Draft Executive Order Would Tighten Limitations on Chinese Drones; COVID May Spur Other, Similar Measures

As attention is focused on the novel coronavirus (COVID-19) outbreak, a draft executive order (EO) circulating inside the White House would impose new restrictions on a wide swath of unmanned aircraft systems (UAS or drones) made in China or using Chinese components.  In addition to banning essentially all U.S. government procurement and operation of new and existing covered UAS, the EO would also prohibit anyone from operating a covered UAS for hire over federally managed lands—a status that applies to roughly 27 percent of the country.  These restrictions also could be extended to UAS produced by other foreign entities as determined by the Secretary of Commerce.  The approach taken in the draft EO, which is consistent with a number of other recent policy decisions stemming from national security and cybersecurity concerns surrounding Chinese-made products, raises significant questions about the future of the UAS industry given the prevalence of Chinese-made UAS and components in the market today.  Further, the ongoing COVID-19 pandemic may increase the likelihood of similar measures being taken both in the UAS industry and in other sectors.

The draft executive order would enable broad bans on foreign UAS both used by U.S. government agencies and flown over federal lands.  The draft EO would prohibit the use of federal procurement dollars to procure, repair, or service UAS produced by “covered foreign entities,” and also would require federal agencies to prohibit the commercial operation of covered UAS over federally-managed lands.  Under the EO, “covered foreign entities” would include both governments and non-governmental entities that have “engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or its allies” or U.S. persons.  That means “at a minimum, the government of the People’s Republic of China (PRC) and all foreign non-government persons from the PRC,” but the EO also gives the Secretary of Commerce the authority (in consultation with Defense and Homeland Security) to add others to the list through publication in the Federal Register.

UAS that would fall within the scope of the order aren’t just those with a “made in China” stamp, either.  The draft would cover UAS that use a list of foreign-sourced components, as well, including printed circuit boards, flight controller modules, sensors, and gimbals, as well as ground control system host processers and operating software “developed in whole or in part” by a covered foreign entity.  The EO would also reach UAS that use foreign-hosted data storage or hardware or software developed in whole or in part by a foreign entity for collecting or storing photographs, videos, location information, flight paths, or any other data collected by the drone.  The draft EO’s restrictions are subject to limited exceptions surrounding counter-UAS testing, operations related to warfare or intelligence, operations necessary for national security, and life-saving operations (with the latter two exceptions time-limited at 180 and 365 days, respectively).

The draft EO on UAS is a continuation of a policy trend targeting national security concerns generated by Chinese-made products.  The national security and cybersecurity implications of Chinese-made products have been top-of-mind for U.S. policymakers in recent months.  For instance, in May 2019, the President issued an executive order declaring a national emergency with respect to “the unrestricted acquisition or use in the United States of information and communications technology or services” produced by foreign adversaries, which the order asserts “augments the ability of [such] adversaries to create and exploit vulnerabilities” in such technologies, “with potentially catastrophic effects[.]” Consistent with the order’s directive that appropriate federal agencies impose regulations to alleviate these concerns, in November 2019 the Federal Communications Commission adopted a Report and Order prohibiting telecommunications carriers from using funds provided through the Commission’s Universal Service Fund to purchase equipment and services from Chinese companies Huawei and ZTE, and other companies that the FCC subsequently determines pose a national security threat.  (Congress had already banned federal government use of Huawei and ZTE technology in the National Defense Authorization Act for 2019.)  The Commission is also considering whether to mandate the removal of equipment produced by the targeted companies irrespective of whether the carrier is receiving federal funds.

And similar concerns have been percolating in the UAS policy arena at the federal level for some time.  As far back as 2017, the U.S. Army banned the use of certain Chinese drones, and the Department of Defense followed suit in 2018 (though exemptions were permitted).  In May of last year, the Cybersecurity and Infrastructure Security Agency, a part of the Department of Homeland Security, warned about the risks of Chinese drones transmitting data back to China.  In January, the U.S. Department of the Interior abruptly halted its UAS program—easily the most robust domestic UAS program in the entire federal government—because of cybersecurity concerns surrounding its Chinese-made UAS fleet.  In February, the American Drone Security Act of 2019, which would impose many of the same restrictions as the draft EO (although without the ban on commercial flights over federal lands), passed out of the Senate’s Homeland Security and Government Affairs Committee unanimously.   

The draft EO follows directly on the heels of these policy developments.  The stated intent of the EO is to encourage the production of UAS domestically, and to prevent the transfer of information to foreign adversaries.  Although the EO characterizes this potential information transfer as a “grave threat” to US national security, there is little detail provided about any specific instances of this kind of information transfer that might have led to the order.

The impact of the EO on the drone marketplace could be significant.  While the EO would not generally ban the sale of covered UAS for private or commercial use, it would substantially restrict the market for these aircraft by taking U.S. government agencies and those looking to operate commercially over federal land out of the equation.  Moreover, even for those operators not specifically intending to conduct operations over federal lands, such a broad use restriction could significantly restrict flight routes and hamper operations, making covered UAS less appealing commercially.  Finally, the simple fact is that the vast majority of current consumer and prosumer UAS hardware is either manufactured in China or otherwise uses components that fall within the scope of the order.  Even if the EO causes a surge in domestic UAS manufacture, it will likely be some time before those products are widely available.    

The global COVID-19 pandemic may trigger additional restrictions on foreign products both in the UAS industry and more generally.   The draft order is not directly related to the COVID-19 outbreak, but there can be little doubt that the concerns animating the draft EO in the Administration will be supercharged by the way the pandemic has unfolded.  Trade tensions with China, which seemed to be easing late in 2019, have spiked as Administration officials have called the Chinese government out for its response to the virus.  As companies around the world deal with the virus by suspending operations in various countries, supply chain disruptions will likely multiply, adding fuel to the argument the US should have some level of domestic capability for producing devices that have strong national security ramifications, like drones.  Moreover, the restrictions on movement imposed during the COVID-19 outbreak will likely make it easier to push for new trade barriers, as policymakers and consumers around the world adjust to a “new normal” that involves less global interaction and renewed focus on national borders.

Will banning drones made in China or with Chinese components lead to a resurgence in domestic manufacturing?  Or will the EO and similar policies end up depriving American consumers of access to cutting edge equipment and software?  It is far too soon to tell.  One thing is certain—in the COVID and post-COVID age, it will be far easier to make the case for restricting trade and the free movement of people than for further globalization.  These arguments gaining traction could create obstacles for the UAS industry given the prevalence of foreign-made products in use today—obstacles that may be particularly challenging given the difficulties the UAS industry has faced in obtaining regulatory change necessary for widespread expanded operations.        

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