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’ve just received word via 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 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. 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 move might be coming, and now it’s here. It will go into effect at 11:15am Friday, December 20 when the list is publicly published.
The reason DJI is on the list? 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.
Now, you’d wonder how that might be possible. 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, is said to have been shot by a DJI product being operated by state security.
The whole Entity List is somewhat complex, so we’re going to paste here directly from the Commerce Department’s Bureau of Industry and Security, or 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 U.S. 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 U.S. national security and/or foreign policy interests. In most instances, license exceptions are unavailable for the export, reexport, 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 U.S. 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 U.S. 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 U.S. 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 U.S. technologies to enable indigenous advanced technology levels to support its destabilizing military activities.
Wilbur Ross, Commerce Secretary
What does this mean for DJI?
In the case of Huawei and SMIC, being on the Entity List means the companies cannot 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.
We are assuming the same will apply to DJI, and have reached out to the company for comment.
Why has this all become a challenge for DJI?
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 is still China. And that means it’s part of a system where there 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 purposes. Government security forces have used, and do use, DJI drones for this purpose. During a phone briefing from the Bureau of Industry and Security today, officials spoke of “oppression” and “egregious human rights practices.”
Apparently, the new also applies to any legally controlled affiliates of DJI.
What does this mean for consumers of DJI products?
Our understanding is this does not mean DJI products are going to be banned in the US, or at least that’s our understanding. You’ll still be able to purchase the drone of your choice, just like you can still purchase Huwawei 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, now with DroneAnalyst, 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.
David Benowitz, DroneAnalyst
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.
David Benowitz, DroneAnalyst
Benowitz also weighted in online:
We also reached out to Ian Smith, CEO of WareRobotics, via Twitter:
We don’t know how much US-made technology DJI relies on, but presumably there is some. In the case of Huawei, the company’s phones are still sold in the US but Huawei-specific apps are not on Google Play.
In the absence of further information we won’t speculate on any broader implications for DJI until we have more facts. We hope to secure interviews, and will update as soon as we have more information.
This post will be updated frequently; please check back.
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BREAKING: DJI added to US Dept of Commerce ‘Entity list’, bad news for Chinese company - DroneDJ
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