Due to continuing concerns with Huawei Technologies and its non-U.S. affiliates accessing and using U.S. technology and software to design and manufacture its semiconductors, the Department of Commerce (Commerce) announced that it will further tighten export restrictions on the Chinese conglomerate. Commerce’s Bureau of Industry and Security (BIS) will amend its foreign-produced direct product rule and the Entity List “to narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology”, according to the Commerce press release. Secretary of Commerce Wilbur Ross stated, “Despite the Entity List actions the Department took last year, Huawei and its foreign affiliates have stepped-up efforts to undermine these national security-based restrictions through an indigenization effort. However, that effort is still dependent on U.S. technologies.” (See Trump and Trade Update of May 16, 2019). He added, “This is not how a responsible global corporate citizen behaves. We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.”
The forthcoming regulatory change will make the following foreign-produced items subject to the Export Administration Regulations (EAR):
- Items, such as semiconductor designs, when produced by Huawei and its affiliates on the Entity List (e.g., HiSilicon), that are the direct product of certain U.S. Commerce Control List (CCL) software and technology; and
- Items, such as chipsets, when produced from the design specifications of Huawei or an affiliate on the Entity List (e.g., HiSilicon), that are the direct product of certain CCL semiconductor manufacturing equipment located outside the United States. Such foreign-produced items will only require a license when there is knowledge that they are destined for reexport, export from abroad, or transfer (in-country) to Huawei or any of its affiliates on the Entity List.
To prevent any immediate adverse economic impact resulting from these Commerce actions, foreign foundries utilizing U.S. semiconductor manufacturing equipment that have initiated any production step for items based on Huawei-design specifications as of May 15, 2020, will not have such foreign-produced items subject to these new licensing requirements as long as they are reexported, exported from abroad, or transferred (in-country) within 120 days from the effective date of the final rule. Trump and Trade will report further on the rulemaking and any opportunity for public comment upon publication of the notice in the Federal Register.
Extension of Temporary General License
The existing temporary general license to Huawei Technologies Co., Ltd. (Huawei) and its 114 non-U.S. affiliates on the Entity List has been revised and extended. The temporary general license, which was set to expire on May 15, 2020, has been extended until August 13, 2020, for exports, reexports, and transfers (in-country) of items subject to the EAR to any of the listed Huawei entities. See Trump and Trade Update of May 21, 2019 for more details on this temporary general license. This is reportedly the final time BIS will extend this license.