Commentary: Huawei saga a lot like ZTE story

U.S. companies eager to rekindle their exports with the beleaguered Chinese telecom Huawei should expect the unexpected, 40-year export control consultant says.

   When news broke on Saturday that President Trump said during a meeting in Japan with Chinese President Xi Jinping that he would temporarily lift the recently imposed trade ban on Chinese telecom Huawei Technologies Co. Ltd., my immediate reaction was that we’ve been here before.
   It was just two years ago that the U.S. government assessed penalties of more than $1 billion against another Chinese telecom, ZTE Corp., for its violations of U.S. export control regulations by shipping technology containing U.S.-made semiconductor components to Iran.
   Initially, ZTE was placed on the Commerce Department’s Entity List but shortly thereafter received a “general license” status that permitted continued trade for items that were classified as “EAR 99” or were eligible for a license exception to China. Then it was discovered that ZTE failed to abide by the enforcement settlement and U.S. export restrictions were quickly reimposed by placing the company on the most restricted Denied Parties List.
   After meeting various compliance conditions, the Commerce Department in July 2018 lifted the export denial order against ZTE.
   Fast-forward to early May 2019, when the Commerce Department placed Huawei and 68 overseas affiliates on the Entity List, which prohibits the export, reexport or in-country transfer of all U.S. products/technology that fall under the U.S. Export Administration Regulations (EAR). This becomes a major challenge since U.S. exporters could still conduct business with the listed entities but have to justify their decision that the transaction is outside the scope of the EAR and meets the regulatory hurdles to comply that often make it not worth the time and effort.
   Within a couple of weeks of being placed on the Entity List, however, the Commerce Department announced a 90-day temporary general license for Huawei, effective May 20 to Aug. 19, which allows U.S. exporters — after meeting certain regulatory conditions — to continue conducting business with Huawei and its 68 overseas affiliates.
   When Trump met with Xi during the G20 in Osaka, Japan, it was not difficult to realize that in addition to withholding implementation of new tariffs on Chinese goods that Trump might also lift the trade ban on Huawei to rekindle trade talks with China.
   However, Trump’s words are just that — words. No regulatory change will occur to Huawei’s current export control status until published in the Federal Register.
   I would not expect to see any regulations issued the week of July 1 due to the fact that the federal agencies in charge of this matter are mostly void of personnel with the Fourth of July holiday, and they need to draft regulations that must be reviewed by the Commerce Department’s Office of the Chief Counsel and Office of Export Enforcement, as well as counterparts in other departmental agencies.
   Once this process is complete and the final wording is published in the Federal Register, I would anticipate that a general temporary license will be the vehicle for lifting certain restrictions against Huawei. This will provide for the ability to ship commodities that are classified by the Commerce Department as EAR 99 “no licensed required” to China and ECCN (export control classification number) and maybe some limited items that were eligible for certain “license exceptions” to China prior to Huawei’s placement on the Entity List. Items that require a Commerce license to China will be denied.
   Keep in mind that this saga involving Huawei will continue beyond the Entity List.
   There is still the investigation against Huawei founder Ren Zhengfei’s daughter, Meng Wanzhou, who remains under house arrest in Canada pending her extradition to the U.S. for her alleged role in violating U.S. sanctions against Iran.
   Ultimately, President Trump’s lifting of the Huawei trade restrictions may be muted altogether by legislation put forth by an angry bipartisan group of powerful Capitol Hill lawmakers who want every tool necessary to persuade China to change its trade behavior.

DiVecchio, principal of Boston-based DiVecchio & Associates, has provided export compliance consulting services to U.S. exporters for nearly 40 years. He may be reached by email at pauldivec@earthlink.net.