On August 17, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice and Final Rule taking several actions directly impacting Huawei Technologies Co., Ltd. (Huawei) and its non-U.S. affiliates. Importantly, after issuing and extending a temporary general license since May 2019, BIS removed that license and replaced it with a more limited permanent authorization. BIS also added thirty-eight (38) non-U.S. affiliates of Huawei to the Entity List and revised identifying information on several other previously listed affiliates. Finally, the notice announces amendments to the special variation on the foreign-produced direct product rule applicable to transfers to Huawei or its affiliates.

Expiration of Temporary General License

In this Final Rule, BIS announced that the Temporary General License (TGL) has expired as of August 13, 2020. In its place, BIS has issued a limited permanent authorization for the Huawei entities on the Entity List. This limited authorization is for the sole purpose of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently “fully operational networks” and equipment. BIS has allowed to expire the prior authorizations allowing: (i) continued operation of existing networks and equipment; and, (ii) support to existing “personal consumer electronic devices” and “Customer Premises Equipment (CPE).” BIS has made permanent an export authorization for necessary cybersecurity research and vulnerability disclosures; specifically by ensuring that exports, reexports, or transfers (in-country) involving cybersecurity research and vulnerability disclosure are allowable for national security purposes and are not hindered by the Entity List license requirements for Huawei and its non-U.S. affiliates on the Entity List. For prior information on Huawei’s TGL and its prior status, see Updates of May 21, 2019 and May 15, 2020.

Additions to the Entity List

In addition to the 68 Huawei affiliates placed on the Entity List in May 2019 and the 46 added in August 2019, BIS has now added another 38 Huawei non-U.S. affiliates to the Entity List effective immediately, bringing the total number of listed and restricted affiliates to 152. Being placed on the Entity List imposes a license requirement for all items subject to the EAR and implements a BIS license review policy of a “presumption of denial.” BIS also modified four existing Huawei affiliate Entity List entries, and added to export restrictions by imposing license requirements on “any transaction involving items subject to Commerce export control jurisdiction where a party on the Entity List is involved, such as when Huawei (or other Entity List entities) acts as a purchaser, intermediate, or end user.”  BIS stated that this action was necessary to prevent Huawei’s continued attempts to circumvent U.S. export controls to obtain electronic components developed or produced using U.S. technology. For prior information on Huawei BIS Entity Listings, see Updates of May 17, 2019, and August 19, 2019.

Foreign-Produced Direct Product Rule Amendments

The Final Rule simplifies the special variation on the foreign-produced direct product rule applicable to transfers to Huawei and its affiliates. The prior Interim Rule made the following subject to the Export Administration Regulations (and hence prohibited for transfer to Huawei without a license): (i) 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, (ii) items, such as chipsets, when produced from the design specifications of Huawei or an affiliate on the Entity List, that are the direct product of certain CCL semiconductor manufacturing equipment located outside the United States.

The Final Rule removes the requirement that covered semiconductor items be designed by Huawei, to be subject to the EAR. Now, the final rule makes the following subject to the EAR necessitating a license to transfer to Huawei:

  • Items that are the direct product of certain controlled electronic devices, computer and telecommunications software or technology involving certain electronic circuits; processors; integrated circuits; electronic and digital computers; and certain telecommunications test, inspection and production equipment;
  • Items that are manufactured at plants located outside of the United States that are the direct product of such controlled U.S.-origin software or technology; and,

when there is “knowledge” that the foreign-produced item: (1) will be incorporated into, or will be used in the “production” or “development” of any “part,” “component,” or “equipment” produced, purchased, or ordered by any listed Huawei entity or affiliate; or (2) any listed Huawei entity or affiliate is a party to any transaction involving the foreign-produced item, e.g., as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user.”

According to BIS, “This amendment is intended to further restrict Huawei from obtaining foreign made chips developed or produced from U.S. software or technology to the same degree as comparable to U.S. chips.” Notably, the rule states that license applications for the transfer of such items only capable of supporting communication below the 5G level will be reviewed on a case-by-case basis (as opposed to a policy of denial). For prior information on this issue, see Update of May 15, 2020.