Government Contracts & Investigations

Everybody’s Crying National Security, Just as Long as There’s Business First

By | March 12, 2020

The title of this article is based on a line in an old song, “Everybody’s Crying Mercy,” by Mose Allison. As modified, the couplet captures the cognitive dissonance that many are feeling as a result of the federal government’s conflicting approach to trade with Huawei Technologies Co. Ltd. (Huawei) and its non-United States affiliates. In the most recent step in this halting “evolution,” the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced it is seeking public comments by March 25, 2020 on the continuing need for, and scope of, possible future extensions of the Temporary General License (TGL) authorizing certain exports to Huawei and 114 of its non-United States affiliates on BIS’s Entity List. In connection with this request for input, BIS extended—for the fourth time—the TGL for Huawei and those affiliates through May 15, 2020.

The TGL was initially published on May 22, 2019, several days after BIS added Huawei and 68 of its non-United States affiliates to the Entity List after determining “that there is reasonable cause to believe that Huawei has been involved in activities contrary to the national security or foreign policy interests of the United States” and “those affiliates pose a significant risk of involvement in activities contrary to the national security or foreign policy interests of the United States.” (BIS subsequently added another 46 affiliates to the list.) As a result, BIS imposed a license requirement for all items subject to the Export Administration Regulations and a license review policy of presumption of denial. Similarly, the action provided that, with limited exceptions for certain shipments already en route, no license exceptions are available for exports, reexports, or transfers (in-country) to the persons added to the Entity List.

Despite the findings that motivated Huawei’s addition to the Entity List, the initial TGL and the three previous extensions of it have allowed: (i) continued operation of existing networks and equipment; (ii) support to existing handsets; (iii) cybersecurity research and vulnerability disclosure; and (iv) engagement as necessary for development of 5G standards by a duly recognized standards body. BIS has explained that the TGL and extensions were intended to allow time for companies and persons to shift to alternative sources of equipment, software, and technology (e.g. those not produced by Huawei or one of its listed affiliates). In addition, under applicable Entity List rules, non-U.S. manufacturers are still allowed to export items to Huawei so long as the items do not have more than de minimis—here, 25%—U.S. origin content.

When BIS floated closing that loophole in late 2019, proposing that the de minimis figure be reduced to 10%, the Department of Defense (DoD) initially pushed back. The Pentagon argued that the additional limits would cost U.S. chip manufacturers so much revenue that their research spending would suffer and they would not be able to keep up with global rivals, which could threaten the American military’s technological edge. Last month, however, after challenges from influential Republican Senators and lobbying from the Department of Commerce, DoD dropped its opposition to the further crack down on Huawei proposed by the Department of Commerce. A cabinet-level meeting to discuss the potential new U.S. restrictions was supposed to follow, but that meeting has since been postponed twice.

Against this background, BIS explains that the recent 45-day extension and request for public comment demonstrates the Department of Commerce is trying to find a permanent solution. BIS hopes the responses will help it better evaluate the need to extend the TGL, determine whether any other changes may be warranted to the TGL, and identify any alternative authorization or other regulatory provisions that may more effectively address what is being authorized under the TGL. Only time will tell how the BIS and the rest of the federal government will resolve the vexing issues raised by Huawei, its connection with the People’s Republic of China, and its position in the technology industry. Until then, it’s arguably “business first.”

Contact Eric Whytsell for more information.