On January 5, 2021, President Trump issued an Executive Order Addressing the Threat Posed By Applications and Other Software Developed or Controlled By Chinese Companies ("E.O."), which is intended to prevent Chinese entities from capturing personal information from U.S. persons through various mobile and desktop applications. Effective February 19, 2021, the E.O., among other things, prohibits any transactions subject to U.S. jurisdiction with persons and their subsidiaries identified by the secretary of commerce under the E.O. that develop or control Chinese connected software applications, including Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office.
The government will continue to evaluate Chinse connected software applications and take further action if an application poses "an unacceptable risk to the national security, foreign policy, or economy of the United States." Thus, the list of affected software apps may expand.
On or by February 19, 2021 (within 45 days of the E.O.), the secretary, in consultation with the U.S. attorney general and director of national intelligence, is also instructed to provide a report with recommendations to prevent the sale or transfer of U.S. user data to, or access of such data by, foreign adversaries, including through the establishment of regulations and policies to identify, control, and license the export of such data.
Additionally, and "not earlier than" February 19, 2021, the secretary of commerce is ordered to identify other transactions and persons that develop or control the Chinese connected software applications that are to be prohibited under this E.O. Despite the E.O.'s "not earlier" language, the current U.S. secretary of commerce, Wilbur Ross, has stated that he plans to take action prior to President Trump leaving office.
The stated bases of the prohibition include previous data breaches by Chinese hackers and the stated concerns that data collection practices by various Chinese software and application developers "threaten[ ] to provide the Government of the People's Republic of China (PRC) and the Chinese Communist Party (CCP) with access to Americans' personal and proprietary information—which would permit China to track the locations of Federal employees and contractors, and build dossiers of personal information." The E.O. asserts that "[t]he continuing activity of the PRC and the CCP to steal or otherwise obtain United States persons' data makes clear that there is an intent to use bulk data collection to advance China's economic and national security agenda."
The E.O. echoes the executive orders issued in August 2020 that targeted WeChat, owned by Chinese developer TenCent Holdings, amongst others. These prior bans on transactions with Chinese-based app developers have not been implemented, having been stalled or halted by several legal challenges.
Two factors make the ultimate impact of this E.O. uncertain. First, like the orders targeting WeChat, this E.O. will likely face legal challenges that may slow or stall its implementation. In addition, the E.O.'s ultimate implementation also depends upon the whether the incoming Biden administration agrees with the rationale and strategy behind this Trump administration E.O. While we do not anticipate a fundamental shift in the Biden administration's view of China with respect to national security issues, the Biden administration has signaled that its strategy for confronting China on these issues may differ. In any event, it is yet another signal that U.S. agencies are increasingly focused on national security risks that originate in China's mobile app ecosystem.
We continue to monitor developments on this issue. If you have questions regarding how this recent action or related actions may impact your business, please contact our International Trade Group.