On May 19, 2020, the Department of Commerce, Bureau of Industry and Security (BIS), published an interim final rule (85 FR 29849) amending the Export Administration Regulations (EAR) to expand the Direct Product Rule to apply to specific members of the Entity List—at this time China’s Huawei Technologies and 114 non-U.S. affiliates. The rule was effective May 15, 2020, the date on which it was made available for public inspection.
Huawei Technologies and 114 of its overseas affiliates were added to the Entity List in 2019. However, Huawei has continued to use U.S. software and technology to design semiconductors, undermining the national security and foreign policy purposes of the Entity List by commissioning their production in overseas foundries using U.S. equipment.
The rule amends the Direct Product Rule (General Prohibition Three) at EAR §736.2(b)(3) to bar the transfer of items specified in a footnote to the Entity List
(vi) Criteria for prohibition relating to parties on Entity List. You may not reexport, export from abroad, or transfer (in-country) without a license or license exception any foreign-produced item controlled under footnote 1 of Supplement No. 4 to part 744 (“Entity List”) when there is “knowledge” that the foreign-produced item is destined to any entity with a footnote 1 designation in the license requirement column of the Entity List.
The interim rule is intended to block global chip supplies to Huawei by specifying direct products of U.S. origin technology in Export Control Classification Numbers (ECCNs) 3E001, 3E002, 3E003, 3E991, 4E001, 4E992, 4E993, 5E001, or 5E991 as well as U.S. origin software specified in ECCNs 3D001, 3D991, 4D001, 4D993, 4D994, 5D001 or 5D991.
U.S. manufacturers must comply with the interim rule by:
- Due diligence “denied parties screening” of all parties to an overseas transaction.
- Obtaining signed End User Statements acknowledging that the goods (technology, software and articles) are controlled by the U.S. Department of Commerce, Export Administration Regulations, and any in-country retransfer or reexport of these goods to another party requires prior authorization by the U.S. Department of Commerce, Bureau of Industry Security.
Comments on the interim final rule may be submitted through July 14, 2020. Review the Federal Register Notice for the full rule and how to submit comments. The Commerce Department also issued a press release on this action.
Related Actions Related to China and Huawei
This action follow three notices published in April expanding restrictions on exports to military end-users, the elimination of the License Exception Civil End Users (CIV), and modification of the License Exception Additional permissive Reexports (APR).
BIS also extended the Temporary General License for Huawei and its listed affiliates on March 18, 2020 (85 FR 29610). The General License, which authorizes activities “including those necessary for the continued operations of existing networks and equipment as well as the support of existing mobile services, including cybersecurity research critical to maintaining the integrity and reliability of existing and fully operational networks and equipment,” is now valid through August 13, 2020.