By its terms, the final rule does not amend the Entity List, but merely modifies the license requirements for Huawei entities.
The previous Duane Morris Alert, “Executive Order Addresses Foreign Threats to U.S. Information and Communications Technology and Service Systems,” discussed Executive Order 13873 and the proposed rule that added Huawei and certain of its non-U.S. affiliates to the U.S. Department of Commerce Bureau of Industry and Security’s (BIS) Entity List under the Export Administration Regulations (EAR) (15 CFR 744.16 and Supplement No. 4 part 744). The final rule was published by BIS in the Federal Register on May 21, 2019 (Vol. 84, No. 98, beginning at page 22961).
That Alert also reported that BIS intended to issue a temporary general license (TGL) to permit Huawei, which includes all of its 68 non-U.S. affiliates, to purchase U.S. goods so that Huawei can help its existing customers maintain the reliability of networks and equipment.
The final rule, published in the Federal Register on May 22, 2019, establishes a 90-day TGL―effective May 20 to August 19, 2019―that partially restores the licensing requirements and policies under the EAR “for exports, re-exports, and transfers (in-country)” to Huawei that were added to the to the Entity List on May 16, 2019.
By its terms, the final rule does not amend the Entity List, but merely modifies the license requirements for Huawei entities that were added to the list on May 16, 2019 by adding Supplement No. 7 to part 744 of the EAR.
The specified conditions for use of the TGL are as follows:
- The TGL is effective from the date of BIS’ authorization: May 20, 2019, through August 19, 2019.
- The TGL does not authorize any activities or transactions involving Country Group E countries or persons. These countries are currently Cuba, Iran, North Korea, Sudan and Syria.
- With the exception of transactions explicitly authorized by the TGL, exports, re-exports and transfers (in-country) continue to require a license pursuant to the license requirements set forth in Supplement No. 4 part 744 for Huawei. License applications will be reviewed under the license review policy of “presumption of denial.”
The final rule implementing the TGL allows, during the specified period, specific transactions that BIS has identified under four categories. The categories are as follows:
- Continued Operations of Existing Networks and Equipment. Pursuant to this category, BIS authorizes engagement in transactions, subject to other provisions of the EAR, necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches, subject to “legally binding contracts and agreements executed between Huawei and third parties or the sixty-eight non-U.S. Huawei affiliates and third parties on or before May 16, 2019.”
- Support to Existing Handsets. Pursuant to this category, BIS authorizes engagement in transactions, subject to other provisions of the EAR, necessary to provide services and support, including software updates or patches, to existing Huawei handsets that were available to the public on or before May 16, 2019.
- Cybersecurity Research and Vulnerability Disclosure. Pursuant to this category, BIS authorizes, subject to other provisions of the EAR, the disclosure to Huawei of information regarding security vulnerabilities in items owned, possessed or controlled by Huawei when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently fully operational networks and equipment, as well as handsets.
- Engagement as Necessary for the Development of 5G Standards by Duly Recognized Standards Body. Pursuant to this category, BIS authorizes, subject to other provisions of the EAR, engagement with Huawei as necessary for the development of 5G standards as part of a duly recognized international standards body. BIS has provided examples of organizations that fit within the scope of the term “international standards body.”
The final rule further advises that licensing and other policies of the EAR regarding exports, re-exports and in-country transfers to Huawei that were in effect prior to their addition to the Entity List are available for exports, re-exports and in-country transfers for transactions eligible for the TGL. Thus, a license exception available on or before May 16, 2019, may continue to be used pursuant to the TGL.
The final rule provides exemplars of such licensing policies and other policies (subject to specified conditions) that were in effect prior to Huawei’s addition to the Entity List on May 16, 2019. However, the final rule does not relieve persons of other obligations under the EAR, including but not limited to licensing requirements to China or elsewhere and/or the requirements of the part 744 of the EAR.
The final rule has also established a certification requirement pursuant to new Supplement 7 part 744, paragraph (d) of the EAR. The certification statement is required to be made by the exporter, re-exporter or transferor prior to making any export, re-export or in-country transfer as a condition for use of the TGL. The certification statement must be kept for record-keeping purposes by the exporter, re-exporter or transferor. The record-keeping requirements set forth in part 762 of the EAR have been amended to include this requirement.