January 8, 2021

Trump Administration Bans Transactions with Chinese Applications

Holland & Knight Alert
Nasim D. Fussell | Andrew K. McAllister | Antonia I. Tzinova | Marina Veljanovska O'Brien

Highlights

  • President Donald Trump on Jan. 5, 2021, issued an Executive Order Addressing the Threat Posed By Applications and Other Software Developed or Controlled By Chinese Companies (E.O.). The E.O. was issued to address the perceived threat by China to steal or otherwise obtain U.S. persons' data with the intent to use it to advance China's economic and national security agenda.
  • The E.O., which is likely to be challenged in court, specifically targets eight Chinese connected software applications: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay and WPS Office (target applications). However, the Secretary of Commerce (Secretary) is authorized to add more to the list.
  • The E.O. prohibits U.S. persons from future transactions – which the Secretary is directed to identify – with persons that develop or control the target applications or their subsidiaries. In addition, the E.O. directs the Secretary to develop a program to control the export of U.S. user data to foreign adversaries, including through appropriate regulations and policies.
  • The prohibitions on future transactions with target applications take effect on Feb. 19, 2021 (or 45 days after the issuance of the E.O.), notwithstanding any contract entered into or any license or permit granted before Jan. 5, 2021. 

President Donald Trump issued a new executive order – Executive Order Addressing the Threat Posed By Applications and Other Software Developed or Controlled By Chinese Companies – on Jan. 5, 2021, prohibiting any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, with persons that develop or control the following Chinese-connected software applications,1 or with their subsidiaries, as those transactions and persons are to be identified by the Secretary: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay and WPS Office. The E.O. was issued in order to address the perceived threat to the U.S. national security, foreign policy and economy by the spread of certain connected mobile and desktop applications and software developed or controlled by persons in China, which are being used by the Chinese communist government to access and capture vast swaths of information from U.S. users (including federal employees and contractors), including sensitive personally identifiable information and private information from persons.

The E.O builds on the restrictions included in E.O. 13873 of May 15, 2019, which targets U.S. firms' transactions to source information and communication technologies and services from abroad. E.O. 13873 authorized the Secretary to designate which countries or entities are to be deemed foreign adversaries.2 (See Holland & Knight's previous alert, "The Drama Around Huawei: Can U.S. Companies Do Business with the Chinese Chipmaker?" July 16, 2019.) The current E.O. also mirrors a pair of executive orders from Aug. 6, 2020, directing the Commerce Department to block certain transactions with Chinese-owned WeChat and TikTok;3 these are now being challenged in federal court. The WeChat and TikTok executive orders, which cite similar urgent national security and privacy concerns regarding Chinese government efforts to steal or otherwise acquire U.S. critical technologies and private data, prohibit transactions related to TikTok, WeChat, their owners and subsidiaries to the extent permissible by law.

Prohibitions

  • Prohibited Transactions with Target Applications. The E.O. prohibits any transaction – as may be identified by the Secretary – by any person (or with respect of any property) subject to the jurisdiction of the U.S., with 1) persons that develop or control the target applications as well as with their subsidiaries, or 2) persons that are subsequently identified by the Secretary as persons that develop or control Chinese-connected software applications as well as with their subsidiaries.
  • Other Chinese Related Software Applications. In addition, the E.O. directs the Secretary to identify and take appropriate action against other software applications. Specifically, the Secretary is directed to continue to evaluate Chinese-connected software applications that may pose an unacceptable risk to the national security, foreign policy or economy of the U.S., and to take appropriate action in accordance with E.O. 13873.
  • Establishment of Future Regulations, Policies and Procedures to Prevent Transfer of U.S. Data to China. Finally, the E.O. directs the Secretary, in consultation with the Secretary of the Treasury and the Attorney General, to develop a program to control the export of exploitable U.S. user data to foreign adversaries,4 including through the establishment of appropriate regulations and policies to identify, control and license the export of such data. 

Implementation and Challenges

The prohibitions on future transactions with targeted applications, or other persons as identified in the future by the Secretary, will become effective 45 days after the issuance of the E.O. (or Feb. 19, 2021) notwithstanding any contract entered into or any license or permit granted before Jan. 5, 2021.

The Commerce Department plans to act before President Trump leaves office on Jan. 20, 2021, to identify prohibited transactions,5 which contradicts the language of the E.O. Under Section 1(e) of the E.O., "not earlier than 45 days after the date of this order, the Secretary shall identify the transactions and persons that develop or control the Chinese connected software applications" subject to the prohibitions. As the E.O. will not take effect until after President Trump leaves office, its actual implementation will depend on its endorsement by the incoming Biden Administration. In addition, it is expected that any transactions prohibited by the E.O. will be challenged in court similarly to the challenges of the Trump Administration's past attempt to block transactions with WeChat and TikTok.

For additional information or questions regarding the E.O. or any other trade-related matters, please contact the authors or a member of Holland & Knight's International Trade Group.


Notes

1 Connected software application is a software program, or group of software programs, designed to be used by an end user on an end-point computing device and designed to collect, process or transmit data via the internet as an integral part of its functionality.

2 Executive Order 13873, 84 Fed. Reg. 22689 (May 15, 2019).

3 Executive Order 13942, 85 Fed. Reg. 48637 (Aug. 6, 2020) and Executive Order 13943, 85 Fed. Reg. 48641 (Aug. 6, 2020).

4 In the proposed rule to implement E.O. 13873, foreign adversary means "any foreign government or foreign non-government determined by the Secretary to have engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or security and safety of United States persons for the purposes of Executive Order 13873." 84 Fed. Reg. 65,316, 65,320 (Nov. 27, 2019).

5 Statement from U.S. Secretary of Commerce Wilbur Ross on President Trump's Executive Order: "Addressing the Threat Posed by Applications and other Software Developed or Controlled by Chinese Companies," (Jan. 5, 2021).


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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