Updated October 27, 2020
On August 6, President Trump issued an executive order banning WeChat, a Chinese app developed by parent company Tencent Holdings Ltd. that combines the capabilities of other social media, ride sharing, and payment apps. The ban could potentially affect all forms of businesses, including global construction, manufacturers, and equipment suppliers performing business in China and the U.S. WeChat, with its over one billion users, is indispensable to some businesses, especially to those in China because mobile payment apps like WeChat reign supreme over other payment forms, and WeChat is now used as a primary means to communicate.
Citing national security concerns due to the application’s ability to (1) automatically capture the personal information of U.S. citizens, (2) censor content “that the Chinese Communist Party deems politically sensitive,” and (3) spread “disinformation campaigns that benefit the Chinese Communist Party,” the order prohibits all individuals and entities subject to U.S. jurisdiction from carrying out “transaction[s]” with WeChat’s parent company Tencent and its subsidiaries. The order initially did not define “transaction[s]” and instead gave the authority to define the term to the U.S. Department of Commerce, leaving companies in a frenzy over the ban’s possible economic and operational impact.
Key Takeaways for Construction-Industry Entities Using WeChat
On September 18, the Commerce Department explained the order’s scope and defined “transaction[s]”. The following lists the key takeaways for any construction company, manufacturer, or equipment supplier using WeChat:
- The ban applies only to those transactions that occur within the U.S., suggesting that construction and supply chain companies with subsidiary operations in China may continue to use WeChat to market to customers, communicate with other business partners, and make and receive payments by using the app.
- The ban appears to also exempt ancillary activities, which are ordinarily incident to, and necessary for, use of WeChat outside the U.S. What this suggests is that employees of U.S. companies based outside the U.S. may continue to use WeChat provided their involvement qualifies as “ancillary activities . . . ordinarily incident to, and necessary for,” use of the WeChat app.
- The ban applies only to parties to business-to-business transactions, and specifically excludes from sanctions exchanges between or among users of personal or business information, including fund transfers. This suggests that users of the app in the U.S. may continue to communicate with clients, business partners, and fellow employees using WeChat. However, because the ban prohibits the functioning or optimization of WeChat in the U.S., the app may quickly become obsolete.
As of September 20, the Commerce Department specifically prohibited the following transactions:
- Any provision of service to distribute or maintain WeChat mobile applications, constituent code, or application updates through an online mobile application store in the U.S.
- Any provision of services through WeChat for the purpose of transferring funds or processing payments within the U.S.
- Any provision of internet hosting services enabling the functioning or optimization of WeChat in the U.S.
- Any provision of content delivery network services enabling the functioning or optimization of WeChat in the U.S.
- Any provision directly contracted or arranged internet transit or peering services enabling the function or optimization of WeChat within the U.S.
- Any utilization of WeChat’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the U.S.
WeChat Ban Put On Hold
On August 21, the U.S. WeChat Users Alliance, a nonprofit organization, as well as other plaintiffs including a small business and several individuals, filed suit against President Trump and Secretary of Commerce Wilbur Ross in the U.S. District Court for the Northern District of California. The lawsuit alleges that the order violates the First and Fifth Amendments, and the plaintiffs moved for a preliminary injunction to stop the order from taking effect. Tencent also quickly responded to the order, changing the name of its WeChat Work office collaboration application to WeCom. Tencent suggests WeCom is a completely different app from WeChat and was created to serve as a communication and management tool for companies, as well as a potential alternative to WeChat. Others view Tencent’s rebranding as a specific attempt to avoid fitting under the order.
With the Commerce Department detailing which transactions would be restricted, the judge presiding over the suit against the order ruled that the plaintiffs’ preliminary injunction was moot. However, after an emergency hearing, the judge issued a preliminary injunction on September 20, blocking the Commerce Department from requiring the removal of WeChat from app stores, as well as from prohibiting the other defined transactions. The judge agreed with the free-speech arguments raised by the plaintiffs, and granted the injunction in part based on the fact that “there are no viable substitute platforms or apps for the Chinese-speaking and Chinese-American community.”
In an expected move, the U.S. government appealed the preliminary injunction to the U.S. Court of Appeals for the Ninth Circuit and separately filed a motion to stay the preliminary injunction pending its appeal in the District Court along with new classified documents that the government claimed support its national security concerns. On October 23, the District Court denied the government’s motion to stay pending appeal. The court recognized that the government’s new evidence helped illustrate the threat Tencent, through WeChat, posed to U.S. national security, but held that “the government’s prohibited transactions are not narrowly tailored to address the government’s significant interest in national security,” and that “[t]he court’s assessment of the First Amendment analysis and the risks to national security — on this record — [were] unchanged.” The court was briefed on the effects of each of the prohibited transactions set forth by the secretary of commerce, as well as new information on the threat to national security by the government, as well as best practices for data security by the plaintiffs. Ultimately, the court did not find the government’s new evidence compelling enough to warrant a stay. The court’s denial of the government’s motion to stay pending appeal was expected, since the District Court judge stated she was “not inclined” to reverse her grant of the preliminary injunction after the motion hearing on October 15.
On October 26, the Ninth Circuit also denied the government’s motion to stay the District Court’s preliminary injunction pending appeal because the government had not demonstrated that it would “suffer an imminent, irreparable injury during the pendency of this appeal[.]” A hearing on the merits is scheduled for January 2021.
Ban Intensifies Tensions with China, Which May Impact Global Construction
At a closed-door World Trade Organization (WTO) meeting, China claimed that the order and ban of WeChat was inconsistent with the WTO’s rules and restricted cross-border trading services, and also violated the basic principles and objectives of the multilateral trading system. China further threatened U.S. companies with sanctions following the order by pointedly announcing a new corporate blacklist. China’s Commerce Ministry stated that companies added to its “unreliable entities list” would be prohibited from investing in China or trading with the Chinese market, including imports and exports. While China did not name which companies would land on the list, state media has long threatened that some of the U.S.’s largest companies, including app store providers, could be sanctioned if China’s relations with the U.S. continued to deteriorate. Although there are no indications yet that such potential sanctions would be imposed on U.S.-based construction, energy, or supply chain companies, this is a development that bears watching.
The potential applicability of the order and effects on your business, as well as the potential impacts felt by sanctions imposed by China, could have far-reaching consequences. For now, President Trump’s orders have been stalled from taking effect. However, it will be important to monitor the changing landscape, especially as relations between the U.S. and China continue to fray, and ensure your business complies with all provisions of the order. The information above is for informational purposes only and is not intended to serve as providing legal advice. If you have further questions or seek advice based on your specific situation, please reach out to any members of the Troutman Pepper Construction or Cybersecurity, Information Governance, and Privacy Groups.