The Bureau of Industry and Security (BIS) is seeking comments on a proposed rule that would prohibit transactions involving Vehicle Connectivity System (VCS)[1] hardware and covered software designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction of China (including Hong Kong) or Russia. Comments will be due by October 24.

Under the proposed rule:

  • U.S. persons importing VCS hardware[2] for further manufacturing, integration, resale, or distribution (known as “VCS hardware importers”) may not knowingly import VCS hardware that is designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of China or Russia.
  • Connected vehicle manufacturers[3] may not knowingly import or sell into the U.S. completed connected vehicles that incorporate covered software[4] designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of China or Russia.
  • Connected vehicle manufacturers who are persons owned by, controlled by, or subject to the jurisdiction or direction of China or Russia may not knowingly sell in the U.S. completed connected vehicles that incorporate VCS hardware or covered software.
  • A Declaration of Conformity must be submitted to BIS before importing the following items:
    • VCS hardware that is not otherwise prohibited under the proposed rule; or
    • Completed connected vehicles containing covered software as part of a transaction that is not otherwise prohibited under the proposed rule.
  • A Declaration is also required to sell completed connected vehicles manufactured or assembled in the U.S. that incorporate covered software as part of a transaction that is not otherwise prohibited under the proposed rule.
  • A Declaration must include a hardware or software bill of materials and evidence of the importer or manufacturer’s due diligence efforts (e.g., independent or hired third-party research) to verify compliance.
  • Specific licenses will be available on a case-by-case basis for otherwise prohibited transactions. License applications will be processed within 90 days of submission.

Persons owned by, controlled by, or subject to the jurisdiction or direction of a specific country means:

  • Any person who acts as an agent, representative, or employee, or any person who acts in any other capacity at the order, request, or under the direction or control, of that country or a person whose activities are directly or indirectly supervised, directed, controlled, financed, or subsidized in whole or in majority part by that country.
  • Any person who is a citizen or resident of that country or a country controlled by that country, and is not a U.S. citizen or permanent U.S. resident.
  • Any corporation, partnership, association, or other organization with a principal place of business in, headquartered in, incorporated in, or otherwise organized under the laws of that country or a country controlled by that country.
  • Any corporation, partnership, association, or other organization, wherever organized or doing business, that is owned or controlled by that country, to include circumstances in which any persons identified in the previous three bullets possess the direct or indirect power, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in any entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting the entity.

Persons would not be considered owned by, controlled by, or subject to the jurisdiction or direction of China or Russia solely based on the country of citizenship of natural persons who are employed, contracted, or otherwise similarly engaged to participate in the design, development, manufacture, or supply of VCS hardware or covered software.

If adopted, the proposed rule would take effect 60 days after publication in the Federal Register.

The proposed rule includes the following exemptions to the license and Declaration requirements:

  • For VCS hardware that is not associated with a vehicle model year, importation will be permitted through December 31, 2028.
  • For VCS hardware associated with a vehicle model year before 2030 or imported as part of a connected vehicle with a model year before 2023, importation will be permitted.
  • For completed connected vehicles, importation or sale will be permitted if the VCS hardware or covered software was manufactured before Model Year 2027.

[1] “Vehicle Connectivity System” means a hardware or software item for a completed connected vehicle that has the function of enabling the transmission, receipt, conversion, or processing of radio frequency communications at a frequency over 450 megahertz.

[2] “VCS hardware” means the following software-enabled or programmable components and subcomponents that support the functions of VCSs or are part of an item that supports the function of VCSs: microcontroller, microcomputers or modules, systems on a chip, networking or telematics units, cellular modem/modules, Wi-Fi microcontrollers or modules, Bluetooth microcontrollers or modules, satellite navigation systems, satellite communication systems, other wireless communication microcontrollers or modules, and external antennas. VCS hardware does not include component parts that do not contribute to the communication function of VCS hardware (e.g., brackets, fasteners, plastics, and passive electronics).

[3] “Connected vehicle manufacturers” means U.S. persons (1) manufacturing or assembling completed connected vehicles in the U.S.; or (2) importing completed connected vehicles for sale in the U.S. A “connected vehicle” is 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. A “completed connected vehicle” is a connected vehicle that requires no further manufacturing operations to perform its intended function.

[4] “Covered software” means software-based components, in which there is a foreign interest,[4] executed by the primary processing unit of the respective systems that are part of an item that supports the function of Vehicle Connectivity Systems or Automated Driving Systems at the vehicle level.  Covered software does not include firmware, which is characterized as software specifically programmed for a hardware device with a primary purpose of controlling, configuring, and communicating with that hardware device. Covered software also does not include open-source software that can be freely used, modified, and distributed by anyone, with both access to the source code and the ability to contribute to the software’s development and improvement unless that open-source software has been modified for proprietary purposes and not redistributed or shared.