International Trade & Compliance Alert | May.22.2019
Late last week, U.S. authorities commenced two initiatives to restrict trade with Huawei Technologies Co. Ltd. ("Huawei") and other Chinese suppliers of electronic systems:
United States authorities have intensified enforcement and policy initiatives to address alleged threats to U.S. national security by Chinese suppliers of electronic systems.
Since at least as early 2010, Huawei and Zhongxing Telecommunications Equipment Corporation ("ZTE") have been the subject of investigations and other inquiries by U.S. authorities regarding suspected potential trade violations and other alleged national security-related irregularities. In 2017 and 2018, the U.S. government settled criminal and civil charges against ZTE regarding alleged violations of U.S. export control and embargo requirements. United States enforcement against ZTE nearly bankrupted the company and leaves it under far-reaching and costly U.S. monitoring arrangements.
Huawei and its CFO, Wanzhou Meng, became a subject of criminal investigations by U.S. authorities. In December 2018, Canadian authorities arrested Ms. Meng, and U.S. officials have been pursuing her extradition to the United States. U.S. prosecutors allege Huawei and Ms. Meng violated U.S. economic sanctions requirements by, among other things, creating corporate structures and other arrangements to hide Huawei's allegedly unlawful supply of items to U.S.-embargoed countries such as Iran. In January 2019, U.S. federal prosecutors also filed criminal charges against Huawei affiliates for trade secrets violations.
The Huawei Group Entity List action will be effective retroactively as of May 16, 2019.
The BIS temporary general license authorizes the following transactions:
This license is expected to be expanded over the next few weeks, as U.S. officials learn more about the impact of the Entity List action on U.S. firms.
Supply Chain Security Executive Order: The executive order – titled "Securing the Information and Communications Technology and Services Supply Chain" – prohibits certain acquisitions, importations, transfers, installations, dealings in, or uses of any information and communications technology or service (any of which is a "transaction") produced or supplied by persons designated as being a "foreign adversary" or owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary – a foreign government or a foreign non-government person engaged in a long-term pattern or serious instances of conduct significantly adverse to the U.S. national security and safety of U.S. persons.
The executive order authorizes the U.S. government to determine, among other things, (i) which countries or persons are to be treated as being foreign adversaries, (ii) which technologies or countries warrant scrutiny and (iii) which transactions are subject to the executive order restrictions. Over the next 150 days, the Commerce Department – in consultation with other government agencies – is to publish regulations to implement the executive order. The Commerce Department is expected to apply executive order restrictions to products of Huawei, ZTE and other Chinese suppliers of electronic systems.
Before the executive order, the Congress enacted a prohibition on certain procurement by federal executive agencies of products and services by Huawei, ZTE and a few other Chinese companies (Section 889a of the U.S. National Defense Authorization Act for Fiscal Year 2019 of August 2018). The executive order goes beyond the U.S. government procurement restrictions and covers certain procurement by private parties.
The situation remains fluid with respect to Huawei and requires careful attention to avoid compliance issues.