On May 15, 2019, U.S. President Trump issued an executive order (EO) on “Securing the Information and Communications Technology and Services Supply Chain” prohibiting certain transactions involving telecommunications equipment or services made or supplied by persons determined by the US Government to be “foreign adversaries” or identified as posing an “unacceptable national security risk” (1). The restrictions apply to persons, entities and transactions that meet the EO’s criteria, as determined by the US Secretary of Commerce.
While the EO did not name specific countries or parties, the US Secretary of Commerce acted swiftly to identify affected entities. Just one day after President Trump signed the executive order, the Bureau of Industry and Security of the Department of Commerce amended the Entity List of the Export Administration Regulations (EAR) by rule 84 FR 22961 (CFR: 15 CFR 744 ; Docket No. 190513445-9445-01 ; RIN: 0694-AH86) (2).
By this rule, the U.S. added Huawei Technologies Co., Ltd. (Huawei) to the Entity List, together with more than 60 Huawei group companies around the world, including Huawei Technologies Switzerland AG, a legal entity incorporated in Switzerland. The U.S. Government claims to have determined that there was reasonable cause to believe that Huawei had been involved in activities contrary to the national security or foreign policy interests of the United States.
The executive order prohibits the acquisition, importation, transfer, installation, dealing in, or use of any technology or service sold or provided by Huawei to any entity subject to US jurisdiction. Further, the final rule imposes license requirements for exports, re-exports, or transfers (in-country) to Huawei.
The final rule was to be applicable as of May 16, 2019, however the U.S. government amended the final rule on May 20, 2019, implementing a 90-day temporary general licence, which de facto puts the sanctions against Huawei on hold until August 18, 2019 (3). The purpose of this postponement is apparently to allow the industry to prepare for these sanctions on an operational and contractual level (wind-down or grace period).
The final rule will have a substantial impact not only on the Huawei group of companies, but also on companies cooperating with Huawei, directly or indirectly. Notably, it has been reported that Google has suspended all business with Huawei that involve the transfer of hardware, software and technical services, except those publicly available via open source licensing.
IMPLICATIONS FOR THE SWITZERLAND
Considering the extraterritorial applicability and enforcement of US sanctions, this most recent action of the U.S. government in the U.S. vs. China trade war may become relevant for corporations dealing directly or indirectly with Huawei or Huawei Group companies, to which U.S. sanctions will equally apply by virtue of the risk of involvement in activities contrary to the national security or foreign policy interests of the United States.
This development is of importance for Swiss entities in B2B business rather than for consumers using Huawei smartphones or wearables. In recent years, Huawei was very successful in the B2B Carrier and Enterprise segments. In Switzerland, the sales rose in these segments the first half of 2018 by more than 35 % compared with the first half of 2017. Companies that maintain business contacts with Huawei after August 2019 (and are required to do so for technical and contractual reasons) bear a growing risk of being exposed to US sanctions themselves.