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American ShipperTrade Compliance

No clear answer for what’s next with Huawei export controls

Commerce Secretary Wilbur Ross said China’s pursuit of U.S. military-grade technologies “cannot be tolerated and we are updating our export control policies to account for this very real threat.”

   In response to President Donald Trump’s directive from two weeks ago to drop sanctions against the Chinese telecom Huawei Technologies Co. Ltd., Commerce Secretary Wilbur Ross said the Bureau of Industry and Security will issue export licenses “where there is no threat to U.S. national security.”
   Ross, who made his remarks during the BIS Update Conference in Washington, D.C., on Tuesday, added that “Huawei itself remains on the Entity List, and the announcement does not change the scope of items requiring licenses from the Commerce Department, nor the presumption of denial.”
   On May 16, citing national security concerns, BIS added Huawei Technologies and 68 affiliates in 26 countries to its Entity List.
   The Entity List identifies entities believed to be involved in activities that pose a threat to U.S. national security and foreign policy. The action immediately cut off hundreds of millions of dollars in U.S. semiconductor sales to Huawei. 
  A couple of weeks later, BIS established a 90-day temporary general license, effective May 20 to Aug. 19, that allows U.S. exporters meeting certain regulatory conditions to continue conducting business with Huawei Technologies and its 68 overseas affiliates.
   U.S. exporters that apply to BIS for a temporary general license must meet one of four conditions that existed between them and Huawei prior to the May 16 publication of the Entity List additions. 
   The four conditions are continued operation of existing networks and equipment, support to handsets acquired before May 16, cybersecurity research and vulnerability disclosure and “engagement as necessary for development of 5G standards by a duly recognized standards body.”
   BIS said the temporary general license does not relieve companies from other U.S. export control obligations related to China under the Export Administration Regulations (EAR).
   After meeting with Chinese President Xi Jinping at the G20 meeting in Osaka, Japan, on June 29, President Trump announced that he would temporarily lift the trade ban on Huawei.
   Many export compliance specialists are still left with unanswered questions regarding when and how BIS will implement the rules and procedures for lifting the U.S. export sanctions against Huawei.
   “The actual policy of what is not going to endanger U.S. security is not clear,” Washington attorney and export compliance expert Doug Jacobson told Reuters.
   “Right now, anything — and not just semiconductor components — of U.S. origin, including exports, reexports and in-country transfers, are prohibited to parties on the Entity List, like Huawei,” said Paul DiVecchio, principal of Boston-based export compliance consultancy DiVecchio & Associates, to American Shipper.
   Ross hinted at the BIS Update that the Commerce Department will take a similar path with Huawei as it did with ZTE Corp. (OTC: ZTCOF), another large Chinese telecom that was hit two years ago with multibillion dollar fines and penalties for export control violations.
   “Due to criminal and civil settlements, ZTE has a full-time Commerce monitor and a full-time court monitor policing its affairs, in addition to record-breaking fines,” Ross said. 
   The commerce secretary emphasized that the Trump administration is “aggressively investigating export control violations.”
   Since early 2017, BIS has initiated 2,284 export control investigations, which represents a 21% increase in the number of cases opened from the previous two and a half years, Ross said.
   “We are alert to China’s civil-military fusion strategy and understand China’s tenacious pursuit of American technologies it needs to modernize its military,” he told BIS Update attendees. “This cannot be tolerated, and we are updating our export control policies to account for this very real threat.”

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Chris Gillis

Located in the Washington, D.C. area, Chris Gillis primarily reports on regulatory and legislative topics that impact cross-border trade. He joined American Shipper in 1994, shortly after graduating from Mount St. Mary’s College in Emmitsburg, Md., with a degree in international business and economics.

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