John P. Carlin, Nicholas J. Spiliotes, Joseph A. Benkert, Panagiotis C. Bayz, Charles L. Capito III, and Amy S. Josselyn
National Security, CFIUS, Sanctions + Export Controls
The U.S. Department of Commerce (Commerce) has added Huawei Technologies Co. Ltd. (Huawei) and its affiliates to the Bureau of Industry and Security (BIS) “Entity List,” a move that effectively cuts off Huawei from directly or indirectly acquiring U.S.-origin hardware, software, and technology. These new restrictions became effective at 4:15 p.m. Eastern time on May 16 when Commerce displayed the Federal Register Notice implementing the Entity List additions on the public inspection list. We expect more guidance to become available over the next several days as these restrictions are further implemented.
The Entity List additions come in the wake of multiple, rapid-fire actions over the past week by the U.S. Administration, ultimately aimed at Chinese telecommunications businesses. These actions include the May 15 Executive Order declaring a national emergency and mandating regulations to create a new national security review process prohibiting certain transactions involving information and communications technology from certain companies and countries not specified but widely believed to be targeted at Huawei and China. Last week, the Federal Communications Commission (FCC) also denied China Mobile International (USA) Inc.’s application for a license to provide telecommunications services in the United States.
Effects of Adding Huawei to the Entity List
Huawei and its affiliates identified in the BIS Notice are effectively banned from receiving any items subject to the EAR, which include:
Huawei’s Entity List designation was reportedly kept on hold during the ongoing U.S.-China tariff negotiations, but, with those negotiations deteriorating, the Administration may be using this as a tactic to ratchet up the pressure on China. If the tariff negotiations are successful, it is possible that the U.S. government may offer Huawei an exit ramp from the Entity List as it did for ZTE.
Future Restrictions on Information and Communications Technology Based on the Executive Order
The Executive Order prohibits persons subject to U.S. jurisdiction from engaging in any transaction (e.g., acquisition, transfer, or use) involving any property in which any foreign country or national has an interest and where the Secretary of Commerce determines that:
The Secretary of Commerce must issue implementing regulations within 150 days (i.e., by October 14, 2019), in consultation with the Departments of Treasury, State, Defense, Justice, and Homeland Security, the U.S. Trade Representative, the Director of National Intelligence, the General Services Administration, and the FCC. These regulations must identify foreign adversaries (almost certainly including China) and entities controlled by them (almost certainly including Huawei and ZTE) to be covered by the regulations, identify transactions that warrant particular scrutiny, and establish procedures to license transactions that would otherwise be prohibited.
It remains to be seen whether, as part of this broader effort, the Department of the Treasury's Office of Foreign Assets Control (OFAC) will use its authorities to impose sanctions against Huawei or other Chinese entities. We will continue to monitor these and other U.S. government actions against Chinese entities in the coming days and weeks.
Reema Shocair Ali, a National Security Analyst in the firm’s DC office, assisted in the preparation of this client alert.
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