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On September 23, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) released a <a href="https://public-inspection.federalregister.gov/2024-21903.pdf">notice of proposed rulemaking</a> (NPRM) related to the import and sale of connected vehicles. The NPRM proposes to prohibit the import or sale of connected vehicles that are manufactured by entities owned by, controlled by, or subject to the jurisdiction or direction of the People’s Republic of China (PRC) or Russia. The NPRM also proposed to prohibit the sale or import of connected vehicles that contain “vehicle connectivity systems” or certain related software that are designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the PRC or Russia.

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BIS’s notice follows an <a href="https://www.federalregister.gov/documents/2024/03/01/2024-04382/securing-the-information-and-communications-technology-and-services-supply-chain-connected-vehicles">advanced notice of proposed rulemaking</a> published by the BIS on March 1, 2024. The BIS is seeking comments on the new NPRM from interested parties within 30 days from the date of publication of the NPRM in the Federal Register. The NPRM is scheduled to be published on September 26, 2024, and the comments will thus be due on October 28, 2024.

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In a <a href="https://www.bis.gov/press-release/commerce-announces-proposed-rule-secure-connected-vehicle-supply-chains-foreign">press release</a>, BIS reiterated its finding that certain technologies originating from the PRC or Russia present an undue risk to U.S. critical infrastructure and those who use connected vehicles. “Cars today have cameras, microphones, GPS tracking, and other technologies connected to the internet. It doesn’t take much imagination to understand how a foreign adversary with access to this information could pose a serious risk to both our national security and the privacy of U.S. citizens. To address these national security concerns, the Commerce Department is taking targeted, proactive steps to keep PRC and Russian-manufactured technologies off American roads,” said U.S. Secretary of Commerce Gina Raimondo.

VCS Hardware and Software and ADS Software: BIS’s proposed rule would prohibit the importation and sale of certain “vehicle connectivity systems” (VCS) hardware (as a component or installed in completed vehicle), as well as completed connected vehicles that incorporate “covered software”—i.e., software-based components that support the function of the VCS or automated driving systems (ADS) at the vehicle level—to the extent such hardware or software components were designed, developed, manufactured, or supplied by persons owned by controlled by, or subject to the jurisdiction or direction of the PRC or Russia.

PRC or Russian Connected Vehicles: The proposed rule would also prohibit manufacturers of complete connected vehicles owned by, controlled by, or subject to the jurisdiction or direction of the PRC or Russia from selling their connected vehicles that incorporate VCS hardware or covered software systems in the United States.

BIS proposes to implement: (1) prohibitions against the importation or sale of complete connected vehicles equipped with covered software starting with Model Year 2027; (2) prohibitions against the sale of complete connected vehicles equipped with covered software or VSC hardware by OEMs with sufficient nexus to the PRC or Russia starting with Model Year 2027; and (3) prohibitions against the VSC hardware importers starting with Model Year 2030, or January 1, 2029.

The agency proposes to use the following key terms:

To facilitate compliance with the rule, BIS proposes to require a declaration of conformity from each VCS hardware importer and connected vehicle manufacturer attesting that they have not knowingly engaged in a prohibited transaction both annually and any time there is a material change that makes a prior declaration inaccurate. The declarations of conformity would also require the submitter to provide a hardware of software bill of materials, as appropriate, and a description of the due diligence efforts taken to ensure that the vehicle or the hardware, as appropriate, does not contain VCS hardware or covered software designed, developed, manufactured, or supplied by a person with sufficient nexus to the PRC or Russia. Any person who engages in a prohibited transaction and submits a false or fraudulent declaration of conformity to BIS may be subject to civil and criminal penalties. According to the proposed rule, VCS hardware importers and connected vehicle manufacturers can request an advisory opinion from the BIS to determine whether a prospective transaction is prohibited by the rule.

The proposed rule also contains various general authorizations allowing eligible companies to engage in otherwise prohibited transactions. The general authorizations are limited to: (a) connected vehicle manufacturers or VCS hardware importers that produce less than 1,000 units in a model year; (b) complete connected vehicles equipped with covered software or VCS hardware that would be used less than 30 calendar days in any calendar year; (c) complete connected vehicles equipped with covered software or VCS hardware that would be used solely for the purpose of display, testing, or research, and will not be used on public roadways; or (d) completed connected vehicles equipped with covered software or the VCS hardware imported solely for purposes of repair, alteration, or competition off public roads and will be reexported within one year from the time of import.

The proposed rule would allow companies to request specific authorizations for engaging in otherwise prohibited transactions. A specific authorization would be granted only if BIS determines that the otherwise prohibited transaction does not present an undue or unacceptable risk to U.S. national security. As a condition of approval, however, BIS may impose certain requirements and mitigation measures upon the VCS hardware importers and connected vehicle manufacturers seeking to proceed with the proposed transactions.

Interested parties can comment on all aspects of the proposed rule. However, BIS is specifically seeking feedback on certain key areas. These include the scope of the proposed prohibitions and whether additional items, such as hardware or software components of Advanced Driver-Assistance System (ADAS) and hardware components of ADS, should also be restricted (ADS software is already restricted in the NPRM).

If adopted, the proposed rule will likely have a significant impact on automotive supply chains. The broad prohibitions, as noted by BIS, will apply to nearly all new vehicles sold in the United States, with very few exceptions. OEMs owned or controlled by Chinese persons or entities, or OEMs or Tier 1 suppliers relying on Chinese hardware or software for their vehicle connectivity systems or automated driving systems, will likely need to reconfigure their supply chains. The proposed rule may also lead to divergence between models for the US market and other global markets.

<a>This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.</a>

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https://admin.thompsonhine.com/wp-content/uploads/2024/09/U.S.-Commerce-Department-Proposes-Ban-on-Connected-Vehicles-Using-Chinese-or-Russian-Harware-and-Sofware.pdf

U.S. Department of Commerce Proposes Ban on Connected Vehicles Using Chinese or Russian Hardware and Software

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