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BIS Imposes More Huawei Restrictions, Continues One TGL Authorization

August 18, 2020 by Ian Cohen|Top News

The Bureau of Industry and Security on Aug. 17 added 38 Huawei affiliates to the Entity List and refined a May amendment to its foreign direct product rule, further restricting Huawei’s access to U.S. technology, the agency said in an Aug. 17 final rule. BIS also modified four existing Huawei entries on the Entity List, amended language in the Export Administration Regulations and said it will continue one cybersecurity-related authorization under its temporary general license for Huawei. The remainder of the license expired Aug. 13.

The changes, which took effect Aug. 17, expand on the restrictions outlined in the agency’s May rule change, which created a “footnote 1” designation that imposes controls on goods that are the direct product of certain technology or software subject to the EAR (see 2005150058). Under the new rule, the restrictions will now also apply to transactions where U.S. software or technology is “the basis” for a foreign-made item produced, purchased or incorporated into any item made or ordered by a Huawei affiliate that is designated by footnote 1. The rule will also apply when a Huawei entity that is designated with a footnote 1 is “a party to such a transaction,” including when it is a purchaser, intermediate consignee, ultimate consignee or end-user,” BIS said.

BIS also added a license review policy to footnote 1, specifying that the agency will consider the “[s]ophistication and capabilities of technology” as a factor in application reviews. The note clarifies that applications for foreign-made goods controlled by footnote 1 that can support telecommunication devices “only below the 5G level” are subject to a case-by-case review. BIS also made several technical changes to language in footnote 1 to account for the new restrictions imposed by this rule.

BIS also added 38 Huawei affiliates across 21 countries to the Entity List, imposing a license requirement for all items subject to the EAR. BIS said each affiliate poses “a significant risk of acting on Huawei’s behalf” and would likely be used to evade U.S. export restrictions. License reviews for the entities will be subject to a presumption of denial.

The expanded restrictions are intended to address loopholes in export restrictions placed on Huawei. Secretary of State Michael Pompeo said Huawei “has continuously tried to evade” the previous changes to the foreign direct product rule, and Commerce Secretary Wilbur Ross said the technology company has “extended [its] efforts” to obtain U.S. semiconductor technology.These changes will make it more challenging for Huawei to do so, Ross said.

“As we have restricted its access to U.S. technology, Huawei and its affiliates have worked through third parties to harness U.S. technology in a manner that undermines U.S. national security and foreign policy interests,” Ross said. “This multi-pronged action demonstrates our continuing commitment to impede” Huawei.

Ross told Fox News Aug. 17 that the restrictions are unrelated to U.S.-China trade talks. “It's really a question of closing loopholes to prevent a bad actor from accessing U.S. technology even if they try to do it in a very indirect, very tricky matter,” he said. Huawei did not comment.

While BIS allowed its temporary general license for Huawei to expire, the agency said one authorization under the license “warranted being preserved.” The authorization will allow exceptions for certain exports, reexports or transfers involving “cybersecurity research and vulnerability disclosure” that are “not hindered” by Entity List licensing requirements. BIS will capture this exception by adding a “footnote 2” to entries on the Entity List that fall under this authorization.

All exports and reexports that now require a license as a result of the expiration of the temporary general license and the 38 additions to the Entity List that were aboard a carrier to a port as of Aug. 17 may proceed to their destinations under the previous eligibility, BIS said.

BIS listed two separate saving clauses for shipments impacted by expanded restrictions to the direct product rule. Items covered under paragraph (a) of footnote 1 that now require a license that were aboard a carrier to a port as of Aug. 17 may proceed to their destinations under the previous eligibility. Items covered under paragraph (b) to footnote 1 that began production before Aug. 17 and that are not subject to certain EAR restrictions may proceed to their destination as long as they have been shipped on or before Sept. 14.

In a separate final rule, the agency amended text in the EAR to clarify that Entity List requirements apply to designated companies not only when they are an ultimate consignee or end-user but also when they are a party to a transaction as “a purchaser or intermediate consignee.” BIS said the amended text “will make clear for exporters, reexporters, and transferors the scope of the Entity List’s licensing requirements to effect the purpose of the Entity List.” The agency added that the changes “align with other end-user controls” under the EAR, such as the Unverified List. “BIS has determined that aligning the language of the Entity List and Unverified List requirements should ease the compliance burden on exporters, reexporters, and transferors because it will eliminate any confusion in interpretation of these two end-user control lists,” the rule said. The rule took effect Aug. 17.

BIS also revised four existing entries for Huawei Device Co., Ltd., Huawei Device (Shenzhen) Co., Ltd., Huawei do Brasil Telecomunicacões Ltda and Huawei Technologies Co., Ltd. by adding aliases and addresses. The 38 additions to the Entity List are: