On December 23, 2024, President Biden signed The National Defense Authorization Act (NDAA) for Fiscal Year 2025 (P.L. 118-159) into law. The legislation authorizes $895.2 billion in funding for Department of Defense (DoD) and Department of Energy (DOE) national security programs. Beyond authorizing spending and setting other priorities, NDAA introduces a range of provisions – some effective immediately and others requiring implementing regulations – that impact procurement practices for government contractors and have broad implications on national security. Below are the provisions most significant to companies across various industries – including defense, technology, life sciences, and commercial items – engaging in U.S. government contracting.

Federal acquisition policy and administration-related changes

Acquisition provisions

Sections 804, 805, and 861 establish new acquisition authorities for expedited contracting and streamline the acquisition of innovative technologies.

Section 804 codifies – at 10 U.S.C. section 3602 – a new Middle Tier of Acquisition authority for rapid prototyping and rapid fielding. This authority will allow DoD to conduct expedited acquisitions within the rapid prototyping pathways if the operational capability is fielded within five years and meets other requirements under section 804.

Section 805 enhances DoD’s existing software acquisition pathway by authorizing use of the pathway for the procurement of commercial or non-developmental hardware in which software acquired via the pathway is embedded.

Section 861 directs DoD to create a pilot program aimed at expediting the acquisition of innovative technologies through competitive, merit-based solicitations, with preferences for small businesses and nontraditional contractors.

Bid protest provisions

Under Section 885, the U.S. Government Accountability Office (GAO) and DoD must develop a proposal to change several existing practices and submit their recommendations by June 1, 2025. Combined with another attempt by Congress to make protestors pay for unsuccessful bid protests, the most important protest-related change is an increase to the threshold for GAO protests of task orders under DoD indefinite delivery, indefinite quantity (IDIQ) contracts from $25 million to $35 million, effectively limiting the number of DoD task orders eligible for protest. Section 885 also requests a process for enhanced pleading standards for GAO protests prior to production of the agency report.

Additionally, Section 885 requires a proposal for recouping certain protest costs, which is to include the average costs of protests to DoD and GAO based on the value of the contract being protested and lost profits for the awarded contractor while contract performance is stayed, as well as a process for unsuccessful protesters to pay the government and the awarded contractor.

Nontraditional defense contractor provisions

Section 815 amends 10 U.S.C. section 3702(a)(3) to allow nontraditional defense contractors to submit recent price history instead of cost or pricing data for subcontracts under $5 million.

Section 863 extends the pilot program for streamlining awards for innovative technology projects to small businesses and nontraditional defense contractors from October 1, 2025, as set in the FY 2022 NDAA, until October 1, 2029.

Section 864 requires DoD to establish a pilot program that allows contracting officers to use an alternative, capability-based analysis to determine the reasonableness of proposed prices or fees of commercial products or services offered by nontraditional defense contractors.

Section 888 requires DoD to establish a process to track other transaction awards to small businesses and nontraditional defense contractors.

Small business provisions

Sections 871, 874, and 876 require DoD to establish pilot programs and initiatives geared toward small businesses.

Section 871, which amends section 9 of the Small Business Act, 15 U.S.C. section 638, requires DoD to establish a pilot program allowing military research and educational institutions to participate in the Small Business Technology Transfer program.

In accordance with section 874, DoD must establish a pilot program that streamlines access for small businesses and higher learning institutions to shared classified commercial infrastructure. This aims to increase small business participation in classified contracts by increasing access to shared classified commercial infrastructure and to simplify the process for small businesses and higher education institutions to apply for and maintain facility clearances.

Under the pilot program, DoD must update or establish policies and regulations governing commercial classified infrastructure and determine how small business contractors may obtain necessary facility sponsorship, authorization, and accreditations. The pilot program will expire on September 20, 2030.

In addition to pilot programs, section 876 directs DoD’s Small Business Integration Group to develop a Small Business Bill of Rights for DoD and its components.

Contract administration provisions                                                                                

Section 803 amends 10 U.S.C. section 3372(b) to clarify that a DoD contracting officer’s unilateral definitization of an undefinitized contract action is a final decision that may be directly appealed to the Armed Services Board of Contract Appeals (ASBCA) or the United States Court of Federal Claims. Congress’s change is contrary to recent decisions of the ASBCA and United States Court of Appeals for the Federal Circuit that required a contractor seeking to challenge a unilateral definitization to first submit a separate claim to the contracting officer. The provision will increase efficiency in claims resolution as it enables contractors to directly challenge the contracting officer’s decision without additional procedural hurdles.

Section 824 amends section 822 of the FY 2023 NDAA, which permitted contractors and subcontractors impacted by inflation to file claims for relief. This same amendment also clarifies that DoD may use appropriated funds to pay contractors’ and subcontractors’ claims for relief and extends the authority to provide relief to December 31, 2024.

Other key acquisition provisions

Turning to commerciality determinations, section 814 requires that a product or service previously acquired using Federal Acquisition Regulation (FAR) part 12 procedures qualifies as having a prior commerciality determination, even if minor modifications are made after the initial determination. To disregard this determination, the contracting officer must submit a writtendetermination explaining why the product or service is not commercial, which, in turn, puts the decision in the hands of the senior procurement executive of the military department concerned.

Under section 881, which amends FAR subpart 9.503 (Waiver), requests for organizational conflict-of-interest waivers must include a written justification, and this provision also prohibits delegation of the waiver authority below the deputy head of an agency.

National security-related changes

China-related provisions

Section 839 expands upon the reporting requirements of section 855 of the NDAA FY 2022 for contractors to disclose employees, including affiliates, who perform work “for, or are subject to the laws or control of the People’s Republic of China on covered contracts.” “Covered contracts” are now any “contract or subcontract for, or including, any information and communications technology,” including contracts for commercial products or services. Certain contractors must also make disclosures regarding any required vulnerability disclosures to a Chinese government entity.

Section 851 prohibits DoD from contracting with an entity or its parent or subsidiary companies if that entity is party to a contract with a “covered lobbyist,”[1] effective June 30, 2026. “Covered lobbyist” is defined as any entity that engages in lobbying activities – as described in the Lobbying Disclosure Act – for any entity on the Chinese Military Companies List (CMC List). But there is an exception for contractors that conduct “reasonable” due diligence into their lobbyists’ activities.

Section 853 prohibits DoD from entering into or renewing a contract for “covered semiconductor products and services” with any entity that “knowingly provides covered semiconductor products or services: to Huawei” and its affiliates or subsidiaries. This section further directs DoD to create a process for a “covered semiconductor products and services” provider to certify that it is not providing such services to Huawei and, therefore, is not subject to the prohibition. Additionally, the Secretary of Defense (SecDef) can waive the ban in certain instances where the provider is the only entity that can provide the services and it is necessary for DoD’s “national security systems or priority missions.”

Section 1346 outlines modifications of public reporting of Chinese military companies operating in the United States, and now requires SecDef to include the justification for each entity’s inclusion on the unclassified version of the CMC List. Section 1346(4) requires that before December 31, 2026, SecDef is also required to submit a report to the House and Senate Armed Services Committees “on the status of DoD procurement restrictions on entities included” on the CMC List.” Additionally, under the revised definition of “Chinese military company,” all subsidiaries who are held, 50% or more, by a CMC List entity will be considered a Chinese military company, and, as such, DoD procurement-related restrictions would apply to those subsidiaries.

Cybersecurity provisions

Section 1502 restructures command of DoD’s Information Network to improve cybersecurity and designates the Joint Force Headquarters-Department of Defense Information Network as a subordinate unified command under the United States Cyber Command.

Section 1504 mandates that, within the next year, the Assistant Secretary of Defense for Cyber Policy must establish and conduct a “Cyber Threat Tabletop Exercise Program” to prepare DoD and the defense industrial base for cyberattacks preceding or during times of conflict or wars.

Section 1514 establishes that, by no later than June 21, 2025, SecDef, through the DoD Chief Information Officer, must develop a strategy for the management and cybersecurity of the multi-cloud environments of the Department.

Section 1515 requires SecDef to carry out a detailed evaluation of the cybersecurity products and services for mobile devices to identify products and services that may improve the cybersecurity of mobile devices used by DoD, including mitigating the risk to DoD from cyberattacks.

Supply chain provisions

Section 162 requires DoD to identify risks and increase the resiliency of the supply chain for small unmanned aerial systems through the disassembly and analysis of commercially available foreign drone aircraft.

Section 848 establishes that, on an annual basis, the Under Secretary of Defense for Acquisition and Sustainment shall develop and maintain a list of all domestic nonavailability determinations, submit the list to Congress, and develop a plan for sharing such list with industry partners.

Reed Smith’s Government Contracts and National Security practices will closely monitor the implementation of the NDAA and are prepared to help your company navigate the direct and indirect implications of this law.

[1] This provision appears to be missing critical language. While we have outlined the presumptive intent of section 851, titled “Prohibition on Contracting with Covered Entities that Contract with Lobbyists for Chinese Military Companies,” Congress and DoD should address any ambiguity before it takes effect on June 30, 2026.

Effective January 15, the Department of Homeland Security (DHS) added 37 China-based companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List, marking the single largest expansion of the UFLPA Entity List since its creation in 2022. Included in the additions is a large supplier of critical minerals, as well as one of the world’s largest textile manufacturers, Huafu Fashion Co., Ltd., and 25 of its subsidiaries.

These companies will now be subject to the UFLPA’s rebuttable presumption that the raw materials or goods they mine, produce, or manufacture, wholly or in part, are prohibited from entering the United States. In total, 144 entities are now on the UFLPA Entity List.

DHS’s action follows the U.S. Trade Representative’s release of the first-ever Trade Strategy to Combat Forced Labor earlier this week.

On January 13, the Bureau of Industry and Security (BIS) released an interim final rule to revise U.S. export controls on advanced computing integrated circuits (ICs) and add a new control on artificial intelligence (AI) model weights for certain advanced, closed-weight, dual-use AI models. According to news reports, Biden administration officials have indicated that they consulted with President-elect Trump’s team on the interim final rule. The rule’s key changes are outlined below.

New worldwide license requirements:

  • Items controlled under Export Control Classification Numbers (ECCNs) ECCNs 3A090.a, 4A090.a, and corresponding .z items, including those subject to the Export Administration Regulations (EAR) through the advanced computing foreign direct product (FDP) rule, will require a license to export, reexport, or transfer (in-country) to or within destinations worldwide.
  • Items controlled under ECCNs 3A090.b, 4A090.b, and corresponding .z items will require a license to export, reexport, or transfer (in-country) to or within Country Groups D:1, D:4, and D:5, except those destinations that are also in Country Groups A:5 and A:6.[1]
  • Additionally, BIS is expanding the destination scope of the advanced computing FDP rule. Consequently, a foreign-produced item will meet the destination scope if there is knowledge that the item is destined worldwide or will be incorporated into any part, component, computer, or equipment not designated EAR99 to any destination worldwide.

New controls on AI model weights: The rule imposes a global licensing requirement on the model weights of the most advanced AI models. Model weights are central to how AI models learn and make decisions. A worldwide license will be required to export, reexport, or transfer (in-country) model weights trained on more than 1026 computational operations (specified in the newly created ECCN 4E091). BIS will apply a presumption of denial to every license application for these model weights.

New AI model weights FDP rule: Because many foreign entities are training advanced AI models using advanced computing ICs and related items produced with U.S. technology, BIS is adding a new AI model weights FDP rule to controlled certain closed-weight models produced in foreign destinations.

New license exceptions: Because of the worldwide license requirements, BIS is adding three new license exceptions applicable to advanced computing ICs:

  • License Exception Artificial Intelligence Authorization (AIA): This license exception authorizes the export, reexport, or transfer (in-country) of eligible advanced computing ICs and associated software and technology to and within the United State and 18 allied countries: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. License Exception AIA also applies to the export and reexport of model weights to end users in these destinations.
  • License Exception Advanced Compute Manufacturing (ACM): This license exception authorizes the export, reexport, or transfer (in-country) of eligible items to “private sector end users”[2] in a destination other than those included in Country Group D:5[3] or Macau if (1) the private sector end user is not headquartered in Macau or a destination included in Country Group D:5; (2) the private sector end user does not have an ultimate parent company headquartered in Macau or a destination included in Country Group D:5; and (3) the ultimate end use is the development, production, or storage of the eligible items. License Exception ACM cannot be used if the ultimate end use is training an AI model or any other activity not related to the development, production, or storage of eligible items.
  • License Exception Low Processing Performance (LPP): This license exception authorizes the annual export and reexport of low amounts of compute that do not present significant national security risks to any individual ultimate consignee. Under License Exception LPP, the ultimate consignee is the entity that owns the items. The license exception is not available for exports or reexports through distributors or in-country transfers. The ultimate consignee must (1) be outside of destinations in Country Group D:5 or Macau;(2) not be headquartered in Macau or Country Group D:5; and(3) not have an ultimate parent company headquarters in Macau or Country Group D:5. License Exception LPP also includes certification and notification requirements.

Amended license exceptions: BIS is amending two existing license exceptions:

  • License Exception Advanced Computing Authorized (ACA)’s destination scope is being expanded to include any destination worldwide except Macau; a destination in Country Group D:5; any entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination in Country Group D:5; and transfers (in-country) within Macau or a Country Group D:5 destination.
  • License Exception Notified Advanced Computing (NAC)’s notification process for exports and reexports to Macau or destinations in Country Group D:5.

Expanded Data Center Validated End Users (DC VEUs) Authorization: BIS is expanding the DC VEU Authorization with (1) universal VEUs for companies headquartered in, or whose ultimate parent is headquartered in, the United States or one of the 18 allied countries eligible to use License Exception AIA and (2) national VEUs for companies headquartered outside of, or whose ultimate parent is headquartered outside of, Macau or a Country Group D:5 destination. Limitations will apply to where universal VEUs can located their AI computing power. Certain total processing performance (TPP) limitations will apply to national VEUs.

Country-specific advanced IC allocations: Exports and reexports of advanced ICs will be subject to country-specific allocations. From 2025 through 2027, countries will be subject to a cumulative maximum installed base allocation of 790 million TPP. The TPP allocations can be increased up to 100% for destinations whose governments commit to protecting advanced computing ICs consistent with U.S. national security interest. BIS will annually review allocations for subsequent years.These country-specific allocations will require license applicants to include the total aggregated TPP volume of each item to be exported on their license application.

New “red flag” guidance on AI model weights: The rule also adds one new red flag for companies providing Infrastructure-as-a-Service (IaaS) products or services, or other computing products or services, to assist in training an AI model with model weights captured by ECCN 4E091 for an entity headquartered, or whose ultimate parent is headquartered, in any destination other than those listed in paragraph (a) of Supplement No. 5 to Part 740, which includes the United States and 18 other allied countries. According to the new “red flag,” this type of assistance creates a substantial risk that the AI model weights will be exported or reexported to a destination for which a license is required and, if a license is not obtained, that the IaaS provider will have aided and abetted in a violation of the EAR. In these cases, IaaS providers should inquire if the customer intends to export the model and apply for a license if required.

*     *     *

Although the rule is effective on January 13, 2025, exporters, reexporters, and transferors are not required to comply with the new rules until 120 days after its publication in the Federal Register (scheduled for January 15). Certain security requirements for national and universal VEUs have a delayed compliance date of January 2026.

BIS will accept public comments on the interim final rule until May 15, 2025.

[1] The destinations in Country Groups D:1, D:4, and D:5 that are not also in Country Groups A:5 and A:6 are: Afghanistan, Armenia, Azerbaijan, Belarus, Bahrain, Burma, Cambodia, the Central African Republic, China, Cuba, Cyprus, the Democratic Republic of the Congo, Egypt, Eritrea, Georgia, Haiti, Iran, Iraq, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Moldova, Mongolia, North Korea, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Somalia, South Sudan, Sudan, Syria, Tajikistan, Turkmenistan, Ukraine, the United Arab Emirates, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe.

[2] A “private sector end user” is either (1) an individual who is not acting on behalf of any government other than the U.S. government or (2) a commercial firm that is not wholly owned by, or otherwise controlled by, any government other than the U.S. government.

[3] Country Group D:5 includes Afghanistan, Armenia, Azerbaijan, Belarus, Burma, the Central African Republic, China, Cuba, Cyprus, the Democratic Republic of the Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Venezuela, and Zimbabwe.

On January 10, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a sweeping set of actions to further reduce Russian revenues from energy, including blocking two major Russian oil producers, Gazprom Neft and Surgutneftegas, and imposing sanctions on a very significant number of oil-carrying vessels, opaque traders of Russian oil located in jurisdictions like Hong Kong and the UAE, Russia-based oilfield service providers, and Russian energy officials.  The U.S. Department of State also took steps to block two active liquefied natural gas projects, a large Russian oil project, and third-country entities supporting Russia’s energy exports. Lastly, the United Kingdom also joined the U.S. in sanctioning Gazprom Neft and Surgutneftegas – which, coupled with the joint Memorandum of Understanding issued by OFAC and OFSI on January 13, is a testament to the increased cooperation between the U.S. and UK authorities. Although there are wind-downs in place for most of these entities, this round of designations is likely to cause major disruptions in the market. We summarize the new restrictions in turn below:

Continue Reading U.S. and UK Intensify Sanctions Against Russia’s Oil Sector in one of the Largest Rounds of Designations Since the Outbreak of the War

The sudden collapse of the Assad regime in Syria has led to a rapidly evolving sanctions landscape. Notably, on January 6, 2025, the United States relaxed sanctions on certain transactions with Syria when the Office of Foreign Assets Control (OFAC) issued Syria General License 24 (GL 24), “Authorizing Transactions with Governing Institutions in Syria and Certain Transactions Related to Energy and Personal Remittances.” While this general license relaxes some of the long-standing U.S. sanctions, companies must keep in mind that the United Kingdom and the European Union currently maintain robust sanctions on Syrian energy-related transactions. At the date of publication, there have been no official publications by the UK or the EU on a change of their stance on this.

Valid through July 7, 2025, Syria General License 24 in pertinent part authorizes:

  1. transactions with governing institutions[1] in Syria following December 8, 2024;
  2. transactions in support of the sale, supply, storage, or donation of energy, including petroleum, petroleum products,[2] natural gas, and electricity to or within Syria.

That said, there are significant carve-outs to the authorizations permitted under GL 24, and many of the U.S. sanctions against Syria remain in place.[3] For example, GL 24 only covers energy transactions “to or within Syria.” Other relevant restrictions that are still in place:

  • U.S. persons/non-U.S. persons using U.S. dollars are still prohibited from engaging in “new investment” in Syria. The term is defined as “a commitment or contribution of funds or other assets.” 
    • Practically, this means U.S. persons/non-U.S. persons using U.S. dollars would generally be prohibited from providing financing for or assisting in the development of oil projects in Syria.
    • However, contributions of funds for salaries or wages of employees of governing institutions in Syria are permitted to the extent payments are not made to persons blocked pursuant to the Syrian Sanctions Regulations (SySR), the Global Terrorism Sanctions Regulations (GTSR), and the Foreign Terrorist Organizations Sanctions Regulations (FTOSR) unless explicitly authorized or, as relevant here, for the purpose of effecting the payment to governing institutions in Syria for taxes, fees, or import duties or the purchase or receipt of permits, licenses, public utility services, or other public services in Syria.
  • The importation into the United States of petroleum or petroleum products of Syrian origin is prohibited.
  • Transactions related to the provision of Russian-origin or Iranian-origin goods, technology, software, funds, financing, or services to Syria are prohibited.
    • Accordingly, even if the Russian-origin product is price cap compliant, it cannot be transferred to Syria.
  • Many entities and individuals in Syria that are on the Specially Designated Nationals and Blocked Persons List are still blocked.
    • Having a U.S. nexus to transactions with SDNs is prohibited and, even without a U.S. nexus, OFAC may pursue secondary sanctions on non-U.S. persons in certain instances. Thus, due diligence would still be required and each transaction must be reviewed.

Distinct from the sanctions restrictions that remain, export controls still apply, where the U.S. Department of Commerce Bureau of Industry and Security prohibits the export or reexport of any U.S.-origin items, other than food or medicine classified as EAR99, to Syria.

Finally, the EU and UK regimes continue to maintain their own sanctions programs against Syria. Overall, the EU and UK asset freeze restrictions currently remain in place against a number of entities (including those associated with the oil industry), so transactions with Syria would likely still face practical challenges to the extent there is an EU/UK nexus. Substantive due diligence across the entire transaction chain is required to ensure there are no relevant asset freeze targets involved.

[1] Transactions with the new government in Syria are allowed despite Specially Designated National (SDN) individuals having leadership roles in its institutions (see FAQ 1208). Practically, the fact that the government institutions are not considered sanctioned notwithstanding the sanctioned leadership may be relevant in certain scenarios, such as when paying customs duties to the Syrian authorities or dealing with certain ports. A carve-out, however, is that transactions involving military or intelligence entities, or any persons acting for or on behalf of such entities, are still prohibited. 

[2] What constitutes “petroleum products” has not been enumerated specifically in the context of the Syria sanctions; however, OFAC has provided them in the context of the Iran sanctions to include “unfinished oils, liquefied petroleum gases, pentanes plus, aviation gasoline, motor gasoline, naphtha-type jet fuel, kerosene-type jet fuel, kerosene, distillate fuel oil, residual fuel oil, petrochemical feedstocks, special naphthas, lubricants, waxes, petroleum coke, asphalt, road oil, still gas, and miscellaneous products obtained from the processing of: crude oil (including lease condensate), natural gas, and other hydrocarbon compounds. The term does not include natural gas, liquefied natural gas, biofuels, methanol, and other non-petroleum fuels.”  See FAQ 620.

[3] Syria is still among the U.S. list of State Sponsors of Terrorism (SST). The main categories of sanctions resulting from SST designation include restrictions on U.S. foreign assistance; a ban on defense exports and sales; certain controls over exports of dual use items; and miscellaneous financial and other restrictions. In addition, it implicates other sanctions laws that penalize persons and countries engaging in certain trade with state sponsors.

On December 9, 2024, the U.S. District Court for the Eastern District of Arkansas (the Court) issued a preliminary injunction enjoining Arkansas’s enforcement of Acts 636 and 174 (the Acts), which impose certain restrictions on foreign ownership of land and digital asset mining businesses in Arkansas. The Court’s decision addresses concerns a crypto mining company (the Company) raised about the Acts’ constitutionality and their preemption by other federal regulations.

We provide an overview of the decision below:

  • Arkansas prohibits certain foreign entities and individuals from owning or acquiring interests in land or digital asset mining businesses under Acts 636 and 174, respectively. The Acts target “prohibited foreign parties,” including entities and individuals from certain countries listed in the International Traffic in Arms Regulations (ITAR) and those owned or controlled by such parties.
  • The Company is owned by a naturalized U.S. citizen from China and has digital asset or crypto mining operations in Arkansas. China is currently a country listed in the ITAR and subject to the Acts’ restrictions.
  • In December 2023, the Arkansas Governor’s Office directed the Arkansas attorney general to investigate the Company and another entity that may have had significant ties to China for violations of Act 636.
  • In response, the Company filed suit challenging the investigation and potential enforcement of the Acts on federal preemption grounds. The Company asserted that the Acts conflicted with federal regulations governing foreign investment – specifically, the Committee on Foreign Investment in the United States, as statutorily codified by the Foreign Investment Risk Review Modernization Act, and the ITAR.
  • The Court held that the Company was likely to succeed on the merits of its claims because the Acts (1) clearly conflict with the federal government’s cautious, transaction-specific approach to foreign investment, (2) use broader and inconsistent definitions of foreign ownership, and (3) intrude on foreign affairs, which should be exclusively within the federal government’s domain.
  • The Court also determined that the Company would suffer irreparable harm in the absence of a preliminary injunction because the ongoing investigation and potential enforcement actions were causing significant damage to the Company’s reputation and goodwill, which could not be adequately compensated through monetary damages.

Approximately half of U.S. states currently have laws restricting foreign ownership of land, and many others are seeking to enact similar laws following broader federal and state trends to regulate foreign ownership of U.S. real estate. The Court’s decision to halt the Acts’ enforcement may have significant implications by setting a precedent for others to bring constitutional challenges to other state or local foreign ownership laws. All investors and businesses should be vigilant in conducting thorough due diligence on proposed transactions to ensure compliance with the expanding and changing regulatory landscape.

On November 5, 2024, the United States elected former President Donald Trump to become its 47th president. Following Trump’s re-election, and with Republicans gaining control Congress, U.S. trade policy is expected to undergo several significant changes based on Trump’s previous administration and his campaign promises.

In a recent blog post, our trade team outlines key changes we can expect to see under a second Trump administration, including increased tariffs, increased duties on Chinese imports, continued use of economic sanctions as a key foreign policy tool, increased scrutiny of foreign investments, and expanded export controls on China.

On December 2, the Bureau of Industry and Security (BIS) announced two companion rules to impede China’s ability to procure and produce advanced-node semiconductors that can be used in advanced weapons systems, artificial intelligence (AI), and advanced computing.

In response, China announced that it will in principle ban exports of gallium, germanium, antimony, and superhard materials to the United States. China also plans to conduct stricter reviews of graphite exports to the U.S. and ban the export of dual-use items for U.S. military end uses.

BIS’s first rule will add 140 entities to the Entity List. These additions primarily target entities involved in advanced-node integrated circuit and semiconductor manufacturing. The majority of the additions are in China.

The second rule makes the following changes to Export Administration Regulations (EAR):

  • Adds a new semiconductor manufacturing equipment (SME) foreign direct product (FDP) rule that will expand the EAR’s jurisdiction to certain foreign-produced commodities if there is knowledge that the commodity is destined to Macau or a destination in Country Group D:5, which includes China.[1]
  • Adds a new Footnote 5 designation to the Entity List, which imposes license requirements on foreign-produced commodities to or within any destination or to any end user or party when any of the following conditions are met:
    • Exports from abroad or reexports of commodities specified in ECCN 3B993 by an entity whose ultimate parent is headquartered in Macau or a destination in Country Group D:5.
    • Exports from abroad or reexports of items specified in ECCN 3B993 from countries in Country Group A:5[2] that are not subject to equivalent controls by the relevant country.
    • Exports from abroad or reexports of certain Category 3 commodities from any country not listed in Country Group A:5.
    • Certain transfers (in-country) involving Category 3 commodities.
  • Adds new controls on advanced memory chips—known as high bandwidth memory (HBM)—used in advanced AI and supercomputing.
  • Revises certain Category 3 ECCNs.
  • Adds License Exception Restricted Fabrication Facility (RFF) that will allow certain items, including SME, to be exported, reexported or transferred (in-country) to certain fabrication facilities on the Entity List that are not currently producing advanced node integrated circuits. The Entity List entry for eligible fabrication facilities will specifically reference the section of the EAR that contains License Exception RFF (Section 740.226).
  • Adds License Exception HBM to authorize the export, reexport, or transfer (in-country) of some HBM items affected by the new controls. License Exception HBM is limited to circumstances where:
    • The export, reexport, or transfer (in-country) is completed by and to packaging sites owned or operated by U.S.- or allied-headquartered companies; and
    • The U.S.- or allied-headquartered company carefully tracks the HBM items sent and returned to that site and either resolves any discrepancies or reports them to BIS.
  • Revises Section 734.19 (transfer of access information) to clarify that software keys (i.e., keys that allows users to use software or hardware or renew existing licenses) are classified and controlled under the same ECCNs as the corresponding software or hardware to which they provide access.
  • Adds eight new “red flags” to the BIS Know Your Customer guidance in Supplement No. 3 to Part 732, including:
    • Technology mismatch at non-advanced fabrication facilities: A non-advanced fabrication facility orders equipment designed for advanced-node integrated circuit production that it would not need given its technology level.
    • Uncertain ultimate owner or user: An exporter, reexporter, or transferor receives an order for which the ultimate owner or user of the items is uncertain, such as a request to ship equipment for developing or producing integrated circuits to a distributor without a manufacturing operation, when the item is ordinarily customized for the end user or installed by the supplier.
    • Uncertain license history: An exporter, reexporter, or transferor receives an order or request related to an item that would require an export, reexport, or in-country transfer license from BIS or another jurisdiction that maintains controls on the item, and there is uncertainty about the license history for the item.
    • Altered items for advanced end use: An exporter, reexporter, or transferor receives a request to service, install, upgrade, or otherwise maintain an item that was altered after export, reexport, or transfer by a third party for a more advanced end use that would normally require a license for the destination.
    • Overlapping management with Entity List entities: An exporter, reexporter, or transferor receives a request for an item or service from a new customer. The new customer’s senior management or technical leadership (e.g., process engineers who are team leaders or otherwise leading development or production activities) overlaps with an entity on the Entity List, particularly if the supplier previously provided the same or substantially similar item or service to the Entity List entity, most likely prior to the listed entity being added to the Entity List.
    • Request for items designed for Entity List entities: An exporter, reexporter, or transferor receives a request from a new customer for an item or service that was designed or modified for an existing or former customer that is now designated on the Entity List.
    • Integrated circuits in certain foreign-produced items: For purposes of analyzing the scope of the Entity List FDP rule for Footnote 5 entities and the SME FDP rule, if a foreign-produced item is described in the relevant Category 3B ECCN and contains at least one integrated circuit, then there is a red flag that the foreign-produced item meets the product scope of the applicable FDP rule. The exporter, reexporter, or transferor must resolve this red flag before proceeding.
    • Physically connected facilities: The end user is a facility that is physically connected to a facility where production of advanced-node integrated circuits occurs. Unless the red flag is resolved through an Advisory Opinion, the two buildings are treated as a single “facility” for purposes of Section 744.23 of the EAR.

BIS is accepting public comments on these changes to the EAR. Comments must be received by January 31, 2025.

[1] Country Group D:5 consists of countries subject to a U.S. arms embargo: Afghanistan, Belarus, Burma, Cambodia, the Central African Republic, China, Cuba, the Democratic Republic of Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, Nicaragua, North Korea, the Republic of South Sudan, Russia, Somalia, Sudan, Syria, Venezuela, and Zimbabwe.

[2] Country Group A:5 includes Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden Switzerland, Turkey, and the United Kingdom.

On November 1, 2024, the U.S. Department of the Treasury issued a final rule to expand the Committee on Foreign Investment in the United States’ (CFIUS) jurisdiction over certain transactions by foreign persons involving real estate in the United States (Final Rule). The Final Rule introduces significant changes, including:

1. Expansion of CFIUS’s jurisdiction over real estate transactions

  • One-mile radius: CFIUS’s jurisdiction will cover real estate transactions within a one-mile radius of 40 additional military installations.
  • 100-mile radius: CFIUS’s jurisdiction will also include transactions within a 100-mile radius of 19 additional military installations.
  • In total, the Final Rule adds 59 military installations across 30 states, vastly expanding the reach of CFIUS’s real estate jurisdiction.

2. Reclassification of military installations—Part 1 to Part 2 shift:

The Final Rule moves the following eight military installations from Part 1 to Part 2, expanding CFIUS’s jurisdiction over transactions between a one-mile and 100-mile radius:

  • Arnold Air Force Base, Coffee County and Franklin County, Tennessee
  • Joint Base San Antonio, San Antonio, Texas
  • Malmstrom Air Force Base, Great Falls, Montana
  • Moody Air Force Base, Valdosta, Georgia
  • Redstone Arsenal, Huntsville, Alabama
  • Schriever Air Force Base, Colorado Springs, Colorado
  • Tinker Air Force Base, Midwest City, Oklahoma
  • Wright-Patterson Air Force Base, Dayton, Ohio

3. Administrative updates

  • Installation names and locations: The Final Rule updates the names of 14 military installations and the locations of seven military installations, to improve public identification.

  • Removal of installations: The Final Rule removes three military installations from the regulations as they are located within other listed military installations.

  • Terminology revision: The Final Rule revises the definition of a “military installation” to align with these changes, include certain Space Force locations, and broaden the scope of certain categories.

The Final Rule is effective 30 days from the date of publication in the Federal Register. The Final Rule will not apply retroactively to transactions closed before the effective date or where the parties have executed binding documents establishing the transaction’s material terms before the effective date.

The Final Rule significantly impacts foreign persons by expanding CFIUS’s authority to review and potentially block real estate transactions near military installations. Although foreign acquisitions of covered real estate are not subject to mandatory filing requirements, CFIUS retains the discretion to review such transactions under its jurisdiction at any time, including post-completion. In 2023, only two notices and three declarations were filed under CFIUS’s real estate jurisdiction. We expect the Final Rule and increasing concerns about foreign land ownership will lead to an increase in filings.

CFIUS’s expanded jurisdiction aligns with a broader federal and state trend to regulate foreign ownership of U.S. real estate. Examples of recent actions include the following:

  1. In May 2024, President Biden ordered a Chinese-owned crypto mining company to vacate and sell certain real property and remove equipment from land within a one-mile radius of Warren Air Force Base in Cheyenne, Wyoming.
  2. In March 2024, the Consolidated Appropriations Act, 2024 was enacted, providing that the Secretary of Agriculture will be included in CFIUS deliberations on a case-by-case basis, particularly for transactions involving agricultural land, biotechnology, or the agriculture industry.
  3. The Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA) mandates reporting for foreign persons acquiring agricultural land. Under AFIDA, the U.S. Department of Agriculture has the express right to notify CFIUS of transactions that might pose a risk to national security and has received increased funding to assist with foreign investment reviews.
  4. More than 20 states have laws restricting or prohibiting foreign ownership of real property and the majority of states are considering pending legislation.
  5. Recent state and local legislative changes and ongoing federal bills reflect increasing regulatory scrutiny over foreign real estate investments in the United States.

There has also been an increase in the general public’s concerns surrounding foreign ownership of land. Given the heightened concerns, all investors and businesses should be vigilant in conducting thorough due diligence on proposed transactions. Due diligence should ensure compliance with the expanding regulatory landscape and include an assessment of national security risk.

On Wednesday, former President Donald Trump was projected to retake the White House and become the United States’ 47th president. The Senate is also projected to be Republican controlled; the House of Representatives remains too close to call.

Based on insights from his first administration and his campaign promises, the following are a few key areas where U.S. trade policy may change substantively:

  • Increased tariffs: On the campaign trail, Trump pledged to impose a 10–20% baseline tariff on all foreign-made products and tariffs of 60% or more on Chinese-origin imports. He also suggested additional tariffs on companies that move manufacturing from the U.S. to Mexico. Insiders indicate new tariffs will likely be a key priority for the first 100 days of Trump’s second term. At the center of these policies will be former U.S. Trade Representative Robert Lighthizer who oversaw the retaliatory tariffs imposed in Trump’s first administration. If Republicans takes control of the House, they may also attempt to pass the Trump Reciprocal Trade Act, which would impose reciprocal, equivalent tariffs on goods from any country that tariffs U.S.-origin products. Consistent with the USTR’s report on the existing Section 301 tariffs on Chinese-origin goods, U.S. importers will likely bear the entire cost of any new tariffs.
  • Increased duties on Chinese imports: In addition to tariffs, the Republican party platform calls for revoking China’s Normal Trade Relations (NTR) status (also known as Most Favored Nation status). Trump could suspend China’s NTR status through executive action, which would trigger import duties on Chinese-origin products that are two to 10 times higher than imports from other countries. Currently, only imports from Belarus, Cuba, North Korea, and Russia are subject to these higher duty rates.
  • Renegotiation of the U.S.–Mexico–Canada Agreement (USMCA): Despite negotiating the USMCA during his first administration, Trump signaled last month that, upon taking office, he would formally notify Mexico and Canada of his intention to invoke the USMCA’s six-year review provision. The joint review would occur in July 2026, and a report will be due to Congress at least 180 days in advance.

A new Trump administration is also likely to continue or increase the government focus on the following U.S. trade policy areas:

  • Continued use of economic sanctions as a key foreign policy tool: Sanctions were a significant tool for both the Trump and Biden administrations. Trump used sanctions as a tool to exert maximum pressure against U.S. adversaries, including China, Iran, and Venezuela. The Biden administration took a similar approach, with a focus on Russia and coordinating global actions to maximize impact. Trump is expected to continue using economic sanctions as a key foreign policy tool.
  • Increased scrutiny of foreign investments: Under Trump’s first administration, the Committee on Foreign Investment in the United States (CFIUS) gained broader authority with the Foreign Investment Risk Review Modernization Act of 2018. Both the Trump and Biden administrations have emphasized heightened scrutiny of foreign investments, particularly from China. Biden expanded the CFIUS framework with increased enforcement, higher penalties, expanded real estate jurisdiction, and a focus on emphasizing economic security, critical supply chains, sensitive data, and sectors such as semiconductors and artificial intelligence (AI). A renewed Trump administration would likely intensify these measures and concentrate on critical infrastructure and limiting Chinese investment in U.S. real estate and businesses.
  • Continued focus on outbound investment: Biden issued an executive order banning U.S. investment in China for certain “national security technologies,” including certain semiconductors, microelectronics, quantum information, and AI. On October 28, 2024, the U.S. Department of the Treasury issued its long-awaited final rule, implementing the outbound investment security program, effective January 2, 2025. Trump is expected to continue and possibly expand this focus.
  • Expanded export controls on China: During Trump’s first term, the Bureau of Industry and Security (BIS) was aggressive in restricting exports to China, placing several high-profile Chinese companies and affiliates on the Entity List to limit their access to critical U.S. technology. Under Biden, BIS expanded these restrictions, with a particular focus on semiconductors, AI, and biotechnology. BIS’s enforcement efforts were also increased to ensure compliance. In a new Trump administration, BIS would likely intensify these measures, expanding export controls on emerging technologies, particularly in fields such as quantum computing and cybersecurity. The focus would likely be on further restricting access to sensitive U.S. technologies by foreign adversaries, with a continued emphasis on China and other national security threats.
  • Increased focus on cybersecurity: During Trump’s first administration, the Department of Defense (DoD) implemented restrictions on companies linked to foreign adversaries to safeguard the defense supply chain, including limits on DoD contracts with firms using equipment from entities deemed national security risks. The administration also increased cross-agency coordination, prioritized the establishment of the Space Force, and strengthened cybersecurity measures. A new Trump administration is likely to continue emphasizing restrictions on foreign influence in the defense sector, with a likely renewed focus on cybersecurity, critical infrastructure, space, and advanced technologies such as AI and 5G.
  • Continued focus on emerging technology: Under Trump, the Department of State Directorate of the Defense Trade Controls (DDTC) tightened defense export controls, particularly to China and other adversaries, while streamlining licensing processes. The administration emphasized protecting sensitive technology and enhancing oversight of end-users. Under Biden, DDTC continued these policies with a greater focus on human rights, international coordination, and increased scrutiny of exports to China and Russia. Under a new Trump administration, DDTC would likely continue its focus on tightening defense exports to adversaries, particularly in emerging technologies such as AI and quantum computing, while aiming to reduce regulatory barriers for U.S. defense contractors.
  • Continued prioritization of export control enforcement: Since U.S. export control laws are premised on national security, enforcement for non-compliance is typically a priority for any administration. The first Trump administration entered into several settlement agreements related to the unauthorized export of controlled items, technology, and services. Enforcement of these laws will likely continue to be a priority. The Biden administration also relied on foreign direct product rules and the Entity List to restrict access to U.S. export-controlled products and technology by parties believed to pose a risk to U.S. national security and foreign policy. While not used as frequently during the first Trump administration, the Entity List was used to designate Chinese entities and it will likely be used again to advance U.S. foreign policy interests during the upcoming administration.

If Republicans regain control of both houses of Congress, Trump will have latitude to pass new laws that align with his trade and foreign policy agendas. Two key legislative proposals to monitor include:

  • The Countering Communist China Act (CCCA), which was introduced by Republican members of Congress in February 2024. The CCCA is a wide-ranging bill that would, among other things, introduce restrictions on outbound investments in Chinese technology companies and trade restrictions on Chinese military and surveillance companies.  
  • Senate Bill 3945, which Senator Vance introduced in March 2024 to restrict the Chinese government’s access to U.S. capital markets and exchanges if it fails to comply with certain international laws.