Over the past few weeks, the U.S. government has taken additional actions targeting Huawei Technologies Co., Ltd. (Huawei) and its affiliates.
The May 16, 2019 addition of Huawei and many of its non-U.S. affiliates to the Entity List and related actions was discussed in our May 24, 2019 alert.
The more recent actions impact federal government procurement, add more non-U.S. affiliates of Huawei to the Entity List, revise and extend the Temporary General License (TGL) issued on May 20, 2019, and provide additional clarification on the licensing policy of the Bureau of Industry and Security of the U.S. Department of Commerce (BIS) as it relates to exports to Huawei and its designated affiliates.
New Restrictions on Federal Government Procurement
On August 13, 2019, an interim rule was issued amending the Federal Acquisition Regulation (FAR) to prohibit federal agencies from procuring or obtaining, or extending or renewing a contract to procure or obtain, any equipment, system or service that uses telecommunications or video surveillance equipment or services produced by certain Chinese companies (including Huawei, any Huawei subsidiary or any Huawei affiliate) as a substantial or essential component of any such system, or as a critical technology that is part of any such system, unless an exception applies or a waiver has been granted. This long-awaited interim rule implements provisions of the National Defense Authorization Act (NDAA) for Fiscal Year 2019, thus formalizing limitations that federal contractors have expected in the area of supply chain management and information security. The interim rule creates two new FAR clauses – FAR 52.204-24, Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment, and FAR 52.204-25, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment – which require certifications from contractors and impose prohibitions reflecting the requirements outlined above. Interested parties may submit written comments to the General Services Administration’s Regulatory Secretariat Division on or before October 15, 2019, to be considered in the formulation of the final rule.
Designation of Additional Huawei Affiliates
On August 19, 2019, BIS announced a final rule (subsequently published in the Federal Register on August 21, 2019) adding another 46 non-U.S. affiliates of Huawei to the Entity List, thereby prohibiting the export, reexport and transfer to such entities of commodities, software and technology subject to the Export Administration Regulations (EAR), absent a license from BIS or application of the revised TGL. Affiliates located in China have been added under the existing entry for Huawei, while others have been designated via separate entities. The Entity List now contains entries for Huawei affiliates in a total of 46 countries other than China, including Canada, the United Kingdom and numerous other countries in Europe, Asia, Central and South America, and the Middle East.
Amendment and Extension of the TGL
By a separate final rule (also announced on August 19, 2019 and published on August 21, 2019), BIS revised and extended the TGL discussed in our May 24, 2019 alert.
This final rule updated the TGL, located in Supplement No. 7 to Part 744 of the EAR, by extending its validity through November 18, 2019, clarifying transactions that are authorized under the TGL and modifying the certification statement requirements for reliance on the TGL.
The updated TGL clarifies the scope of authorized transactions as follows:
- Continued Operation of Existing Networks and Equipment. The authorization for continued operation of existing networks and equipment extends only to activities such as patching networks and network infrastructure equipment. It does not authorize the transfer of equipment for general business purposes or for activities that are not in direct support of an existing and “fully operational network” (i.e., a third-party network providing services to its customers). The authorization covers both emergency and planned software updates including bug fixes, security vulnerability patches, and other changes to existing versions of the software, subject to the requirement that the software changes are necessary to support and maintain existing and currently fully operational networks and equipment. Replacement of defective hardware is also permitted under the TGL. However, the TGL further specifies that authorized transactions “may not enhance the functional capabilities of the original software or equipment.”
Support to Existing ‘Personal Consumer Electronic Devices’ and ‘Customer Premises Equipment.’ The revised TGL replaces the term “handsets” with the defined term “personal consumer electronic devices,” which includes phones and other personally owned equipment such as tablets, smart watches and mobile hotspots. The TGL more broadly authorizes service and support for customer premises equipment such as network switches and home networking adapters that enable consumers to access network communication services and distribute them within their home or small business. Such service and support may not enhance the “functional capacities” of the equipment or any software being supported. The authorization is further limited to service and support for Huawei personal consumer electronic devices and customer premises equipment that were publicly available on or before May 16, 2019.
- Removal of Authorization for the Engagement as Necessary for the Development of 5G Standards. The amended TGL removes the authorization for the “engagement as necessary for development of 5G standards by a duly recognized standards body.” Instead, BIS determined that existing provisions of the EAR exempting publicly available information “suffice for purposes of addressing the application of the Entity List-based license requirements to activities in connection with standards development bodies, including 5G standards bodies.”
The updated TGL also substantially amends relevant certification statement requirements. Under the updated TGL, the exporter, reexporter or transferor must obtain a certification statement and any additional support documents needed to substantiate the certification statement from the listed Huawei entity prior to exporting, reexporting or transferring any item under the TGL. The certification statement must list all Huawei entities that are receiving items under the TGL (including physical addresses, telephone number, email addresses, website and name/title of the individual signing the certification). The certification must include a complete list of items and the associated Export Control Classification Numbers (ECCNs) or EAR99 designation, if applicable, for the items that are subject to the transaction. The certification must also identify the paragraph in the TGL that authorizes the transaction; a general statement that the items fall within the scope of the TGL is insufficient.
BIS also added a recordkeeping requirement to specify that both the Huawei entity and the exporter, reexporter or transferor are responsible for retaining the certification and any supporting documentation. Where relevant, the supporting documentation must show that there was a legally binding contract in place between the Huawei entity and a third party on or before May 16, 2019. Finally, the certification must include a statement that the person signing the certification has the requisite authority to legally bind the Huawei entity receiving the item. One certification may be used for multiple transactions, provided that the items and consignee/end user are the same, and further provided that the exporter, reexporter or transferor maintains a log or similar record that identifies each item and the quantity therefor for each transaction made against the certification statement. These certifications and related records are subject to the standard five-year record-keeping requirement and must be stored in a format compliant with the EAR.
Of note, the amended TGL confirms that imports from Huawei and services provided to Huawei are not prohibited by Huawei’s designation on the Entity List. The services provided, however, cannot involve the export, reexport or transfer (in-country) of items subject to the EAR.
Clarification of Licensing Policy
On August 19, 2019, in conjunction with its announcement of the amendment of the TGL, BIS also issued a General Advisory Opinion relating to 5G standards development activities when a listed Huawei entity is involved. BIS published a general advisory opinion regarding activities that are prohibited in the standards-setting context when a listed entity is involved. Whether prior authorization is required depends on whether the activity involves the disclosure of software or technology that is subject to the EAR and not subject to an exemption (e.g., made available to the public without restriction upon its dissemination). If the software or technology does not fall within an exempted category, the BIS advisory opinion states that the prohibition on releasing EAR-controlled software or technology to Huawei or its listed affiliates without a license would apply.
In September, BIS issued and updated FAQs related to the TGL and the Entity List designations. The TGL FAQs summarize and provide guidance on the application of the revised TGL. The second set of FAQs addresses the impact of the designations more generally and also provides information regarding the TGL. Among other things, the FAQs clarify that imports from Huawei and financial transactions with Huawei are not prohibited. Furthermore, the FAQs clarify that while services are generally not subject to the EAR, where the performance of any activity, such as the management of a telecommunications network, includes export, reexport or transfer (in-country) of a U.S.-origin item, then the transaction would be subject to the EAR and require a license unless the TGL applies. Guidance is also provided regarding the impact of the designations on patent licensing. Regarding the TGL, BIS notes that any decision to renew will be made “at the sole discretion of the U.S. Government,” and that if the TGL is not renewed, license requirements will immediately apply to all exports, reexports and transfers (in-country) to Huawei and its designated affiliates.