U.S. Department of Commerce Imposes Further Restrictions Directed at Huawei
By Tom Best, Behnam Dayanim, Scott Flicker , Charles Patrizia , Shaun Wu, Quinn Dang & Talya Hutchison
On May 15, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an
Prior to this amendment, the Export Administration Regulations’ (“EAR”) foreign direct product rule largely prohibited companies from providing Huawei with items that were the direct product of certain U.S.-origin technology, but the scope of the rule was limited to specified U.S.-origin equipment and certain foreign direct products that were restricted for national security reasons. For example, depending on the type of equipment used to produce the chips, items such as integrated circuits produced by foreign semiconductor foundries still could be provided to Huawei. Now, because of the amended rule, foreign manufacturers of semiconductor chips whose operations use equipment that is the direct product of most relevant U.S. designs cannot ship products to Huawei without a license from BIS. According to BIS, any such license requests would be subject to a presumption of denial.
Specifically, BIS amended Prohibition Three of the EAR’s general prohibitions and simultaneously amended the Entity List. BIS amended the Entity List by adding a footnote (“Footnote 1”) imposing additional restrictions on items sent to any entity designated with such a footnote notation. Currently, all Huawei entities and their affiliates on the Entity List are designated with Footnote 1 and no other entities are subject to Footnote 1. The result of this action is to make two new types of items subject to the EAR: (i) items, such as semiconductor designs, when produced by Huawei that are the direct product of specified software and technology that are subject to the EAR; and (ii) items, such as chipsets, when produced from Huawei design specifications, that are the direct product of manufacturing equipment located outside the United States.
BIS stated in its
Although this rule became effective on May 15, 2020, there is a limited transition period that applies to certain items already in production. BIS has also invited public comments on the impact of the rule. Any person wishing to submit a comment must do so on or before July 14, 2020.
The latest Department of Commerce action is a reminder that the Trump Administration remains aggressive and active (even during the COVID-19 pandemic) on multiple fronts in actions against Huawei and potentially other Chinese technology manufacturers. Companies (including semiconductor foundries) should carefully review these rules to ensure their existing business and supply chains are in compliance with the new rules and regulations, and may wish to consider the regulatory and other risks of doing business with a company under such intense scrutiny by the United States and certain other Western countries.