FR 2025-00592

Overview

The Department of Commerce’s Bureau of Industry and Security (BIS) has laid out new regulations aimed at securing the supply chain for information and communication technology and services integral to connected vehicles. These regulations focus particularly on technology connected to China and Russia, which are considered foreign adversaries. The goal is to manage risks posed to national security by regulating certain software and hardware components enabling vehicle connectivity and automated systems. BIS now mandates vehicle manufacturers and importers to ensure their supply chains are compliant by submitting Declarations of Conformity.

Significant Issues and Concerns

The final rule is complex and filled with legal and technical jargon, making it challenging for the average reader or small business owner to grasp fully. The requirement for annual Declarations of Conformity, paired with a need for thorough due diligence on supply chains, might pose a hefty burden on small businesses, particularly due to ambiguous guidelines on how to comply effectively.

There is also a concern about the broad definition of what constitutes a “foreign interest,” potentially imposing regulatory demands extensively on businesses with minimal foreign connections. This could lead to inefficiencies and increased operational costs without necessarily enhancing security.

Additionally, the document does not provide clear criteria or examples for decisions regarding “undue or unacceptable risks,” which could result in inconsistent enforcement of these rules. Similarly, the absence of detailed security standards or frameworks for specific authorizations fosters uncertainty about compliance requirements.

Concerns also extend to administrative burdens and costs, which stakeholders argue are underestimated, especially when considering the resource constraints of smaller entities. There’s potential for overlap between these regulations and other federal guidelines or authorities, such as CFIUS, potentially causing regulatory redundancies or conflicts.

Broad Public Impact

On a broad scale, the regulations aim to enhance national security by minimizing potential threats tied to foreign technology in America’s automotive industry. This rule could improve the safety and reliability of connected vehicles, crucial as the market for such technology expands.

However, the complexity and demands of the regulations could deter innovation, impacting consumer choice and delaying new technologies entering the market. Consumers could face higher prices and limited options as manufacturers navigate these regulatory requirements.

Impact on Specific Stakeholders

For large vehicle manufacturers, especially those with considerable resources, these regulations mean more rigorous checks on their supply chains. While this involves additional compliance work, such entities are more likely to possess the infrastructure needed to adapt effectively.

Small businesses, on the other hand, could face significant challenges due to the costs and administrative burdens of compliance. Without sufficient resources, these entities may struggle to meet the requirements or might find themselves more vulnerable to penalties for non-compliance.

There is a positive angle: companies already aligning closely with prescribed security standards might see a competitive edge, as compliance showcases their commitment to U.S. security interests. Moreover, clarification around international transactions could eventually present a clearer global competitive landscape for compliant businesses.

Overall, while the BIS’s objectives focus on fortifying national security within the automotive sector, the regulations present considerable challenges in implementation, organizational adjustment, and interpretation, influencing how quickly and effectively stakeholders can respond.

The document presents several financial aspects that are worth exploring in relation to the regulations it sets forth. These financial references primarily deal with compliance costs for entities subject to the new rule, as well as the potential penalties for violations.

Compliance Costs

The document revises the initial cost estimates for entities to comply with the new rule. Initially, it was estimated that the cost to read, understand, and conduct initial due diligence for the rule would be between $30,964 and $38,554. However, after considering public comments and re-evaluations, this estimate has been revised to a range between $56,671 and $77,055. These costs are associated with activities such as understanding the rule's requirements and preparing necessary documentation for compliance.

Furthermore, the document estimates that the annual cost for entities to re-conduct due diligence and potentially re-submit a Declaration of Conformity will range from $24,200 to $48,400. This reflects the ongoing nature of the compliance requirements, which include annual Declarations of Conformity. Commenters challenged the initial assessments of these costs, expressing concerns that they were underestimated, especially considering the complexities involved.

Penalties for Violations

The document outlines potential penalties for violations of the rule. Civil penalties for violations could be as high as $368,136 per violation, while criminal penalties can reach up to $1,000,000 per violation. These penalties are intended to enforce compliance and deter entities from engaging in prohibited transactions without the necessary authorizations.

Government Costs

In terms of government expenses, the document projects the annual cost to the U.S. Government for reviewing and responding to Declarations of Conformity, specific authorization applications, and advisory opinion requests at $971,800. This estimate reflects the administrative overhead associated with the implementation of the rule. The total estimated annual cost to the government, including legal support, comes in at $1,299,728.

Financial Implications and Issues

Several issues are related to these financial references. The administrative burden and cost estimates for compliance have been contested by commenters, indicating that they might be underestimated, particularly for smaller entities. This concern speaks to the broader issue of compliance costs, especially given the complexity and breadth of the rule's requirements, which may disproportionately impact smaller organizations with less capacity to absorb such financial burdens.

Additionally, the broad definition of "foreign interest" could lead entities to incur unnecessary expenses in an effort to comply with the rule to avoid potential penalties. This definition could subject organizations to regulatory burdens even when foreign involvement is minimal or non-threatening, leading to potentially wasteful spending on compliance.

Overall, while the document provides extensive financial references and outlines penalties for non-compliance, the estimates have been questioned by entities likely to be affected by the rule. These concerns highlight the challenges for smaller organizations, in particular, and might call for further clarity or adjustments to ensure that financial burdens are appropriately aligned with the intent of the regulations.