Business / Tech

U.S. weighs regulations to further restrict Huawei suppliers abroad: sources

Reuters

The U.S. government may expand its power to stop foreign shipments of products containing U.S. technology to China’s Huawei amid frustration that the blacklisting of the company has failed to cut off supplies to the world’s largest telecommunications equipment-maker, two sources said.

The U.S. Commerce Department in May placed Huawei Technologies on a trade blacklist, citing national security concerns. Putting Huawei on the entity list, as it is known, allowed the U.S. government to restrict sales of American-made goods to the company, plus some limited items made abroad that contain U.S. technology.

But under current regulations, key foreign supply chains remain beyond the reach of U.S. authorities.

That has prompted inter-agency discussions within the administration of President Donald Trump about possible changes to two key rules that could expand U.S. authority to block more foreign shipments to the company, giving more teeth to the blacklisting of Huawei, according to two people familiar with the matter.

The expansion of the rules is being considered even though the Trump administration recently agreed to grant some reprieves on the existing ban and continues to seek a deal to de-escalate a bitter trade war.

If the Commerce Department makes the proposed rule changes, it will allow U.S. authorities to regulate sales of nonsensitive items — such as standard cellphone chips made abroad with U.S.-origin technology, and also software or components — to Huawei, which is the world’s second-largest maker of smartphones.

Huawei and the Commerce Department did not immediately respond to requests for comment.

The changes would represent “a major expansion of the reach of U.S. export controls and would be poorly received by U.S. allies and U.S. companies,” said Washington trade lawyer Doug Jacobson.

He predicted that the actions would upset supply chains but that ultimately Huawei would find other companies to fill the gaps.

One rule that the Commerce Department and sister departments are focused on broadening is known as the de minimis rule, which dictates whether U.S. content in a foreign-made product gives the U.S. government authority to block an export, the people said.

Officials also may expand the so-called direct product rule, which subjects foreign-made goods that are based on U.S. technology or software to U.S. regulations.

It is not clear how close the administration is to making a decision about the changes, or whether they would be introduced gradually or suddenly. It also was not immediately clear how the rule-making might take place, though sources said the changes would likely affect only Huawei.

Some China hawks within the administration are hoping for swift results, the people said.

In the months after Huawei was added to the entity list, suppliers such as Intel Corp., Xilinx Inc. and Micron Technology Inc. resumed some shipments to the Chinese company after conducting internal reviews to assess what products were not subject to the ban.

Xilinx Chief Executive Victor Peng, for example, said in July that the company had determined that its older, 28-nanometer chips and some chips not designed for 5G gear could legally be sold to Huawei without a special license. To sell to a blacklisted company, suppliers subject to U.S. rules generally need to apply for and receive a special license.

Xilinx and the other companies did not explain why they decided they did not fall under the entity list ban.

The new rule considerations come just days after the Commerce Department gave two important wins to the blacklisted company, whose suppliers need special licenses to sell Huawei products manufactured in the U.S.

A week ago, the agency renewed the so-called temporary general license for Huawei for a third time, extending permission for it to engage in limited transactions to maintain U.S. rural network operators.

And on Wednesday, the Trump administration issued a batch of some 75 licenses to allow some suppliers to restart sales to the company after Huawei was placed on a trade blacklist six months ago.

A senior administration official told reporters on Friday that the United States will discuss threats posed by China, including the country’s dominance of 5G telecommunications networks, when Trump meets with allies at a NATO summit in London in the coming week.

The official said the United States will insist that allies use trusted network providers: “This is a very, very high priority for us, and the president is going to reiterate that message.”

The U.S. official added that China presents a challenge to NATO and wants to undermine the rules-based international order.

“China is actively seeking a great presence and more influence across the globe, including in NATO’s area of responsibility,” the official told reporters.

Tensions between Washington and Beijing have been inflamed by Trump’s signing into law on Wednesday bills that back protesters in Hong Kong and threaten China with possible sanctions on human rights. The signing of the bill prompted China’s Foreign Ministry on Thursday to warn of “firm countermeasures.”