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Talk – but No Greater Clarity – on Huawei Ban

Ray Le Maistre
7/10/2019

The Trump administration has dashed hopes of any greater clarity over what goods and services can be sold by US companies to Chinese networking technology giant Huawei.

At least, that's my take on where we are right now in the ongoing Entity List saga (see links below for the backstory if you're catching up with what this is all about).

When US President Donald Trump met with Chinese President Xi Jinping at the end of June to discuss trade tensions, a softening of the US position looked to be on the cards: Trump stated that US companies would be able to sell to Huawei, but he was careful to include the caveat that national security considerations would be reflected in any rulings.

That gave a glimmer of hope to US companies wanting to deal with Huawei, but it was vague: National security considerations could include anything, right?

Then on Tuesday, US Commerce Secretary Wilbur Ross stepped up at the Bureau of Industry and Security Annual Conference on Export Controls and Security and gave a speech that included these comments:

    It is our job to protect the long-term interests of our country by maintaining and strengthening our advantage in leading-edge technologies. We have no choice. The future prosperity of the United States depends on our strategic advantage in advanced technologies. We cannot allow our most precious resource -- our intellectual property -- to be stolen, copied, or traded away for short-term gain. And we can no longer accept the decline of US industries due to state-supported overcapacity, and the strategic -- often clandestine -- foreign purchases and investments in our most important technology enterprises…

    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. This cannot be tolerated, and we are updating our export control policies to account for this very real threat. BIS's Entity List denies sensitive technologies to companies endangering our national security and foreign policy interests.

    Since 2017, we have added 182 companies to the Entity List, including 49 Chinese companies, 49 Russian ones, and 20 Pakistanis. On May 16 of this year, BIS added Huawei Technologies -- the largest telecommunications equipment producer in the world -- and 68 affiliates, to Commerce's Entity List. Four days later, on May 20th, BIS issued a 90-day General License allowing customers time to arrange new suppliers, and for Commerce to determine the appropriate long-term measures for American and foreign telecom providers currently relying on Huawei for critical services.

    To implement the President's G-20 Summit directive two weeks ago, Commerce will issue licenses where there is no threat to US national security. Within those confines we will try to make sure that we don't just transfer revenue from the US to foreign firms. 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.

All interesting stuff, for sure, but the only clarity on offer is that Huawei is remaining on the Entity List, that any trade deals being made with Huawei will have to have the licensed approval of the Commerce department, and that licenses will be issued where no threat to US security is perceived.

So still no clarity on what the criteria might be, which means US vendors will most likely step up their efforts to find ways around the Entity List restrictions without breaking the rules -- for example, by selling to Huawei via non-US subsidiaries.

Is that what the US authorities had in mind? I don't think so.

Despite headlines suggesting the contrary, I don't see any relaxation of the US ban on sales to Huawei -- so don't get too excited.

Meanwhile, Ross (in the same speech) gave a reminder that Huawei's fellow Chinese vendor, ZTE, is far from forgotten -- in fact, Ross noted that "ZTE is the most monitored corporation in BIS [Bureau of Industry and Security] history … [it] has a full-time Commerce monitor and a full-time court monitor policing its affairs, in addition to record-breaking fines."

Remember, though, that ZTE 'fessed up, paid up and then had to pay again after suffering its own US trade ban: That ban, which nearly put the company out of business, followed a string of misdemeanors, which makes it a somewhat different case to that of Huawei (so far, at least).

Whatever the outcome, and whatever happens next in this saga, I feel the dynamics of the global telecom supply chain have altered forever, and ultimately this won't end well for the US vendors that, right now, must feel like they're under friendly fire.

For more on this topic, see:

— Ray Le Maistre, Editor-in-Chief, Light Reading

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