An updated “Entity List” is bad news for the world’s largest drone manufacturer. DJI has been put in the company of Huawei and others, a move that will have negative consequences for the firm. We first broke the story after a conference call with the US Commerce Department.
Surprisingly, the US Commerce department cited “human rights abuses” and not the expected data security rationale.
The Bureau of Industry and Security (BIS) is part of the US Department of Commerce. And it maintains a list that includes “businesses, research institutions, government and private organizations, individuals, and other types of legal persons” that are subject to additional scrutiny and license requirements for the export and transfer of specific items, with an emphasis on technology. Huawei is one of the Chinese companies on that list over concerns about security with the company’s products.
Now, DJI has been added to the list. And that’s very bad news for the Chinese company.
Some saw this coming
There had been speculation this might be coming, and now it’s here. It went into effect at 11:15 a.m. Friday, December 20, when the list was publicly published. Here’s DJI on the list, which includes 76 other names:
And the reason for DJI, specifically?
According to a briefing, it’s not related to data security of DJI’s products – which DJI has repeatedly stated is not an issue. Instead, the US government believes that DJI has played a role in oppression and other human rights violations in China.
During a briefing earlier this morning from the Department of Commerce’s Bureau of Industry and Security, officials made it very clear what had prompted DJI being placed on the list. The company, it said, had:
…facilitated the export of items by China that aid repressive regimes around the world, contrary to US foreign policy interests.
It’s not that hard to understand this one. It’s quite possible some of DJI’s customers include less-democratic regimes that the US would not share similar technology with.
But a more direct accusation, which to us came totally out of left field, was also conveyed. DJI, it’s alleged, “enabled wide-scale human rights abuses within China through abusive genetic collection and analysis or high-technology surveillance.”
High-technology surveillance, we get. But we’d sure like to hear how DJI has allegedly been involved in genetic collection. However, the BIS suggests that DJI is one of four companies it has placed on the Entity List due to reasons of human rights abuses. And it states that while DJI will be denied the right to obtain certain technologies from the US, it will receive “case-by-case review for items necessary to detect, identify and treat infectious disease.”
We can’t say for sure, but we’re assuming this might be a boilerplate to cover off COVID-19 supplies. (We have a request in for another interview with the BIS.)
You may well wonder how a company most of us just think of as the global leader in drones and other technology could have run afoul on these grounds. But in China, DJI’s products have allegedly been used by the ruling Communist Party for surveillance and other issues related to human rights. An infamous video of shackled Uighurs, a persecuted Muslim minority, was said to have been captured by a DJI product being operated by state security.
Obviously, DJI employees were not out there flying those missions. But its products were apparently used. Former DJI manager David Benowitz, now with DroneAnalyst (and somone who lives in Shenzhen), believes this connection may be overblown:
The view from an expert on cybersecurity and China’s digital economy
We reached out to Samm Sacks, an expert on emerging information technology and communications policies and who specializes in China. Here’s what she had to say:
We’ve seen an expansion in the way the Entity List is used to go after companies tied to human rights abuses in Xinjiang — that’s a departure from the way the tool was originally designed to be a backstop to prevent US technology from landing with foreign military end users. DJI has made a solid case that it protects US data security. Multiple US government audits found that their government edition does not collect data and data collection can be turned off for consumers. So the issue is less about US national security. Instead, DJI’s alleged ties to Chinese government security services in Xinjiang — surveillance tied to cultural genocide of Muslim minorities in the regions — this appears to be the basis for their entity list designation, given the expansion of the tool for this purpose. The move follows earlier tranches of entity list designations focused on companies tied to Xinjiang human rights abuses in October 2019 and June and July.
Samm Sacks, cybersecurity policy and China digital economy Fellow
The decision comes in the final weeks of the Trump administration. Might this policy change when President-elect Joe Biden takes power? Here’s Sacks’ take:
The Biden administration is evaluating the actions taken by the Trump administration to figure out what to keep in place and what to walk back. The incoming China team is going to take a hardline approach on human rights in China, so I don’t see any appetite to unwind cutting off DJI’s access to US tech.
The Entity List, explained
The whole Entity List is somewhat complex, so we’re going to quote directly from the BIS:
The Entity List identifies foreign parties that are prohibited from receiving some or all items subject to the EAR (Export Administration Regulations) unless the exporter secures a license. These parties present a greater risk of diversion to weapons of mass destruction (WMD) programs, terrorism, or other activities contrary to US national security and/or foreign policy interests. By publicly listing such parties, the Entity List is an important tool to prevent unauthorized trade in items subject to the EAR. BIS can add to the Entity List a foreign party, such as an individual, business, research institution, or government organization, for engaging in activities contrary to US national security and/or foreign policy interests. In most instances, license exceptions are unavailable for the export, re-export, or transfer (in-country) to a party on the Entity List of items subject to the EAR. Rather, prior license authorization is required, usually subject to a policy of denial.
Semiconductor maker SMIC also on list
The Bureau of Industry and Security also added Semiconductor Manufacturing International Corporation (SMIC) of China to the Entity List. A news release said, “BIS is taking this action to protect US national security.” The release suggested there was “evidence of activities” between SMIC and other “entities of concern” within China’s military-industrial complex.
We will not allow advanced US technology to help build the military of an increasingly belligerent adversary. Between SMIC’s relationships of concern with the military industrial complex, China’s aggressive application of military civil fusion mandates and state-directed subsidies, SMIC perfectly illustrates the risks of China’s leverage of US technology to support its military modernization. Entity List restrictions are a necessary measure to ensure that China, through its national champion SMIC, is not able to leverage US technologies to enable indigenous advanced technology levels to support its destabilizing military activities.
Wilbur Ross, commerce secretary
The new list also includes another Chinese company, Kuang Chi, which has invested heavily in aerospace startups (including two in Canada), with a particular emphasis on drones.
What does this mean for DJI?
In the case of Huawei and SMIC, being on the Entity List means the companies cannot purhase or access certain technologies from the US. In the case of SMIC, for example, the action would preclude the purchase or transfer of American technology that would assist it in manufacturing chips.
And while DJI products are manufactured in China with largely Chinese components, if there are parts or technology that comes from the US as part of this supply chain, today’s action could choke that.
Late Friday night, DJI responded with the following statement:
“DJI is disappointed in the U.S. Department of Commerce’s decision. Customers in America can continue to buy and use DJI products normally. DJI remains committed to developing the industry’s most innovative products that define our company and benefit the world.”
How did it get to this?
DJI is based in Shenzhen, a freewheeling “Special Economic Zone.” That city is like capitalism on steroids and doesn’t feel, at least on the surface, like it is part of a Communist system where the party is omnipotent.
But, beneath Shenzhen’s veneer, it’s still China. And that means it’s part of a system with unquestionable human rights abuses and widespread surveillance of its citizens. (The Communist Party even monitors all social media posts, and people have been imprisoned for crossing the line.)
DJI’s products, of course, can be used for surveillance. Government security forces have used, and do use, DJI drones for this purpose. During a phone briefing from the BIS today, officials spoke of “oppression” and “egregious human rights practices.”
What does this mean for consumers of DJI products?
You’ll still be able to purchase the DJI drone of your choice, just like you can still purchase Huawei products.
But if Huawei and SMIC are any indication, the transfer of any sophisticated technologies from the US to DJI will face restrictions and licensing and might not be allowed to proceed. We asked former DJI employee David Benowitz for his observations:
DJI being added to the entity list will have serious repercussions for the drone industry, not just in preventing DJI from procuring US-made chips, sensors and other technology, but in limiting the availability of cheap, accessible drones to enterprises and consumers. It’s important to note that DJI has already begun moving away from US suppliers before this announcement, with just this week they moved away from integrating US-made FLIR sensors into their latest drone hardware.
What about longer-term implications?
If DJI is kept on the entity list for awhile, we’ll see a further divergence in the US and Chinese supply chains for drones, which has been happening for awhile now. China has had the lead since the birth of the drone industry, but moving its leading manufacturer to the entity list will open up opportunities for US drone startups like Skydio, Inspired Flight, FreeFly, Vantage Robotics, Teal Drones, and more.
Benowitz also weighed in online:
We also reached out to Ian Smith, CEO of WareRobotics, via Twitter:
Is there an element of trade protectionism?
Well, we’ve certainly heard others in the field suggest that some of the actions taken during the Trump administration, such as the Department of the Interior’s ban on non-US-made drones, smack of trade protectionism. That’s certainly how one DroneDJ reader reacted today in the comments section.
“This seems like an excuse. Can’t compete? Legislate. Oh how far the US has fallen,” wrote Michael de Gans. “We have more people in prison per capita than the Chinese by a wide margin. Human rights? Well here we can own all the guns we want, I guess.”
This is obviously a major story that will continue. Keep checking back on our website for the latest details.