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Proposed NDAA Amendments Could Create New ITAR Exemption, Lead to New China Sanctions

July 6, 2023 by Ian Cohen|Top News

House lawmakers submitted a host of proposed export control- and sanctions-related amendments as part of the FY 2024 National Defense Authorization Act, including measures that could ease defense technology sharing restrictions, harmonize the Entity List with certain U.S. sanctions and investment restrictions and place new export control requirements on items destined to China and Iran. Other amendments could lead to new sanctions on Chinese technology companies and government officials, add the USDA to the Committee on Foreign Investment in the U.S., establish a new sanctions coordination office in the State Department and more.

One proposed Democrat-backed amendment could create new export licensing exemptions for certain defense trade as part of the Australia, U.K. and U.S. (AUKUS) partnership. The amendment, which builds on the AUKUS Undersea Defense Act introduced in June (see 2306090060), would allow the State Department to exempt certain exports “from the licensing or other approval requirements” outlined in the International Traffic in Arms Regulations for certain defense articles and defense services exports among the three countries. The agency could establish the exemption after certifying to Congress that each country has an export control system that is “at least comparable” to that of the U.S.

Amy McDonnell, a senior manager working on trade policy with PricewaterhouseCoopers in Australia, called the proposed amendment “big news” but said it’s unclear how “comparable” will be defined. “How comparable is comparable enough for Congress?” she said in a July 4 LinkedIn post. “Will the Australian regime be considered not comparable enough given we don’t have dual and third country national access restrictions from our export control regime in country?”

Dak Hardwick, vice president of international affairs for the Aerospace Industries Association, doesn’t think the "comparable" term will require the Australian and British export control systems “to be ‘exactly’ like the U.S.,” he said on LinkedIn. But he also said the term is unclear. “How that is interpreted, and what ‘standards’ criteria are being used in evaluating the Australia and UK systems is an open question.”

He also called the amendment a “significant and a major step forward,” particularly after senators earlier this year introduced the Torpedo Act (see 2305050063), which could eliminate certain ITAR restrictions on trade between the three countries. “Between the introduction of the TORPEDO Act in the Senate and this proposed amendment in the House,” Hardwick wrote, “there is momentum and a clear impetus to see #AUKUS succeed.”

A Republican-backed proposal could require any entity added by the Commerce Department to the Entity List to also be added to the Treasury Department’s Non-Specially Designated Nationals Chinese Military-Industrial Complex Companies List -- which subjects listed companies to certain investment restrictions -- and vice versa. Another Republican-supported proposal could require the U.S. to add Hikvision, Dahua, Tiandy, BGI and other Chinese tech companies to Treasury’s Specially Designated Nationals List if the U.S. determines they are involved in human rights abuses. Each of those companies is on the Entity List.

Several proposed amendments could introduce new export control requirements, including a Republican-backed measure that would “prohibit” export of software to China “that can be used or repurposed for the development of missiles, hypersonic weapons, rockets, or related technologies.” Other amendments would require U.S. persons “seeking to engage” with a Chinese military university to first receive an export license, block the administration from authorizing new export licenses for “offensive weapons” for Azerbaijan and apply foreign direct product rule restrictions on the reexport or transfer of U.S.-origin technology, software and equipment to Iran.

Lawmakers also proposed amendments to expand or add to existing U.S. sanctions authorities, including one measure that would require the U.S. to sanction any Chinese official involved in the Mexican fentanyl trade and another that could lead to more sanctions on Chinese producers of synthetic opioids and opioid precursors. Treasury earlier this year sanctioned Chinese companies supplying Mexican drug cartels with precursor chemicals for illegal fentanyl production (see 2304140051).

A Democrat-backed amendment would establish the Transparent and Accessible Sanctions Coordinating Office in the State Department, which would be tasked with creating a “publicly available database in a standardized format of individuals and entities subject to United States sanctions,” including export control requirements. The amendment notes that the “increasing volume of data related to United States sanctions will become more crucial in determining its efficacy.”

Another proposal would add the USDA to CFIUS and would require a report to Congress on foreign investments in the U.S. and “their potential to undermine United States agriculture production.” Lawmakers have previously suggested adding USDA as a permanent member of CFIUS, citing concerns that China is looking to buy U.S. farmland, especially near sensitive American military sites (see 2306020027).

The House Rules Committee is expected to consider the NDAA and the amendments later this month.

Other notable proposed amendments would: