In apparent recognition of the chaos that its recent inclusion of Huawei Technologies Co., Ltd. and 68 non-U.S. affiliates (collectively, “Huawei”) on the Department of Commerce’s (DOC) Entity List could cause, on May 20, 2019 – the day before the listing actually became effective -- DOC issued a 90-day “temporary general license” (TGL) granting partial, short-term relief that will allow continued sale of certain critical American and foreign components and technology to Huawei and, in turn, allow Huawei to continue to support existing facilities of American information and communications technology services (ICTS) providers. However, DOC’s action is fraught with ambiguity, and the breadth of the 90-day reprieve, and its benefit to Huawei and companies that depend on Huawei gear, will not be known until DOC issues FAQs or other guidance better explaining the intent and scope of its recent actions. In the meantime, notwithstanding the TGL, additional companies continue to announce their partial or complete discontinuance of business dealings with Huawei.
As we previously reported, President Trump and the U.S. Department of Commerce (DOC) took actions on May 15, 2019, that could effectively ban Huawei and other unnamed Chinese telecom manufacturers from selling their equipment to American ICTS providers, and from buying components from U.S. manufacturers that are critical to Huawei’s products. These actions immediately reverberated throughout the ICTS sector, with stocks of many of Huawei’s major U.S.-based suppliers dropping, companies such as Google curtailing sales to Huawei, international standards-setting organizations such as IEEE announcing restrictions on Huawei’s right to participate in 5G standards development, and general confusion among many ICTS providers regarding how they would be able to maintain, support and expand networks designed around Huawei gear. Of most immediate effect was DOC’s addition of Huawei and its 68 non-U.S. affiliates to the so-called Entity List, a list of entities deemed to be involved, or likely to become involved, in activities contrary to the national security or foreign policy of the U.S. Inclusion on that list, absent some walk-back by DOC, would prevent Huawei from buying chips, software and other critical components from American suppliers without U.S. government approval, and effectively bar foreign manufacturers from selling components to Huawei if they include more than de minimis amounts of U.S.-origin parts or are based on U.S. technology. That listing took effect on May 21, 2019.
The Temporary General License
The TGL, which is effective from May 20, 2019, through August 19, 2019, states that notwithstanding the inclusion of Huawei and its affiliates on the Entity List, the following transactions and activities are authorized, “subject to other provisions of the EAR”:
- Continued Operation of Existing Networks and Equipment: engagement in transactions "necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches, subject to legally binding contracts and agreements executed between Huawei and third parties or the sixty-eight non-U.S. Huawei affiliates and third parties on or before May 16, 2019.”
- Support to Existing Handsets: engagement in transactions “necessary to provide service and support, including software updates or patches, to existing Huawei handsets that were available to the public on or before May 16, 2019.”
- Cybersecurity Research and Vulnerability Disclosure: disclosure to Huawei and/or its sixty-eight non-U.S. affiliates of information regarding security vulnerabilities in items owned, possessed, or controlled by the Huawei entities “when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently fully operational networks and equipment, as well as handsets.”
- Engagement as Necessary for Development of 5G Standards by a Duly Recognized Standards Body: engagement with Huawei and/or its sixty-eight non-U.S. affiliates “as necessary for the development of 5G standards as part of a duly recognized international standards body (e.g., IEEE – Institute of Electrical and Electronics Engineers” and others).
Required Certification Statement and Change to EAR Recordkeeping Requirement
DOC included a requirement that each person making an export, re-export, or transfer (in-country) to Huawei pursuant to the TGL must, prior to the transaction, prepare a certification statement that specifies how the export, re-export or transfer meets the scope of the TGL, and must maintain the statement in compliance with DOC recordkeeping requirements.
The TGL raises as many questions as it answers. It is no surprise then that, notwithstanding issuance of the TGL, a number of companies have continued to announce the curtailment of significant business relationships with Huawei, including AMR, Panasonic and others. Until further guidance is forthcoming from DOC – which we expect in the near future – companies supplying components to Huawei, or purchasing gear from Huawei, will need to carefully parse the TGL’s terms and balance the risk of doing business with Huawei against the potentially severe consequences of violating the restrictions imposed by the DOC Entity List.