EU companies in the telecommunications equipment, technology, software and services sector should be aware of the recent U.S. trade restrictions targeting dealings in certain goods, software or technology with Huawei and its non-U.S. affiliates, including those located in Belgium, Germany, Netherlands and United Kingdom.
The U.S. Bureau of Industry and Security ("U.S. BIS") has amended its so-called 'Entity List' by adding Huawei Technologies Co., Ltd. ("Huawei") and 68 non-U.S. affiliates of Huawei due to national security and foreign policy concerns and interests of United States.
U.S. BIS maintains several lists of denied individuals and entities to whom U.S. persons generally cannot (re-)export certain commodities and services. Those lists include the 'Entity List' which – in principle – identifies the names of companies, individuals, government agencies and research institutions that trigger U.S. commercial export control licensing requirements in relation to the export, re-export or transfer (in-country) of:
i) certain commercial items – which are considered controlled by and subject to the U.S. commercial export controls – that are physically within the United States or originate in the United States (wherever physically located); or
ii) non-U.S. foreign made commodities containing certain amount of U.S.-origin content controlled by and subject to the U.S. commercial export controls; or
iii) certain non-U.S. foreign-made direct products of U.S. origin technology or software. The term “direct product” means the immediate product (including processes and services) produced directly by the use of technology or software.
The reach of latter U.S. commercial export controls is very broad and extraterritorial in practice. In essence, the U.S. extraterritorial jurisdiction is derived from the origin – i.e. U.S. nationality – of a good, software or technology exported from the United States. As a result, all foreign persons, including those in the EU, whose business activities involve the export, re-export or transfer of such goods, software or technology which – due to their U.S. origin nexus – are controlled by and subject to the U.S. commercial export controls are urged to consider compliance with the U.S. commercial export controls. Non-compliance with the U.S. commercial export controls can result into (massive) financial penalties for EU businesses in practice.
Consequent to the listing of Huawei and its non-U.S. affiliates – located in 26 countries including Belgium, Germany, Netherlands and United Kingdom – to the 'Entity List', the export, re-export or transfer of goods, software or technology being controlled by and subject to U.S. commercial export controls will require prior licensing from U.S. BIS.
On May 20, U.S. BIS announced the issue of a Temporary General License ("TGL") to authorize specific, limited engagement in transactions involving the export, re-export, and transfer of items – subject to the U.S. commercial export controls – to Huawei and its sixty-eight non-U.S. affiliates. This license is effective as of May 20, 2019 and lasts 90 days which should grant U.S. and foreign telecom operators sufficient time to make arrangements as well as current operations to continue for existing Huawei mobile phone users and rural broadband networks.
In addition, the U.S. Department of Commerce has stated that "with the exception of the transactions explicitly authorized by the TGL, any exports, re-exports, or in country transfers of items" subject to the U.S. commercial export controls "will continue to require a special license granted after a review by BIS under a presumption of denial".
What to do?
Considering the foregoing, EU companies, especially those in the telecommunications equipment, technology, software and services sector, should at least ask themselves:
• Does my (telecom) infrastructure depend on the use of Huawei equipment which necessitates the use of goods, software or technology (including related components or software updates) subject to U.S. commercial export controls?
• Do my business activities, supply chain, services (including e.g. maintenance, repair, refurbishing or overhaul), transactions or other kind of commercial dealings involve Huawei and/or any of its listed non-U.S. affiliates (located in 26 countries)?
• Do my commercial dealings with Huawei or one of its named affiliates (located in 26 countries) involve any exports, re-exports or (in-country) transfers of U.S.-origin goods, software or technology, including foreign-produced goods having U.S.-origin content (all being subject to the U.S. commercial export controls)?
Considering that Huawei and 68 of its non-U.S. affiliates raise sufficient concern that prior review of exports, re-exports, or transfers of items subject to the U.S. commercial export controls involving these entities is necessary by U.S. BIS, it is quite possible that certain license conditions might be imposed or even more likely – considering the licensing policy – licenses to be denied on transactions and supplies to these entities in view of U.S. BIS’ task to prevent any activities contrary to the national security or foreign policy interests of the United States.
As a result, any (current or upcoming) commercial dealings, (service) contracts as well as global supply chain management frameworks (including internal compliance measures) in the telecommunications industry involving Huawei and/or one of its sixty-eight named non-U.S. affiliates, may have to be re-assessed and -engineered going forward ensuring compliance with the U.S. commercial export controls.