US Expands Blacklist to Include Drone Supply Chain, Targeting 16 Chinese Entities

TradingKey - The US Department of Commerce has announced the addition of 16 Chinese companies to its restricted trade list, citing their involvement in aiding the acquisition of components for weaponized drone systems utilized by groups such as Hamas and Houthi rebels.

On Wednesday, the Department revised its Export Administration Regulations (EAR), citing "violations of national security or foreign policy interests" as the rationale for incorporating 26 entities and three addresses into the Entity List. This includes 16 Chinese entities and three locations in Hong Kong. This measure aims to disrupt intermediary networks procuring US-made electronic components for specific organizations and their affiliates.

The Chinese entities newly added to the blacklist encompass a range of sectors, including electronic technology, lifting equipment, and power control, featuring a subsidiary of Arrow, a renowned global distributor of electronic components. The Hong Kong addresses are situated in commercial zones such as Yuen Long and Mong Kok.

Being listed on the Entity List primarily implies that these entities will be subjected to export controls. Generally, exporting products to companies on the list, or to companies registered or operating at the listed addresses, necessitates a license, which is likely to be denied.

In a new regulation issued in late September, the Department of Commerce stated that subsidiaries of entities on the list, where the listed entity holds at least a 50% ownership, will also automatically fall under the list's restrictions.

Furthermore, the Entity List not only restricts direct exports but also limits foreign products manufactured using US technology or equipment, thereby extending the scope of restrictions. This could potentially isolate the listed entities from the US technology supply chain.

Analysts view the expansion of the Entity List by the US Department of Commerce as a continuation of the Biden administration's strategy of deploying export controls to address national security concerns, which will alter the trade dynamics between the world's two largest economies.

Market observers highlight that the expansion of the Entity List will promote the de-risking and regionalization of the technology supply chain. In the short term, supply chain constraints may result in delayed orders and deliveries. In the long term, it may expedite the development of domestic technologies and alternative solutions. It is vital to consider that research and development often require substantial investments, necessitating companies to balance costs and efficiency.