The U.S. government is expanding international trade restraints against Huawei Technologies Co. Ltd. (“Huawei”) and its affiliates in an effort to further restrict Huawei’s access to U.S. technologies. The Department of Commerce’s Bureau of Industry and Security (“BIS”) is:
- intensifying restrictions on designated Huawei companies’ access to, among other items, computer chips, by amending the so-called “foreign-produced direct product rule” as it applies to Huawei designees;
- broadening the scope of Huawei affiliates to which the restrictions apply by adding more of them to the export control Entity List; and
- discontinuing and replacing a general license that had resulted in limited application of the restrictions under certain circumstances.
Although the new rules are not scheduled to be officially published until August 20, 2020, the U.S. government will apparently take the position that they became effective on August 17.
Expanding U.S. Export Controls on Supply of Foreign-Made Items
Restrictions regarding Huawei Entity List designees, like all parties on the Entity List, apply to exports and other transfers of goods, software and technology that are in the United States, created in the United States or otherwise “subject to” the Export Administration Regulations (the “EAR”). BIS is strengthening Huawei-related restrictions by expanding the circumstances in which foreign-made semiconductors and other items are subject to the EAR by virtue of being, or containing items that are, the direct product of U.S.-origin software or technology.
As described in our prior alert in May 2020, BIS previously amended the EAR General Prohibition Three – the so-called foreign-produced direct product rule – to restrict supply to Huawei designees of foreign-made items (such as semiconductors) that are (a) developed or produced by Huawei designees and the direct product of certain software and technology subject to the EAR, or (b) (i) produced by a plant or major component of a plant, either of which is the direct product of certain U.S. technology or software, and (ii) the direct product of Huawei technology or software.
In its latest action, BIS is removing the condition that the foreign item must be the direct product of Huawei technology or software or developed or produced by Huawei designees. The amended rule restricts (i) the export, re-export or transfer of certain foreign-made items where there is knowledge that such items will be made part of, or otherwise used in, production of other items produced, purchased or ordered by a Huawei designee, and (ii) transactions for supply of such items in which there is knowledge that a Huawei designee plays a role other than that of an end user (e.g., purchaser or intermediate consignee). These actions are reportedly designed to eliminate Huawei’s ability to circumvent the prior restrictions by buying foreign-made items (such as semiconductors) from non-U.S. companies instead of making the items itself.
The foreign-made items covered by the newly amended foreign-produced direct product rule as it relates to Huawei Entity List designees are those that are either:
- the “direct product” of software or technology subject to the EAR and covered by any of the following export control classification numbers (“ECCNs”) on the Commerce Control List: 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001 or 5E991; or
- produced by any plant or major component of a plant that is the direct product of U.S.-origin software or technology subject to the EAR and covered by any of the ECCNs listed directly above (where for these purposes “a major component of a plant” is defined to mean equipment that is essential to the production of an item, including testing equipment).
BIS advises that parties are expected to conduct due diligence to establish possible involvement of a Huawei designee in a transaction in accordance with BIS’s Know Your Customer guidance.
More Huawei Entities Added to the Entity List
As discussed in our prior alerts in May 2019 and August 2019, BIS previously placed Huawei and 114 Huawei non-U.S. affiliates on the Entity List.
In its latest action, BIS added another 38 Huawei non-U.S. affiliates in 21 countries to the Entity List. This action expanded the Huawei Entity List restraints to Huawei affiliates in countries such as Israel, Morocco, Peru, Turkey and the UAE. The restrictions now cover 153 Huawei entities in 51 countries.
Removal of Temporary General License
BIS previously issued – and extended several times – a temporary general license (the “TGL”) authorizing certain transactions with the listed Huawei entities. BIS is now removing the TGL and replacing it with a more limited permanent authorization, to apply to all 153 Huawei designees. In the new authorization, BIS is preserving one element of the TGL – excluding exports and some other transfers involving cybersecurity research and vulnerability disclosure from the licensing requirements relating to Huawei designees.