US considers new regulations to further restrict Huawei suppliers

Sources tell Reuters rule changes are being proposed that would allow authorities to regulate sales of certain items.

Huawei''s first global flagship store is pictured in Shenzhen, Guangdong province, China October 30, 2019
Putting Huawei on the "entity list" allowed the US government to restrict sales of US-made goods to the company, and some more limited items made abroad that contain US technology. [File: Aly Song/Reuters]

The United States government may expand its power to stop more foreign shipments of products with US technology to China‘s Huawei, amid frustration the company’s blacklisting has failed to cut off supplies to the world’s largest telecoms equipment maker, two sources said.

The US Commerce Department in May placed Huawei Technologies on a trade blacklist, citing national security concerns. Putting Huawei on the entity list, as it is known, allowed the US government to restrict sales of US-made goods to the company, and some more limited items made abroad that contain US technology.

But under current regulations, key foreign supply chains remain beyond the reach of US authorities, prompting inter-agency discussions within the administration of US President Donald Trump about possible changes to two key rules that could expand US authority to block more foreign shipments to the company, giving more teeth to Huawei’s blacklisting, according to two people familiar with the matter.

The expansion of the rules is being considered even though the Trump administration last week agreed to grant some reprieves on the existing ban and continues to seek a deal to de-escalate a bitter trade war.

If the Commerce Department makes the proposed rule changes, it will allow US authorities to regulate sales of non-sensitive items, such as standard mobile phone chips, made abroad with US-origin technology, software, or components to Huawei, which is the world’s second-largest smartphone maker.

Huawei and the Commerce Department did not immediately respond to a request for comment.

The changes would represent “a major expansion of the reach of US export controls and would be poorly received by US allies and US companies,” said Washington trade lawyer Doug Jacobson.

He predicted the actions would upset supply chains but that ultimately Huawei would find other companies to fill the gaps.

One rule the Commerce Department and sister agencies have focused upon broadening is known as the De Minimis Rule, which dictates whether US content in a foreign-made product gives the US government authority to block an export, the people said.

Officials also may expand the so-called “Direct Product Rule”, which makes foreign-made goods based on US technology or software subject to US regulations.

It is neither clear how close the administration is to deciding on the changes, nor whether they would be introduced gradually or suddenly. It also was not immediately clear how the rule-making might take place, though sources said the changes would likely affect only Huawei.

Some China hawks within the administration are hoping for swift results, the people said.

In the months after Huawei was added to the entity list, suppliers such as Intel Corp, Xilinx Inc, and Micron Technology Inc resumed some shipments to the Chinese company after conducting internal reviews to assess what products were not subject to the ban.

Xilinx Chief Executive Victor Peng, for example, told Reuters in July that the company determined that its older, 28-nanometer chips and some chips not designed for 5G gear could legally be sold to Huawei without a special licence. To sell to a blacklisted company, suppliers subject to US rules generally needed to apply for and receive a special licence.

Xilinx and the other companies did not explain why they decided they did not fall under the entity list ban.

The new rule considerations come just days after the Commerce Department gave two important wins to the blacklisted company, whose suppliers need special licences to sell Huawei US manufactured products.

Last week, the agency renewed the so-called “temporary general licence” for Huawei for a third time, extending permission for it to engage in limited transactions to maintain US rural network operators.

And on Wednesday, the Trump administration issued a batch of some 75 licences to allow some suppliers to restart sales to the company after Huawei was placed on a trade blacklist six months ago.

Source: Reuters