May 22, 2019 – On Monday, May 20, 2019, the Trump Administration moved to temper the effects of U.S. trade restrictions on Chinese company Huawei Technologies Co. announced just last week and previously summarized here. The Department of Commerce’s addition of Huawei to the Commerce Department Entity List, which restricts Huawei’s ability to purchase hardware or software of U.S. origin for use in its products, was met with uncertainty from U.S. suppliers. Huawei sources billions of dollars of parts and components every year from the U.S., including microchip manufacturers like Qualcomm, which provide a large share of Huawei’s semiconductors.
The Trump Administration has now eased the impact on these U.S. suppliers – and Huawei – by granting Huawei a 90-day temporary general license allowing Huawei to continue engaging in U.S. transactions under the following circumstances:
Transactions necessary to maintain and support Huawei’s existing and fully operational networks and equipment that are subject to legally binding contracts between Huawei or its affiliates and third parties prior to May 16, 2019;
Transactions necessary to provide service and support for Huawei-manufactured smartphones;
Engagement with Huawei and its affiliates in the development of 5G standards.
The temporary license will expire on August 19, 2019, and the Trump Administration has given no indication of whether it will extend the license beyond that time. As written, the license could allow Huawei to build a substantial inventory of U.S. products in the event an extension is not granted.
Huawei’s inclusion on the entity list nevertheless restricts the export of U.S.-manufactured hardware or software for use in the development of new products. Already, Google had begun distancing itself from Huawei in connection with the sale of Android hardware and software services used in Huawei-manufactured smart phones. Likewise, U.S. chipmakers Intel and Qualcomm ordered employees to cease supplying parts and components to Huawei until further notice. These moves came before the general license was issued on Monday, so U.S. suppliers may soften their stance while the 90-day license is in effect. Even so, Huawei has begun to brace itself for the long term should the license not be extended, stating publicly that it has begun to look for alternative options to replace the Google Android software used on its smartphones.
After Commerce announced the exemptions, the stock market recovered some of its losses caused by the announcement of trade restrictions on China last week. Some suggest that this move could ease tensions between the U.S. and China as the two countries continue trade negotiations and potentially give the U.S. more leverage in discussions.
As suppliers consider whether to continue exports pursuant to the temporary license, companies should be prepared for the full entity listing to take effect in the event the license is not extended beyond August. And, in the meantime, suppliers must take care to strictly abide by the terms of the license, including by certifying that their products are covered by the license as required.