Commerce Reportedly Withdraws Rule to Increase Restrictions on Foreign Sales to Huawei

The Commerce Department withdrew a proposed rule that would have further restricted foreign sales to Huawei that contain U.S.-origin goods, according to a Jan. 24 report in The Wall Street Journal. Commerce officials withdrew the rule from the Office of Management and Budget after objections from both the Defense and Treasury departments over concerns that the rule could hurt U.S. companies and U.S. national security interests, the report said. The Pentagon specifically voiced concerns that the rule could deprive U.S. companies of an important source of revenue they need for research and development to maintain a technological edge over China, the report said. The rule would have lowered the U.S.-origin threshold on exports to Huawei to 10 percent, but required the State, Commerce, Defense and Energy departments to approve with input from the Treasury, the report said.

Commerce had been close to publishing the rule, which would have expanded its authority to block shipments of foreign-made goods to Huawei through changes to the de minimis rule and the Direct Product Rule (see 2001160028 and 1912100033). A former top Commerce official said the move would have “dramatic implications” on international supply chains (see 1912130052). Commerce Secretary Wilbur Ross told Bloomberg Jan. 23 the rule is scheduled to be published in the “near-term.” The OMB did not comment, and a Commerce spokesman declined to comment other than to say that “if or when we have something to announce, we will do so.”

The U.S.'s effort to increase restrictions on foreign sales to Huawei may be unfairly forcing foreign companies to choose between supporting the U.S. and improving their own commercial interests, former secretary of state Condoleezza Rice said, speaking during a Jan. 24 event hosted by the Aspen Institute. “I would be a major proponent of not having Huawei in my 5G network,” Rice said, “but do I really want to say that you can't sell components to Huawei?” She said the U.S. should “be very careful how hard we push on these kinds of issues,” adding that the U.S. can limit sales to Huawei without sweeping regulatory changes to foreign exports. “At least don't make [them] choose so visibly and audibly,” Rice said of foreign companies and countries. “I think with the right incentives, people will choose correctly.”