BIS Nominee Suggests 50% Rule for Entity List
Landon Heid, President Donald Trump’s nominee to be assistant secretary of commerce for export administration (see 2502120020), said April 10 that he wants the Bureau of Industry and Security to wage a “continuous battle every single day” to prevent China from obtaining restricted U.S. technology.
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“We’re going to have to keep our eye on the prize on this because … China is an incredibly sophisticated actor,” Heid testified before the Senate Banking Committee. “We’re going to be adjudicating that threat every single day.”
Heid said that one way he would increase the effectiveness of export controls is to adjust the way BIS uses them. For example, when companies are placed on the Entity List, their subsidiaries are not automatically added as well, allowing the parent firms to use their subsidiaries to obtain restricted items. Heid would include subsidiaries in those listings.
Heid suggested the change could be similar to the way the Office of Foreign Assets Control uses its 50% rule, which imposes sanctions on any entity owned 50% or more by an entity on OFAC's Specially Designated Nationals List.
"We've solved this in sanctions going back decades" with OFAC's 50% rule, but "we don't have that for export controls," Heid said. Companies have been able to tell Commerce: "That's my Malaysian entity. You didn't put it on the Entity List, so I'm allowed to import it."
“It’s a simple fix you could do relatively quickly,” Heid added. “These are the kinds of things we’re going to be talking about and moving very quickly at to solve the problem."
Heid made his comments in response to Sen. Jim Banks, R-Ind., who said he’s concerned that Chinese startup DeepSeek accessed controlled U.S. Nvidia computing chips through third countries, such as Malaysia and Singapore, to fuel the recent development of its new advanced artificial intelligence model (see 2502030031).
In response to questioning by Sen. Pete Ricketts, R-Neb., Heid said he would “hit the ground running” to address Hong Kong’s growing role in helping China and other “adversaries” evade U.S. export controls. The House Select Committee on China, which employed Heid as a technology policy aide until he was tapped by Trump, said in November that Hong Kong had become a "global leader" in "importing and re-exporting banned Western technology to Russia,” among other practices (see 2411250058).
Ricketts told Heid he wants to work with him to develop “alternatives” to the “misguided” and "rushed midnight" rule the Biden administration released in January to regulate the global diffusion of advanced AI chips and models (see 2501130026). Ricketts said he agrees with the goals of the policy but believes the export controls will have unintended consequences.
The rule “places arbitrary purchase limits and a cumbersome licensing process to acquire U.S. computing technologies in approximately 150 countries, including allies like Israel,” Ricketts said. “Constrained from purchasing U.S. technology, these countries would be incentivized to turn to Communist China’s unregulated, cheap substitutes. Technology companies in these affected countries could be motivated to create their own AI technology stacks outside of our export controls regime.”
In his written testimony, Heid acknowledged the “longstanding, bipartisan nature” of U.S. export controls, noting that the Biden administration and both Trump administrations all imposed export controls on China. He also said BIS needs to work with allies and partners on export restrictions because the U.S. “alone does not possess all the world’s most advanced technologies.”
Heid's nomination hearing came less than a month after the Senate confirmed his potential boss, Jeffrey Kessler, as BIS undersecretary (see 2503130062).