On August 20, the Bureau of Industry and Security (“BIS”) published a final rule (“final rule”) amending the Export Administration Regulations (“EAR”) to expand restrictions on transactions involving Huawei entities that are included on BIS’s Entity List (“designated Huawei entities”).  The newly expanded rule applies to a broader range of items produced outside of the United States, including certain generic, commercial off-the-shelf items, and is the most recent step in a series of U.S. trade control actions targeting China.

At a high level, the new rule prohibits the export, re-export, or transfer of certain items produced outside the United States if you know that the foreign-made item will be incorporated into or used in the “production” or “development” of an item intended for a designated Huawei entity or if the foreign-made item will be provided to a designated Huawei entity.  The rule also applies to shipments involving certain foreign-made items where Huawei plays any role, including as a purchaser, intermediate consignee, ultimate consignee, or end-user.

The following foreign-made items are subject to the new rule:

  • Foreign-made items that are direct products of technology or software subject to the EAR and that are classified under Export Control Classification Numbers (ECCNs) 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991; or
  • Foreign-made items that are produced by a non-U.S. plant or major component of a non-U.S. plant if that plant or major component is itself a direct product of U.S.-origin technology or software classified under those ECCNs.[1]

This is the second time BIS has expanded the EAR’s “Direct Product Rule” for shipments involving Huawei.  A previous version of the rule, which was issued on May 15, 2020, was more limited in scope, and only applied to: 1) items that were produced using specified equipment that was the direct product of certain U.S. software or technology; and 2) items that were the direct product of software or technology produced or developed by a Huawei entity included on the Entity List.

The August 20 rule also adds 38 additional Huawei companies to the Entity List and replaces a temporary general license with an authorization that allows parties to provide limited security cybersecurity research to designated Huawei entities.  Other transactions involving Huawei that are subject to the new rule require a license from BIS.  Such license requests will generally be reviewed pursuant to a “policy of denial,” unless the transaction involves items that are only capable of supporting equipment at below the 5G level (e.g., 4G and 3G technology).

 

[1] The new rule contains a savings clause excluding from control certain foreign-made items that were in production prior to August 17, 2020 until September 14, 2020.  The savings clause is narrow in scope and should be reviewed carefully.