U.S. Commerce Department Announces Prohibited Transactions Related to WeChat and TikTok But Implementation Is Delayed

Pillsbury - Global Trade & Sanctions Law

On September 18, 2020, the U.S. Commerce Department published two rules defining the scope of prohibited transactions related to the mobile applications, WeChat and TikTok.  The scope of prohibited transactions clarified the two parallel executive orders (EOs) issued by the Trump administration on August 6, 2020, which required the Commerce Department to impose restrictions on both platforms.

The scope of prohibited transactions are the same for both WeChat and TikTok. Prohibited transactions do not include individual use of these mobile platforms to exchange personal or business information.  However, the rule would effectively shut down WeChat and TikTok within the United States via mobile application storefronts (e.g., Apple Store and Google Play), and additional restrictions would further impair the apps’ functionality and user experience.

The rules stipulated that the prohibited transactions involving WeChat and TikTok would go into effect as early as September 20, 2020, with certain TikTok related prohibitions being delayed until November 12, 2020.  However, recent developments delayed implementation of the restrictions and call into question whether the prohibitions will ultimately be implemented.  For TikTok, the Commerce Department announced that it would delay implementing restrictions until September 27, 2020 in light of the recent agreement with Oracle and Walmart tied to a parallel review by the Committee on Foreign Investment in the United States (CFIUS).  For WeChat, a preliminary injunction granted by a federal court in California separately delays implementation of this rule.

The Commerce Department identified the following prohibited transactions related to WeChat and TikTok.

  1. Mobile App Stores: Any provisions of services to distribute or maintain the WeChat or TikTok mobile application, constituent code, or application updates through an online mobile application store, or any online marketplace where mobile users within the land or marine borders of the U.S. and its territories may download or update applications for the use of their mobile devices;
  2. Internet Hosting Services: Any provision of internet hosting services enabling the functioning or optimization of WeChat or TikTok mobile applications, within the land and maritime borders of the U.S. and its territories;
  3. Content Delivery Services: Any provision of content delivery network services enabling the functioning or optimization of the WeChat or TikTok mobile applications within the land and maritime borders of the U.S. and its territories;
  4. Internet transit service/Peering: Any provision of directly contracted or arranged internet transit or peering services enabling the functioning or optimization of the WeChat or TikTok mobile applications within the land and maritime borders of the U.S. and its territories;
  5. Utilization of constituent code, functions or services: Any utilization of the WeChat or TikTok mobile applications’ constituent code, functions, or services in the functioning of software or services developed and/or accessible within the land and maritime borders of the U.S. and its territories; or
  6. Future Transactions: Any other transaction by any person, or with respect to any property, subject to the jurisdiction of the U.S., with Tencent, ByteDance Ltd., or its subsidiaries, including WeChat and TikTok, in which any company has any interest, as may be identified at a future date under the authority delegated under EOs 13943 and 13942.

Both rules contain the following exceptions:

  1. Payment of wages, salaries and benefit packages to employees or contractors;
  2. The exchange between or among WeChat or TikTok mobile application users of personal or business information using these mobile application;
  3. Activities related to the distribution, installation or external U.S. use of WeChat or TikTok and all ancillary activities which are ordinarily incident to, and necessary for such activities by any person subject to U.S. jurisdiction;
  4. Storing WeChat or TikTok user data in the U.S.; or
  5. Any other transaction with Tencent or ByteDance Ltd. or their subsidiaries unless identified as prohibited.

Prior to the September 20 implementation of the two rules, two recent developments related to WeChat and TikTok have delayed their implementation. First, Judge Laurel Beeler of the United States District Court for the Northern District of California granted a preliminary injunction in a claim brought by the WeChat Users Alliance halting the implementation of the prohibition on WeChat-related transactions. The court determined that the national security risks and foreign policy considerations did not outweigh the risk of harm to Chinese-Americans and Chinese-speaking community that make up the WeChat Users Alliance through the effective ban of WeChat for all U.S. users. Second, at the direction of President Trump, Secretary of  Commerce Wilbur Ross has delayed the prohibition of transactions related to the TikTok until September 27, 2020, which is likely connected to Oracle’s proposed agreement with ByteDance to be the “trusted technology provider” of TikTok. These developments may continue to impact the implementation of the proposed rules in the near future.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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