On May 15, 2019, President Trump issued Executive Order 13873 (“E.O. 13873”) and declared a national emergency in response to increasing actions by “foreign adversaries” to create and exploit “vulnerabilities in information and communications technology and services” supplied to the U.S. E.O. 13873 broadly prohibits persons subject to U.S. jurisdiction from engaging in information and communications technology or services transactions with “foreign adversaries” that: (i) pose undue sabotage or subversion risks to U.S. information and communications technology or services, (ii) pose an undue risk to critical U.S. infrastructure or the U.S. digital economy, or (iii) otherwise pose an unacceptable risk to U.S. national security. Within one hundred fifty (150) days of E.O. 13873, the Secretary of Commerce, in consultation with other executive agencies, will issue formal rules or regulations which will identify the specific “foreign adversaries” who are subject to E.O. 13873’s prohibitions, establish criteria for determining the types of transactions that are prohibited by E.O. 13873 and establish procedures for obtaining licensing to conduct transactions that would otherwise be prohibited by E.O. 13873 and its associated rules and regulations.
The range of transactions which could potentially be covered under the forthcoming E.O. 13873 rules and regulations is quite broad and could include any transaction with a “foreign adversary” relating to “any hardware, software, or other product or service primarily intended to fulfill or enable the function of information or data processing, storage, retrieval, or communication by electronic means, including transmission, storage, and display.” The “foreign adversaries” which will be subject to these prohibitions could potentially include “any foreign government or foreign non-government person engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the [U.S.] or security and safety of [U.S.] persons” as well as additional business entities owned by, controlled by or subject to the direction of such “foreign adversaries.” The E.O. 13873 rules and regulations are clearly intended to target transactions where U.S. persons might purchase products or services from “foreign adversaries” for projects being performed in the U.S., but E.O. 13873 is broad enough that the Secretary of Commerce could potentially tailor its rules and regulations to capture various types of transactions with “foreign adversaries” which might take place outside of the U.S. but which involve persons who are otherwise subject to U.S. jurisdiction.
Chinese telecommunications giant Huawei Technologies Co. Ltd. (“Huawei”) is widely expected to be one of the companies designated as a “foreign adversary” when the Secretary of Commerce enacts the E.O. 13873 rules and regulations. In a separate action, the Commerce Department’s Bureau of Industry and Security (“BIS”) added Huawei to its Entity List effective May 16, 2019. Broadly speaking, Huawei’s Entity List designation will prohibit anyone, anywhere in the world from exporting or re-exporting U.S. origin items, foreign-produced items containing qualifying amounts of controlled U.S. origin content and other goods, software and technology subject to U.S. jurisdiction to Huawei without an appropriate BIS license (we covered this action in greater detail in a separate blog post). Persons evaluating transactions with Huawei should understand that the export and re-export prohibitions associated with the Entity List designation took effect on May 16, 2019, whereas any E.O. 13873 prohibitions on transacting with Huawei will not take effect until they are implemented under the Secretary of Commerce’s forthcoming rules and regulations.