Looming BIS 50% Rule Suspension Leads to Relief, Uncertainty for Exporters
The U.S. decision to suspend the Bureau of Industry and Security's 50% rule was met with both relief and exasperation by U.S. exporters, some of whom welcomed more time to prepare while also expressing frustration with the time and resources they already spent trying to comply, including buying expensive screening software.
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Exporters are also uncertain about whether the one-year suspension will last or whether the 50% rule, known as the Affiliates Rule, could again be used as a bargaining chip in a future round of U.S.-China trade negotiations, industry officials and lawyers said in interviews.
“People have been scrambling for the last month now to figure out what they can do to most reasonably ensure they're in compliance with the rule. And now, suddenly, that's off the table,” said Mike Huneke, a trade lawyer with Morgan Lewis.
Because of U.S.-China trade negotiations, he added, companies are “fully aware that absolutely something could happen next week, and suddenly” the Affiliates Rule will no longer be suspended. “I think people who are thinking through all this carefully will be really hesitant to kind of jump back to not” complying with the rule.
The Trump administration agreed to the suspension -- which takes effect Nov. 10, according to the White House -- in exchange for China postponing its own set of export restrictions over rare earths (see 2510300024). BIS hasn’t responded to requests for comment about what exactly the suspension will cover.
Kay Georgi, a trade lawyer with ArentFox, said industry is hoping for guidance in the coming days. Until then, exporters may still be at risk of breaching the rules.
“The uncertainty of using export controls as a trade negotiation chip -- it doesn't work really well,” she said. “To have these things come and then have them go a month later is, I would say, unsettling for most exporters.”
Multiple industry officials said they aren’t sure whether they should continue with plans to buy pricey third-party screening software from private due diligence vendors, which has been billed as helping exporters determine whether a potential customer is partially or majority-owned by a company on a U.S. restricted party list. In FAQs released one day after the Affiliates Rule took effect Sept. 29, BIS suggested that “various private sector screening resources” could help exporters comply (see 2509300049).
Some companies that held back and didn’t immediately pay for new screening software “are very happy that they didn’t do it,” Georgi said. “And the people who signed up for quite expensive services are saying, ‘Hopefully the money is not completely wasted, and we'll be ready in a year.’”
One compliance official said their company was about to pay more for additional screening before Treasury Secretary Scott Bessent announced the 50% rule suspension last week. Now, they said, their company is holding off.
Those third-party screening services, although helpful, have also raised additional due diligence questions. Huneke said some companies have been “really struggling” with how to determine ownership percentages of a foreign customer, especially if two screening software firms provide conflicting information.
“How do you reconcile inconsistent information, particularly where one due diligence provider says, ‘Oh, this looks like it's covered by the Affiliates Rule,’ and the other one doesn't? I think that was a real challenge people were trying to work through,” Huneke said. “People were spinning their wheels on a lot of stuff like that, and I think they will be relieved not to have to do that.”
Companies and trade groups raised similar compliance concerns to BIS in comments on the 50% rule, according to industry officials. Some of those comments, which were due last week but haven't been released, also asked BIS to delay the rule.
Matthew Bock of Bock Trade Law said in an email that the rule “was always going to be very difficult to implement, certainly over a short time frame.” He noted that the implementation delay will both help to secure concessions from China during trade negotiations and give U.S. exporters "some reprieve as they prepare" for the new effective date.
But Todd Edwards, vice president of ethics and compliance at the American Bureau of Shipping, called it a “compliance whipsaw” caused by a “brutal, exhausting cycle of implementing, unwinding, and then preparing to re-implement complex regulations in response to volatile geopolitical shifts.” This is stretching “already understaffed and under-resourced” compliance teams to their “breaking point,” he wrote on Substack last week.
Export compliance leaders who had to quickly train company employees about the BIS 50% rule must now “retract that guidance,” he said. “This leads to ‘compliance fatigue,’ where employees become cynical, viewing [compliance] directives as transient. This erodes the very foundation of an ethical culture.”
Georgi noted that it’s possible that the U.S. reverses its decision to suspend the 50% rule if China reneges on any of its commitments, such as its agreement to postpone its rare earth export controls. “Then I think we can expect the Affiliates Rule to come back really fast,” she said, although she thinks China is unlikely to backtrack.
“But fundamentally, you don’t know what you don’t know."