Almost half of the respondents in Team Sweden’s* Business Climate Survey for China 2021 were affected by changing international trade policies and sanctions. The tensions between the United States and China have undoubtedly been felt over the past couple of years, culminating in a trade conflict involving tariffs, technology restrictions and sanctions imposed by both sides.
Tariffs have received most of the attention in the media, but potentially the largest impact on Swedish companies could come from the US Entity List which effectively prohibits the export or re-export of US goods to selected Chinese entities. While only 16 per cent of companies in Team Sweden’s Business Climate Survey explicitly confirm that they are affected by these types of controls, the consequences in such cases can be particularly severe.
Share of Swedish companies impacted by the US Entity List
Source: Team Sweden Business Climate Survey in China 2021, (N=95)*
As of June 1st 2021, the US authorities have blacklisted 410 Chinese entities, of which several are customers of Swedish companies today. Even if products are made outside of the US, Swedish companies are not in the clear and a potential breach of the new policies would involve substantial fines and potentially jail sentences for involved individuals.
That is why building an understanding of these policies and how they affect business operations is so vital. Besides the compliance aspect, the risk of sudden supply cuts of critical components from the US makes Swedish companies trading with customers on the Entity List vulnerable.“If a violation of the Export Administration Regulations has occurred, all parties involved would be investigated to determine their role in the violation.”
Restrictions are continuously changing
The US Commerce Department Bureau of Industry and Security (BIS) has continuously implemented stricter restrictions on the exports of US goods to blacklisted Chinese companies, especially targeting the Chinese technology giant Huawei. These regulations mean that any transaction of items subject to the Export Administration Regulations (EAR) to a company on the Entity List could be a violation.
Furthermore, the EAR also covers certain items produced using US technologies as well as US-controlled materials, no matter where they are produced. The regulations have been updated more frequently since 2018, effectively restricting Huawei and associated entities from accessing certain key parts and components such as semiconductors.
As a result, Swedish companies operating in global supply chains need to carefully evaluate the risks of their involvement in ordering, buying, or using any goods subject to the EAR and directly or indirectly transferring these to a company on the Entity List.
Planning for an uncertain future
Acquiring industry and product specific knowledge about the regulations and related responsibilities is essential for compliance with the US Entity List. Given that the Entity List and restrictions are continuously updated, companies need to monitor the changes and interpret how these might affect their supply chains and business operations globally.
Scenario-based planning is an effective tool in this context. The potential impact of changes in the existing regulations should be assessed where, for example, the cost of changing suppliers should be weighed against the cost of losing market share in any given segment.
Seven key questions you need to answer:
- Are any of your Chinese customers listed on the US Entity List?
- What type of business activities are covered by the US Entity List?
- Where do the materials used in your product come from?
- Does the EAR apply in your specific case?
- Is any specially-controlled US technology used in the production?
- What supply alternatives exist?
- Is the customer value still justifying the increased cost to serve?
Do you need assistance? We can help you identify your risk exposure from the US Entity List and avoid the pitfalls. Contact us for an in-depth analysis.
Per Portén, Market Manager Shanghai,
Tel: +86 2162189955, firstname.lastname@example.org
Robin Agné, Project Manager Shanghai,
Tel: +8613816448969, Robin.Agne@business-sweden.se
*Embassy of Sweden in Beijing, Consulate General of Sweden in Shanghai, Swedish Chamber of Commerce in China, and Business Sweden
*Note: The survey was conducted among member companies of the Swedish Chamber of Commerce in China during two weeks of April 2021.