New Executive Orders Target Chinese Apps 

New Executive Orders Target Chinese Apps 

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On August 6, 2020, President Trump issued two nearly parallel executive orders (EOs) targeting the enormously popular apps TikTok and WeChat: Executive Order on Addressing the Threat Posed by TikTok (TikTok EO), and Executive Order on Addressing the Threat Posed by WeChat (WeChat EO). These EOs arrive in the wake of the review by the Committee on Foreign Investment in the United States of a past acquisition by TikTok’s parent, ByteDance Ltd., as well as President Trump’s repeated threats against TikTok as Microsoft considers acquiring the company.1  Importantly, the EOs do not have immediate effect; rather, 45 days from the date the EOs were issued (on September 20, 2020), the Commerce Secretary is authorized to identify transactions that will be subject to prohibitions.

But the extraordinary breadth and ambiguity of the EOs have left US companies and many others looking to the Trump Administration for additional clarity on how the EOs will be implemented, with much of the focus on whether the WeChat EO sweeps in transactions with WeChat’s parent, Tencent Holdings, and the types of transactions that will be subject to the prohibitions. Despite some uncertainty over how exactly the Commerce Secretary will implement these EOs, we can now highlight certain key aspects.

TikTok, owned by ByteDance Ltd. (ByteDance), is a video-sharing mobile application that, according to the TikTok EO, has been downloaded over 175 million times in the United States and over one billion times globally. WeChat, owned by Tencent Holdings Ltd. (Tencent), is a messaging, social media and electronic payment application that the WeChat EO states has over one billion users in the United States and worldwide.

In the preambles to the EOs, the President asserts that these apps present national security and foreign policy threats to the United States because they automatically capture—and may allow the Chinese government to access—vast swaths of personal and proprietary information of Americans and Chinese dissidents visiting the United States (the latter only in the case of WeChat). He also cites the perceived role that these applications play in the Chinese government’s censorship of content it deems undesirable and in Chinese disinformation campaigns. Although the EOs do not require that the Commerce Secretary only prohibit transactions that contribute to these risks, we would expect such transactions to be the focus of any new prohibitions issued on or after September 20, 2020.

Both EOs derive authority from the International Emergency Economic Powers Act (IEEPA)2 and expand on the national emergency declared in EO 13873 of May 15, 2019, Securing the Information and Communications Technology and Services Supply Chain, which creates a framework for regulating the acquisition, importation, transfer, installation, dealing in or use of any information and communications technology or service by any person, or with respect to any property, subject to the jurisdiction of the United States, where the transaction involves a “foreign adversary.” That executive order directed the Commerce Secretary to ban such transactions that pose an “undue” or “unacceptable” risk to the national security of the United States. In November 2019, the Commerce Department issued a proposed rule to implement EO 13873.

The TikTok and WeChat EOs have several noteworthy features.

First, the EOs delegate the authority to identify prohibited “transactions” not to the Secretaries of the Treasury or State, who typically administer IEEPA-based financial and commercial sanctions against designated targets, but instead to the Commerce Secretary, who typically administers US export controls. In this way, the EOs extend the EO 13873 delegation of authority to an agency that does not currently maintain a regulatory framework to administer this kind of sanctions regime.

How the Commerce Department will execute this newfound authority is unclear. One possibility is that the Commerce Department’s Bureau of Industry and Security, which administers the Export Administration Regulations (EAR), could use the EAR as the regulatory framework within which to administer these EOs. One relatively straightforward regulatory action that the Commerce Department could take would be to use its Entity List to limit exports of certain items “subject to the EAR” (US-origin goods, software and technology, and some foreign-produced items containing or derived from US technology) to ByteDance, Tencent and/or an enumerated list of their subsidiaries. This is the approach that the Commerce Department has taken with respect to Huawei Technologies Co. Ltd. (Huawei). But the US policy interests at issue with respect to Huawei—which has been accused of diverting US-origin technology to Iran, among other activities involving US-origin technology that are inconsistent with US national security and foreign policy objectives—were better advanced by the use of the EAR than would be the case here. Indeed, the EAR may be an awkward fit in this case given that it is limited to regulating items “subject to the EAR,” which generally does not include US users’ dealings with Chinese mobile apps nor the transfer of US user data to China.

Second, these EOs do not appear to contemplate sanctions applicable to all dealings with designated individuals or entities but, rather, they contemplate sanctions applicable to specific transactions. In this way they may function similarly to so-called sectoral sanctions against Russia, where the Treasury Department’s Office of Foreign Assets Control issued four specific directives specifying the types of transactions that would be subject to US sanctions prohibitions. The Commerce Department here could issue similar directives or other measures specifying the particular types of transactions that are prohibited.

Because the EOs are not a model of clarity, it is difficult to predict what transactions could become subject to future prohibitions. The TikTok EO appears to authorize the Commerce Department to impose prohibitions on any transaction subject to US jurisdiction (i.e., where a US person and/or US property are involved in the transaction) with ByteDance. In contrast, the WeChat EO appears to authorize the Commerce Department to impose prohibitions on any transaction subject to US jurisdiction with Tencent “that is related to WeChat,” though the EO is not sufficiently clear to rule out the possibility that it could be used to otherwise target transactions with Tencent.

The authorization to prohibit transactions involving property subject to US jurisdiction creates the possibility that the Commerce Department could be quite expansive, e.g., by prohibiting transactions by non-US companies that involve US-based services (see third point, below). The Commerce Department may decide to tailor the prohibitions narrowly or issue carveouts, safe havens or general licenses, e.g., for companies to wind down relevant operations, though the EOs themselves do not require it to do so. Indeed, the WeChat EO (but, for reasons that are not apparent, not the TikTok EO), contains a provision that is standard in IEEPA-based executive orders that permits action to be taken to prohibit transactions with “no prior notice.”

Some limitation on the scope of prohibited transactions may be required, however, with respect to transactions involving “information or informational materials.” Because the President relied on the authority granted to him under IEEPA to issue the EOs, any restrictions impacting the free exchange of international communications through the apps could contravene the so-called Berman Amendment to IEEPA, which carves out from IEEPA’s broad grant of powers to the President the authority to restrict, “directly or indirectly,” the import or export, “whether commercial or otherwise, regardless of format or medium of transmission,” of “information or informational materials.”3  The Commerce Department may face legal challenges if it seeks to restrict the use of these apps for communicative purposes.

Third, the Commerce Secretary may impose the contemplated prohibitions on any transaction “by any person, or with respect to any property, subject to the jurisdiction of the United States.”4  Based on this plain language, the Commerce Secretary could prohibit transactions by foreign subsidiaries of US companies and other non-US firms where such transactions involve US-based computing, banking or other services—though the preambles to the EOs suggest that such transactions may not be the focus of implementation. In contrast, the EOs’ prohibitions against sanctions evasion extend only to transactions by “a United States person or within the United States,” which excludes activities of non-US firms outside the United States.

These EOs authorize the Commerce Secretary to prohibit a broad range of commercial relationships and thus have the potential to be highly disruptive. Many stakeholders will likely engage with the Trump Administration prior to September 20 to seek clarity on the Commerce Department’s implementation of the EOs, or to influence the Commerce Department’s approach. Regardless of whether the scope and application of the EOs is clarified, there remains the prospect of Chinese retaliatory action. Already, China’s Foreign Ministry spokesman, Wang Wenbin, reacted to the EOs by stating, “The US is using national security as an excuse and using state power to oppress non-American businesses. That’s just a hegemonic practice.” A stronger response by China may be forthcoming.

WilmerHale continues to monitor these developments closely and stands ready to assist clients in assessing the potential impact of the EOs and ways to mitigate negative consequences for their operations.