BIS Expands Export Restrictions On Huawei, Extends Temporary General License

• Published date: 02 June 2020
• Author: Mr Paul Marquardt and Chase D. Kaniecki
• Subject Matter: Government, Public Sector, International Law, Inward/ Foreign Investment, International Trade & Investment, Export Controls & Trade & Investment Sanctions
• Law Firm: Cleary Gottlieb Steen & Hamilton LLP

On May 15, 2020, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) issued an interim final rule (the Interim Rule) amending the direct product rule under the Export Administration Regulations (EAR) to further restrict Huawei Technologies Co., Ltd. (Huawei) and its affiliates designated on the Entity List from receiving semiconductor and other products produced outside the United States using U.S.-origin software and technology. The changes, which are effective immediately (but subject to two savings clauses), could have a significant impact on the ability of non-U.S. foundries that manufacture semiconductor products for Huawei and its affiliates (e.g., HiSilicon) using U.S.-origin software or technology to continue to do so (and could have a corresponding significant impact on the competitiveness of U.S. semiconductor manufacturing equipment and software). BIS also extended the temporary general license (TGL) that authorizes certain activities subject to the EAR involving Huawei and its affiliates through August 13, 2020.¹

Amendments to the Direct Product Rule

BIS designated Huawei and its affiliates on the Entity List in May 2019. As a result, U.S. and non-U.S. companies are prohibited from exporting, reexporting, or transferring items "subject to the EAR" to Huawei and its affiliates without a license from BIS. While most items "subject to the EAR" are located in or produced in the United States, foreign-produced items located outside the United States can be considered subject to the EAR if they contain more than a de minimis amount of controlled U.S.-origin content or are considered the direct product of certain types of U.S.-origin software and technology under rules set forth in the EAR. The EAR defines "direct product" as "the immediate product (including processes and services) produced directly by the use of technology or software." While the direct product rule was previously quite narrow, covering only certain dual-use software and technologies controlled for national security reasons, the Interim Rule greatly expands the scope with respect to Huawei to cover a wide range of semiconductor and other software and technologies subject to lower levels of export controls under the EAR.

Despite these rules, non-U.S. companies that incorporate U.S.-origin content into the products they manufacture or manufacture products using U.S.-origin software or technology have been able to continue to supply those products to Huawei and its...