As previously reported in our International Trade Insights blog, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added Chinese telecommunications giant Huawei Technologies Co. Ltd. (“Huawei”) and sixty-eight of its affiliate companies to the BIS Entity List effective May 16, 2019. This designation prohibits anyone inside or outside of the United States from exporting, re-exporting or making an in-country transfer of commodities, software or technology that is subject to the U.S. Export Administration Regulations (“EAR”) to any of the listed Huawei companies without an appropriate license from BIS. Commodities, software and technology are “subject to the EAR” when they are of U.S. origin (regardless of whether they are located inside or outside the U.S.), physically present in the U.S., moving in transit through the U.S. or produced outside of the U.S. with qualifying amounts of controlled U.S.-origin content. The BIS designations for these Huawei companies require BIS to evaluate any license applications according to a general presumption of denial. BIS has also issued a Temporary General License (covered here in the International Trade Insights blog) which authorizes limited transactions with Huawei Entity List companies under certain contracts that existed on or before May 16, 2019. This Temporary General License is currently scheduled to expire on August 19, 2019.
U.S. President Donald Trump announced his willingness to authorize additional transactions with Huawei in a press conference at the G20 Summit in Osaka, Japan on June 29, 2019. President Trump mentioned the significant quantity of U.S. origin content that is incorporated into Huawei devices and stated that “And in some cases, we’re the ones that do it and we’re the only ones that do it. We’re the only ones with the technology. What we’ve done in Silicon Valley is incredible actually. And nobody has been able to compete with it. And I’ve agreed — and pretty easily — I’ve agreed to allow them to continue to sell that product so American companies will continue.” He also stated that “I’m talking about equipment where there is no great national emergency problem with it.” However, President Trump’s comments were unclear on whether Huawei and its affiliated companies would be removed from or remain on the Entity List. On July 9, 2019, U.S. Commerce Secretary Wilbur Ross provided some clarity in a speech delivered to the BIS Annual Conference on Export Controls and Security: “To implement the President’s G-20 Summit directive two weeks ago, Commerce will issue licenses where there is no threat to U.S. national security. . . . Huawei itself remains on the Entity List, and the announcement does not change the scope of items requiring licenses from the Commerce Department, nor the presumption of denial.”
As a result, while Huawei and its sixty-eight affiliated companies will remain on the BIS Entity List and will technically continue to be subject to a presumption of licensing denial, BIS appears willing to make certain exceptions and may issue licenses in order to authorize the supply of goods, software and technology that do not threaten U.S. national security to Huawei Entity List companies. It is currently unclear what specific transactions will qualify for these licenses because BIS has not advised how it will interpret the phrase “threat to U.S. national security.” Additionally, Secretary Ross’s comments included a statement that “Within those confines we will try to make sure that we don’t just transfer revenue from the U.S. to foreign firms.” This suggests that BIS may be less likely to issue these licenses to non-U.S. companies seeking to re-export commodities, software and technology subject to the EAR to Huawei Entity List companies.
Anyone seeking to supply commodities, software or technology that are subject to the EAR to a Huawei Entity List company should first examine whether the transaction is authorized by the Temporary General License discussed above. If the transaction does not qualify for the Temporary General License, then the prospective exporter or re-exporter should apply for a license from BIS and include an explanation of why the transaction does not threaten U.S. national security. BIS will then determine whether or not to issue the license. If BIS does issue a license, then the exporter or re-exporter will be able to proceed with the transaction subject to any special terms, conditions or other limitations that the license may impose.
Husch Blackwell’s Export Controls & Economic Sanctions team is closely monitoring BIS’s Huawei related licensing policy and will provide updates in our International Trade Insights blog if BIS provides any additional guidance on evaluation criteria or submission procedures for license applications involving Huawei Entity List companies. In the meantime, please contact Cortney Morgan or Grant Leach with any questions that you might have.
This article was published by Husch Blackwell in the monthly Trade Law Newsletter. To read the full July Trade Law Update click here.