In a press release earlier this month, the Bureau of Industry and Security (BIS) announced a tightening of controls against Chinese tech firm Huawei Technologies. BIS also added an additional 38 Huawei affiliates to the Entity List – an action that will impose a license requirement for all items subject to the Export Administration Regulations (EAR) to those affiliates. According to BIS, these moves “prevent Huawei’s attempts to circumvent U.S. export controls to obtain electronic components developed or produced using U.S. technology.”
The U.S. Government’s actions against Huawei go back a long time and are well-documented on this blog. You can read our most recent story here. It’s a balancing act of trying to, on the one hand, promote global trade and, on the other hand, prevent certain U.S. technology from going to Chinese state-run Huawei. With this new action, BIS is further tightening its controls. In May of this year, BIS changed its foreign-produced direct product (FDP) rule to target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology. This recent action adds to that rule by applying controls to two different types of transactions:
- A transaction where U.S. software or technology is the basis for a foreign-produced item that 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 Huawei entity on the Entity List; or
- A transaction when any Huawei entity on the Entity List is a party to such a transaction, such as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user.”
The Entity List changes impose a license requirement for all items subject to the EAR. Although being on this list technically does not represent a “hard no,” doing business with one of these entities is a “red flag” and license requests are subject to a “presumption of denial” policy by BIS. (To put that in plain English — don’t do it and don’t apply for a license. Or, if your company has a high tolerance for risk, then “proceed with extreme caution.”) Failure to follow EAR licensing requirements is violation that could result in criminal and/or civil penalties, including fines, debarment and imprisonment.
“Huawei and its foreign affiliates have extended their efforts to obtain advanced semiconductors developed or produced from U.S. software and technology in order to fulfill the policy objectives of the Chinese Communist Party,” said Commerce Secretary Wilbur Ross. “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. This multi-pronged action demonstrates our continuing commitment to impede Huawei’s ability to do so.”
Does your company need help with EAR compliance or restricted party screening? Our team of experts has decades of experience helping organizations of all sizes understand and comply with U.S. trade compliance regulations. Schedule a no-charge consultation today, and find out how we can help you!
Tom Reynolds is the Vice President of Operations for Export Solutions, a consultancy firm which specializes in ITAR and EAR compliance.