U.S. and non-U.S. suppliers of hardware, software and technologies that are subject to the U.S. Export Administration Regulations take heed: On May 16th, the Commerce Department’s Bureau of Industry and Security (“BIS”) added Huawei Technologies Co., Ltd. (“Huawei”) as well as 68 of its non-U.S. affiliates, to the Entity List in Supplement No. 4 to Part 744 of the Export Administration Regulations (“EAR”). See 84 Federal Register 22961 (May 21, 2019). However, just a few days later on May 20th, BIS granted a 90-day reprieve from the effects of the Entity List designations by issuing a Temporary General License that authorizes certain exports, reexports and in-country transfers involving Huawei and its non-U.S. affiliates. Although the effective date and time that the new Entity List restrictions took effect is not entirely clear, exporters and reexporters are urged to act conservatively and assume that the restrictions took immediate effect on May 16th. Note that a narrow safe harbor has been incorporated into the restrictions on Huawei in that items that are subject to the EAR, which were shipped and en route to a Huawei entity on or before May 16th (and provided that no BIS export license was required at that time), will be exempt from the restrictions of the new rule.
Huawei has reportedly been under U.S. government investigation for quite some time, and the U.S. Government has determined that there is reasonable cause to believe that Huawei has acted contrary to U.S. national security and foreign policy objectives. For example, Huawei has been indicted in the United States for selling and supplying goods, technology and services from the United States to Iran in violation of U.S. sanctions. In addition, the U.S. government alleges that Huawei and certain of its affiliates engaged in a series of deceptive and obstructive acts to evade U.S. export and sanctions laws and avoid detection by U.S. law enforcement—this led to the decision to add 68 of the company’s non-U.S. affiliates to the Entity List as well.
- Effects of Huawei’s Entity List Designation
Huawei, a Chinese-owned company, is the largest telecommunications equipment producer in the world. Its inclusion on the Entity List will effectively cut off Huawei from purchasing and acquiring U.S.-origin products, software and technology. In addition, the use of its products and technologies in U.S. telecommunications products and networks will be significantly restricted as well.
The EAR’s Entity List identifies parties believed to be involved, or pose a significant risk of being or becoming involved, in activities that run contrary to U.S. national security or foreign policy interests. Both U.S. and non-U.S. suppliers of commodities, software and technology that are subject to the EAR are prohibited from exporting, reexporting or transferring (in-country) any item that is subject to the EAR to an Entity List party without a license from the BIS. An item is “subject to the EAR” if it is:
- Located in the United States;
- A U.S.-origin item, wherever located;
- Manufactured outside of the United States and contains more than de minimis amounts of controlled U.S. content; and,
- A foreign direct product of certain U.S. technology or software.
Accordingly, exports, reexports and in-country transfers to parties on the Entity List will trigger EAR licensing requirements even where those items are classified as EAR99, eligible for No License Required (NLR) or otherwise eligible for EAR license exceptions. The BIS will generally deny license applications requesting authorization to deal with an Entity List party, and no EAR license exceptions involving an Entity List party can be used.
- The 90-Day Temporary General License
Just a few days after the Huawei entities were added to the Entity List, the BIS announced the rollout of a 90-day Temporary General License that partially restores the ability of U.S. and non-U.S. suppliers to engage in certain transactions with the Huawei entities without EAR licenses despite the Entity List restrictions. See 84 Federal Register 23468 (May 22, 2019). For the period May 20th to August 19th, exports, reexports and in-country transfers of items subject to the EAR to Huawei and its 68 non-U.S. affiliates that involve the following transactions may proceed without a license from the BIS—
Transactions 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 and third parties or the non-U.S. Huawei affiliates and third parties;
Transactions necessary to provide service and support, including software updates or patches, to existing Huawei handsets that were available to the public on or before May 16, 2019;
Disclosures to Huawei and the non-U.S. Huawei affiliates of information regarding security vulnerabilities in items owned, possessed or controlled by Huawei or the affiliates when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently fully operational networks and equipment, as well as handset; and,
Engagements with Huawei and/or its non-U.S. affiliates for the development of 5G standards as part of a duly recognized international standards body (e.g., IEEE, IETF, ISO, ITU, ETSI, 3GPP, TIA, and GSMA).
Exports, reexports and in-country transfers involving the activities described above will be subject to the same EAR licensing requirements that applied prior to the Huawei entities’ inclusion on the Entity List. (Of course, licensing requirements triggered under other parts of the EAR, such as those relating to the export classification of items, destination countries involved, end-users and end-uses, still remain in effect.)
If the lessons from the prior ZTE case are any indication here, it is very possible that the BIS will extend the Temporary General License for the Huawei entities beyond the August 19th deadline or adopt additional Temporary General Licenses.
- Certification Requirements
Companies engaging in transactions with Huawei and its non-U.S. affiliates that are authorized by the BIS’ Temporary General License must also comply with new certification and recordkeeping requirements under the EAR. Specifically, exporters, reexporters or transferors of any item authorized under the Temporary General License must issue written certification statements describing how the particular activity or transaction falls within the scope of the Temporary General License. These certification statements must be maintained in accordance with the EAR’s record retention requirements set forth in Section 762 of the EAR.
- Key Take-Away’s
Both U.S. and non-U.S. companies dealing in items that are subject to the EAR and whose supply chains involve Huawei or its affiliates are urged to carefully review the Federal Register notices announcing the addition of the Huawei entities to the Entity List and the rollout of the Temporary General License. Companies should carefully review any current projects they have which involve the Huawei entities and identify whether the Temporary General License is available. Of course, companies should cease further activities involving the Huawei entities that do not fall within the scope of the Temporary General License. Where companies identify transactions covered by the Temporary General License, they should complete the required written certification statements describing how the activities comport with the terms of the Temporary General License—those certifications should be maintained as part of the companies’ internal record retention processes. Companies are also urged to monitor closely further developments in the case, especially as to whether the Temporary General License will be extended beyond August 19th, modified or even terminated altogether.