Proposed BIS Regulations on Connected Vehicles Includes Significant Supply Chain Compliance Requirements

In a significant move to safeguard national security, on September 23, 2024, the U.S. Bureau of Industry and Security (BIS) issued proposed regulations that would ban the importation and sale of certain “connected vehicle” components that have a nexus with China or Russia and impose compliance obligations on importers and manufacturers of connected vehicles and components. 

The regulations address risks associated with Information and Communications Technology and Services (ICTS) linked to foreign adversaries, specifically hardware and software integral to connected vehicles. The proposed rules would affect Vehicle Connectivity Systems (VCS) and Automated Driving Systems (ADS), the systems which through specific hardware and software allow for external connectivity (e.g., Bluetooth, cellular, wi-fi modules, etc.) and autonomous driving capabilities and that are considered vulnerable to exploitation. The proposed regulations are likely to have an impact on the entire automotive industry. 

The regulations are set to take effect 60 days after publication of final rules in the Federal Register.  

Details of the Regulations

The regulations are being proposed by BIS to mitigate national security risks associated with ICTS transactions, particularly those involving foreign adversaries. 

The proposed regulations would introduce comprehensive prohibitions and compliance requirements aimed at securing the ICTS supply chain for connected vehicles. They would specifically prohibit the importation of VCS hardware and covered software that are designed, developed, manufactured, or supplied by entities subject to the jurisdiction or direction of China and Russia. This would include the selling of connected vehicles that incorporate such technology and any technology integral to connected vehicles that could pose national security risks. Additionally, the regulations would restrict transactions involving manufacturers owned or controlled by foreign adversaries.

To ensure compliance, importers and manufacturers would need to submit Declarations of Conformity which certify that their products comply with the regulations and are free from prohibited foreign influences. Additionally, the regulations outline mechanisms to request BIS advisory opinions for guidance on whether prospective transactions would be prohibited, as well as general and specific authorizations that would allow certain transactions to proceed if the associated risks could be reasonably mitigated, thus providing flexibility for businesses to navigate the regulatory landscape.

BIS proposes to mandate compliance for various stakeholders based on the following implementation timeline: 

• Connected vehicle manufacturers would be required to comply with the regulations for transactions involving covered software by Model Year 2027. 
• VCS hardware importers would have to meet compliance requirements by Model Year 2030 or January 1, 2029.
• Connected vehicle manufacturers that are owned by, controlled by, or under the jurisdiction or direction of China or Russia would have to comply with the regulations for transactions involving VCS hardware and/or covered software by Model Year 2027. 

Customs & International Trade Impact

From a customs perspective, the proposed regulations would necessitate heightened scrutiny of imports, particularly those involving VCS hardware and covered software from China and Russia. Importers would be required to provide comprehensive documentation to verify the origin and compliance of components, potentially leading to delays and increased administrative burdens.

The regulations also could have an impact on international trade dynamics as companies seek to diversify their supply chains away from restricted sources. Such a shift could lead to the exploration of alternative markets and suppliers, thus impacting global trade flows and partnerships - but also creating new customs challenges tied to these business decisions. Companies in the automotive sector, in particular, will need to prepare for the changes and navigate them carefully to maintain compliance and minimize disruptions to their operations. 

Importance of Supply Chain Planning

The supply chain implications of the proposed regulations are significant, but not surprising.  The ability of manufacturers to trace components to the Tier-n level will be critical to complying with these and other supply chain transparency regulations in force and under consideration. Based on the data provided, manufacturers may need to reevaluate their sourcing strategies, including sourcing from alternate suppliers that provide the traceability from non-restricted regions and/or evaluate nearshore or reshore strategies for critical components.

The regulations could drive innovation within the industry as companies explore new technologies and processes to reduce reliance on foreign ICTS components.