It’s not surprising that Chinese telecommunications equipment vendor Huawei Technologies is back in the headlines. Most export control proceedings take place outside the spotlight, perhaps getting a brief mention at most on the business page. The new restrictions on Huawei differ because they have widespread impact and fit nicely into the ongoing Trade War with China theme. Here’s what’s been happening.
Huawei’s problems erupted in December 2018, when the firm and its Chief Financial Officer were indicted for bank fraud. At risk of oversimplifying things, the criminal allegation is that the company misled financial institutions by claiming that it neither had an affiliate in Iran nor conducted illegal business there. As a result, those institutions were induced into processing money transactions that were prohibited under the Iranian Transactions and Sanctions Regulations issued by the Office of Foreign Assets Control. Huawei’s activities further caused unlawful exports of “banking and other financial services from the United States to Iran and the Government of Iran.”
On May 21, 2019, the Bureau of Industry and Security placed Huawei and “sixty-eight non-U.S. affiliates of Huawei located in twenty-six destinations” on the Entity List. This list identifies persons “involved in activities that are contrary to the national security or foreign policy interests of the United States and those acting on behalf of such persons.” Given the egregious activities alleged in the indictment, Huawei and its affiliates seem to meet that standard.
The consequence of Entity List designation is that “exports, reexports, or transfers (in-country) of items subject to the EAR involving these entities” are prohibited without a BIS license. The stated policy of denial means that such licenses likely will be few and far between. No unlicensed shipments of covered goods, however innocuous, are permitted.
Whether an item is within the license requirement depends on whether it is “subject to the Export Administration Regulations.” Determining the scope of coverage may be particularly challenging for companies located outside the United States, which now must pay closer attention to the origin of items they plan to sell to Huawei or its affiliates. A similar challenge applies to foreign manufacturers that incorporate U.S.-origin content on their products. If vendors of application software to Huawei have not yet evaluated whether their products qualify as “published” under 15 C.F.R. § 734.7, now might be an opportune time to do so.
A particularly pernicious feature of the Huawei designation is its effective date of May 16, 2019, the date of its announcement on the BIS website. Mitigating the harshness of this provision is the “savings clause” that excludes from the license requirement “Shipments of items . . . that were en route aboard a carrier to a port of export or reexport, on May 16, 2019, pursuant to actual orders for export or reexport to a foreign Destination.”
Almost immediately after Huawei and its affiliates’ Entity List placement, BIS issued a temporary general license authorizing designated types of transactions through August 19, 2019. The scope is limited to transactions that are:
(1) “necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches, subject to legally binding contracts and agreements executed between Huawei [or its named affiliates] . . . and third parties on or before May 16, 2019,”