The US Announces New ‘Crippling’ Sanctions Against Huawei

The Trump’s administration has announced further ‘semiconductor restriction’ that has added nails to Huawei’s coffin.

On Monday, the US Bureau of Industry and Security (BIS) in the Department of Commerce announced that the embattled Chinese company and its non-US affiliates on the Entity List have been restricted access to items produced domestically and abroad from US technology and software.

In addition, BIS added another 38 Huawei affiliates to the Entity List, which imposes a license requirement for all items subject to the Export Administration Regulations (EAR) and modified four existing Huawei Entity List entries.

BIS also imposed license requirements on any transaction involving items subject to Commerce export control jurisdiction where a party on the Entity List is involved, such as when Huawei (or other Entity List entities) acts as a purchaser, intermediate, or end user.

These actions, effective immediately, prevent Huawei’s attempts to circumvent U.S. export controls to obtain electronic components developed or produced using U.S. technology.

The new restrictions are in furtherance to the ones announced earlier in the year.

In May 2020, BIS amended the longstanding foreign-produced direct product (FDP) rule to target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.

Monday’s amendment further refines the FDP rule by applying the control to transactions: 1) where U.S. software or technology is the basis for a foreign-produced item that will be incorporated into, or will be used in the “production” or “development” of any “part,” “component,” or “equipment” produced, purchased, or ordered by any Huawei entity on the Entity List; or 2) when any Huawei entity on the Entity List is a party to such a transaction, such as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user.”

This amendment further restricts Huawei from obtaining foreign made chips developed or produced from U.S. software or technology to the same degree as comparable U.S. chips.

“Huawei and its foreign affiliates have extended their efforts to obtain advanced semiconductors developed or produced from U.S. software and technology in order to fulfill the policy objectives of the Chinese Communist Party,” said Commerce Secretary Wilbur Ross.

“As we have restricted its access to U.S. technology, Huawei and its affiliates have worked through third parties to harness U.S. technology in a manner that undermines U.S. national security and foreign policy interests. This multi-pronged action demonstrates our continuing commitment to impede Huawei’s ability to do so,” he added.

According to BIS, the new 38 Huawei affiliates across 21 countries were added to the Entity List because they present a significant risk of acting on Huawei’s behalf contrary to the national security or foreign policy interests of the United States. There is reasonable cause to believe that Huawei otherwise would seek to use them to evade the restrictions imposed by the Entity List.

The Temporary General License (TGL) has now expired. This rule further protects U.S. national security and foreign policy interests by making a limited permanent authorization for the Huawei entities on the Entity List. This limited authorization is for the sole purpose of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently “fully operational networks” and equipment.

In a concurrent rule, BIS revised the Entity List to require a license when a party on the Entity List acts as a purchaser, intermediate consignee, ultimate consignee, or end user to an EAR transaction.

This aligns with the additional restrictions imposed in the revisions to the FDP, when any of the Huawei entities on the Entity List are a party to the transaction, such as by acting as purchaser, intermediate consignee, ultimate consignee, or end user.

This latest restriction may be the end of Huawei as it is already struggling with its technology due to shortage of chips supply. China’s push to boost its semiconductor industry is yielding insignificant results, which means Huawei’s hope to lead the global 5G roll out rests on chips produced through US tech software.

Paul Triolo, head of geotechnology at Eurasia Group described the latest restriction as “a lethal blow to China’s most important technology company.” Adding that it is “potentially the most serious effort by the US government to choke off the company’s ability to obtain advanced semiconductors for all of its business lines.”

Huawei was counting on third party chip production to stay in business following the first US restriction. But the latest BIS move shows that Washington will leave no stone unturned in its quest to cripple China’s aim to lead the global 5G technology.

The Trump administration is adamant even though it is clear that the restriction would put the US semiconductor industry in jeopardy.

John Neuffer, president and CEO of Semiconductor Industry Association of the United States, said chip sales to China have been responsible for the growth of the US semiconductor industry, and it would be disrupted by these latest restrictions.

“These broad restrictions on commercial chip sales will bring significant disruption to the US semiconductor industry… chip sales to China drive semiconductor research and innovation here in the [United States], which is critical to America’s economic strength and national security,” he said.

The obvious threat the restrictions pose to the US labor market appears not to matter to Washington as long it halts Huawei’s lead in the telecom industry.

US companies have been lobbying for licenses to supply Huawei with smartphone chips, following the May restrictions. Qualcomm and Micron among other chipmakers have been heavily impacted by the restriction as they lose billions of dollars to the disrupted supply chain.

While the US has succeeded in pressuring some of its allies to boot out Huawei, the company still has a grip on many big markets, particularly in developing countries. But with this latest restriction, it will be difficult for Huawei to live up to its technology expectations, especially on 5G.