On August 27, 2020, the US Commerce Department’s Bureau of Industry and Security (BIS) issued a final rule (“Final Rule”) adding 24 Chinese state-owned entities to the Entity List (the “SCS Designees”), including several subsidiaries of China Communications Construction Company (CCCC), due to their ties to land reclamation efforts involving artificial islands in the South China Sea. In a press statement released with the designations, the Commerce Department cited the role played by the SCS Designees in building and militarizing artificial islands in parts of the South China Sea that are subject to conflicting maritime claims. The Final Rule also included 36 additional Entity List designations for reasons unrelated to the South China Sea. In conjunction with this action, the US State Department announced that it is imposing visa restrictions on individuals “responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of disputed outposts in the South China Sea, or the PRC’s use of coercion against Southeast Asian claimants to inhibit their access to offshore resources,” as well as their immediate family members.

Final Rule Restrictions

As a result of the Entity List designations, no supplier – US or non-US, wherever located – may export, reexport, or transfer (in country) any commodity, software, or technology (“items”) subject to the Export Administration Regulations (EAR) to the SCS Designees or where an SCS Designee is a purchaser, intermediate consignee, ultimate consignee or end-user, unless authorized by a BIS license. BIS will review license applications related to the SCS Designees with a presumption of denial. In addition, no EAR license exceptions may be used for exports/reexports/transfers of items subject to the EAR to the SCS Designees or where an SCS Designee is a purchaser, intermediate consignee, ultimate consignee or end-user.

Basis for the South China Sea Designations

The addition of the SCS Designees to the Entity List marks the first time that the Entity List has been used to target Chinese companies involved in land reclamation and construction activities in disputed territory in the South China Sea. In a briefing with State and Commerce Department officials on the designations, a senior State Department official highlighted the recently updated US policy regarding China’s maritime claims in the South China Sea (the “July 2020 Policy”). The July 2020 Policy aligned US policy with a 2016 arbitral award by the Permanent Court of Arbitration in the Hague that found certain of China’s land reclamation activities to be in areas that are part of the Philippines’ exclusive economic zone and continental shelf. 

Potential Connections to the “One Belt One Road” Initiative

The addition of the SCS Designees to the Entity List appears to be partially motivated by concerns about the role played by Chinese state-owned enterprises engaging in projects as part of China’s “One Belt One Road” initiative. In the State Department briefing, the senior official acknowledged the prominent role of many of the SCS Designees in this initiative and emphasized that the “use of state-owned enterprises for the bullying and coercion of others” is associated with “One Belt One Road” projects outside the context of the South China Sea. As such, the senior official’s comments suggest that the Trump Administration may continue to scrutinize Chinese state-owned entities’ involvement in “One Belt One Road” projects and that such entities may be targeted by future Entity List designations.