Commerce Adds Huawei to Entity List, Increasing Export Controls, China Tensions

The Commerce Department on May 16 added Huawei Technologies to the Bureau of Industry and Security’s Entity List, eliciting strong reaction from Huawei and China over the move that may have substantial effects on U.S. exporters. In a notice in the Federal Register, BIS said it is imposing license requirements on Huawei and its 68 non-U.S. affiliates for all items subject to the Export Administration Regulations with a license review policy of presumption of denial. The Federal Register notice is scheduled for May 21 publication, but the changes take effect May 16. All shipments aboard carriers as of May 16 may proceed to their destinations under previous license conditions.

Commerce named 26 locations for Huawei’s 68 affiliates: Belgium, Bolivia, Brazil, Burma, Canada, Chile, China, Egypt, Germany, Hong Kong, Jamaica, Japan, Jordan, Lebanon, Madagascar, Netherlands, Oman, Pakistan, Paraguay, Qatar, Singapore, Sri Lanka, Switzerland, Taiwan, United Kingdom and Vietnam.

Kevin Wolf, a former Commerce assistant secretary for export administration, said the move points toward “billions [of dollars] in impact” on Huawei and U.S. companies. “This is dramatic,” Wolf said. “It’s a significant ratcheting up of tensions.”

In a press release, Commerce said companies will need BIS-issued licenses to sell “American technology” to Huawei and its affiliates. “This will prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests,” Secretary of Commerce Wilbur Ross said in a statement.

Huawei said it is “against” Commerce’s decision, saying in a statement it “is in no one’s interest. It will do significant economic harm to the American companies with which Huawei does business, affect tens of thousands of American jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain.” It also said it will “seek remedies immediately” and “endeavor to mitigate the impacts of the incident.”

In a May 16 report, before BIS published the notice in the Federal Register, Sandler, Travis & Rosenberg said new export controls are “likely” to cover “most if not all transactions subject to U.S. jurisdiction.” The report also said it expects BIS's inclination to issue licenses to be “significantly limited.” “Ultimately, companies need to be prepared to stop” doing business with Huawei, the report said, adding that more entity list additions will follow in the “coming weeks and months.”

Adrienne Braumiller, an export control attorney with Braumiller Law Group, said U.S. exporters need to “properly screen” parties in their transactions to stay in compliance. But for others, the move might signal a devastating blow to their business. “It’s definitely painful,” she said. “There have been times that we've seen people that don’t have very good contracts when these things happen and they’re stuck.”

Wolf said the timing of Commerce’s announcement, the same day Trump signed an executive order that allowed the U.S. to ban telecommunications goods and services from "foreign adversaries," was likely planned. Wolf said the U.S. may have been holding both the order and the Entity List announcement during trade negotiations with China. “Now the trade talks have fallen apart, the administration thought, ‘now we’re going to let loose,’” Wolf said. “The timing is not coincidental.” Both Braumiller and Wolf said they expect more export controls to follow, especially those that “tighten controls with respect to China on already controlled items,” Wolf said.

Speaking on the Senate floor on May 16, Senate Minority Leader Chuck Schumer, D-N.Y., applauded both the move by Commerce and Trump’s executive order, calling Huawei and other “foreign telecommunication companies” a “threat” to U.S. national security. “Time and time again we make great products the Chinese don’t let us sell to China. They instead keep the product out, steal the technology, and then produce it themselves,” Schumer said. “Well, it’s about time there’s a little fair play.”

Robert Mayer, senior vice president-cybersecurity at USTelecom, called the moves a “national security issue of the highest order.” “Action is required against any country, organization or individual that exploits the technology supply chain to compromise our global internet and communications infrastructure,” Mayer said in a statement.