Proposed Rule to Prohibit Vehicle Connectivity Systems from China and Russia

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Sep. 23, 2024
By: Marvin E. McPherson

BIS issued a notice of proposed rulemaking (NPRM) related to Vehicle Connectivity System (VCS) hardware and covered software designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the People’s Republic of China (PRC), or the Russian Federation.

The rule stems from E.O. 13873 where the President delegated to the Secretary of Commerce the charge “to deal with any unusual and extraordinary” foreign threat to the United States’ national security, foreign policy, or economy.

The rule prohibits importers from:

1. Certain hardware for VCS;

2. Completed connected vehicles incorporating certain software that supports the function of VCS or ADS;

3. Selling within the United States completed connected vehicles that incorporate covered software; and

Specially, importers and manufacturers are prohibited from importing or selling products that are designed, developed, manufactured, or supplied by any “person owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary.” The Bureau of Industry and Security (BIS) defines such a person as:

(a) Any individual, wherever located, acting as an agent, representative, employee, or in any other capacity at the order, request, or under the direction or control of a foreign adversary, or a person whose activities are directly or indirectly supervised, directed, controlled, financed, or subsidized, in whole or in part, by a foreign adversary.

(b) Any individual, wherever located, who is a citizen or resident of a foreign adversary or a country controlled by a foreign adversary and who is not a U.S. citizen or permanent resident.

(c) Any corporation, partnership, association, or organization that has its principal place of business, headquarters, incorporation, or organization under the laws of a foreign adversary or a country controlled by a foreign adversary.

(d) Any corporation, partnership, association, or organization, wherever organized or operating, that is owned or controlled by a foreign adversary. This includes situations where persons described in paragraphs (a) through (c) have the power, whether exercised or not, through ownership of a majority or significant minority of voting interests, board representation, proxy voting, special shares, contractual arrangements, or other formal or informal means, to determine, direct, or influence important matters of the entity.

This NPRM also updates the definition of connected vehicles as, “[a] vehicle driven or drawn by mechanical power and manufactured primarily for use on public streets, roads, and highways, that integrates onboard networked hardware with automotive software systems to communicate via dedicated short-range communication, cellular telecommunications connectivity, satellite communication, or other wireless spectrum connectivity with any other network or device. Vehicles operated only on a rail line are not included in this definition.”

VCS hardware importers and manufacturers would be required to comply with several compliance and reporting obligations including:

(1) submitting Declarations of Conformity to the Bureau of Industry and Security (BIS) to confirm that VCS hardware importers and connected vehicle manufacturers are not involved in prohibited transactions related to VCS hardware or covered software;

(2) seeking advisory opinions from BIS to determine whether a potential transaction may be prohibited;

(3) receiving general authorizations that allow VCS hardware importers and connected vehicle manufacturers to engage in certain otherwise prohibited transactions without prior notification to BIS;

(4) obtaining specific authorizations, upon application and BIS approval, to engage in prohibited transactions where undue or unacceptable risks have been mitigated; and

(5) Comply with changes in status of future VCS technologies.

There are certain exceptions for current model vehicles and ongoing support for those models. These exceptions allow connected vehicle manufacturers to engage in otherwise prohibited transactions involving covered software and exempt them from some requirements, as long as the connected vehicle imported or sold within the United States is of a model year prior to 2027. This specifically includes VCS hardware that is not associated with a specific vehicle model year and is imported before January 1, 2029, and VCS hardware that is linked to a vehicle model year before 2030 or is integrated into a connected vehicle, completed or incomplete, with a model year prior to 2030.

Additionally, connected vehicle manufacturers that are owned by, controlled by, or under the jurisdiction of the People's Republic of China (PRC) or Russia would be allowed to sell completed connected vehicles with a model year before 2027 that include VCS hardware or covered software, despite the restrictions that apply to later model years.

BIS is soliciting comments on this proposed rule, which builds on the advance notice of proposed rulemaking (ANPRM) issued by BIS on March 1, 2024. If you have any questions regarding NPRM or covered software or hardware, please contact any attorney at Barnes Richardson and Colburn.