50% Rule Impact, Former Official Says
The U.S. appeared to have underestimated or not understood the impact of the Bureau of Industry and Security 50% rule, especially the volume of license applications the agency was set to receive, said Thea Kendler, former BIS assistant secretary for export administration.
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The rule, which took effect in September before being suspended for one year on Nov. 10 (see 2510310020 and 2511100017), extended Entity List prohibitions and other list-based restrictions to unlisted entities owned at least 50% by companies on those lists. Kendler, speaking during the EU’s Export Control Forum in Brussels last week, said the rule “went far beyond any particular industry sector” and “far beyond any particular country,” with some supply chain intelligence companies estimating that it captured potentially tens of thousands of unlisted companies (see 2510210013).
“I think the U.S. government grossly misunderstood or miscalculated the effect of the Affiliates Rule,” said Kendler, now a trade lawyer with Mayer Brown.
She noted that BIS, in the rule’s preamble, predicted that it would receive a few hundred new license applications per year as a result of the rule. Kendler suggested that was a large underestimation.
“I have one client who said that they themselves could probably submit several hundred license applications,” Kendler said.
If the government had done more to formally consult with industry ahead of the rule’s release, it may have been warned about a surge in license applications or about the large compliance burdens the rule was set to impose, Kendler said.
BIS under the Trump administration has sought to reduce conversations and engagements with industry, especially about new regulations (see 2503280039). That has included curbing the public sessions of its technical advisory committees, which have historically served as forums for members of industry to give feedback to BIS about new or existing regulations (see 2509120021).
“When things are a little confusing, it's even more of a burden on the regulators to be clear with the regulated community," Kendler said. "It's conferences like this, telling you what's happening behind the scenes, so that you know what to predict. It's the functioning -- the good functioning -- of technical advisory committees that go into the government and work hand-in-hand with them, because the communication has to flow both ways."
Although Kendler said there had been “informal feedback” between BIS and industry about the Affiliates Rule, she stressed that “the government has a responsibility to communicate with industry, to hear from industry, and to take that feedback into account when crafting regulations.”
Kendler acknowledged that protecting U.S. national security “comes first” for BIS, and there are cases when new compliance burdens on industry can't be avoided. “But the government has a responsibility to explain where things are going and why they're going as part of that,” she said.