Huawei Restrictions Expanded
On August 20, 2020, the Department of Commerce, Bureau of Industry and Security (BIS) published a rule (85 FR 51596) which added thirty-eight non-U.S. Huawei affiliates to the Entity List, removed a temporary general license for Huawei, and amended the Direct Product Rule.
The listing of thirty-eight Huawei affiliates is in addition to 114 listed in 2019 and includes companies in Europe, Asia, Africa, South America, and North America.
A Temporary General License, which authorized 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,” was allowed to expire on August 13, 2020. A new footnote was added to the Entity List to permit cybersecurity research and vulnerability disclosure involving Huawei and its non-U.S. affiliates.
General Prohibition Three also known as the Foreign Produced Direct Product Rule, was amended to control certain foreign-produced items that are a direct product of U.S. technology when there is knowledge the items will be used to support a member of the Entity List (with a “footnote 1” designation) or if such an entity is a party to the transaction. This is a follow-on to an interim final rule published in May 2020, with expanded criteria for controlling transactions. For additional detail, see the revised §736.2(b)(3) of the Export Administration Regulations (EAR).
BIS also issued a press release with additional background on the additional thirty-eight Huawei affiliates and the Department of State issued a statement of support.
An additional rule (85 FR 51335) was also published by BIS on August 20 revising EAR §744.11(a) “to specify that supplemental license requirements for entities included on the Entity List apply regardless of the role that the listed entity has in the transaction (i.e., purchaser, intermediate consignee, ultimate consignee or end-user).”
BIS Adds Sixty to Entity List
On August 27, 2020 (85 FR 52898), BIS added 60 entities to the Entity List and revised five existing entries for various reasons including proliferation and diversion concerns as well as involvement in South China Sea territorial disputes. The new and revised entries are listed under People’s Republic of China (China), France, Hong Kong, Indonesia, Malaysia, Oman, Pakistan, Russia, Switzerland, the United Arab Emirates (U.A.E.), Canada, Germany, and Iran.
Twenty-four of these entries were based on activities which have enabled China to construct and militarize disputed outposts in the South China Sea. BIS also issued a press release providing additional background on the topic of disputed and artificial islands.
Additional List of Communist Chinese Military Companies Released
August 28, 2020, the Department of Defense released the following list of “Communist Chinese military companies”:
- China Communications Construction Company (CCCC)
- China Academy of Launch Vehicle Technology (CALT)
- China Spacesat
- China United Network Communications Group Co Ltd
- China Electronics Corporation (CEC)
- China National Chemical Engineering Group Co., Ltd. (CNCEC)
- China National Chemical Corporation (ChemChina)
- Sinochem Group Co Ltd
- China State Construction Group Co., Ltd.
- China Three Gorges Corporation Limited
- China Nuclear Engineering & Construction Corporation (CNECC)
This list, required by section 1237 of the National Defense Authorization Act for FY 1999, is a follow-on to the list of Communist Chinese military companies issued in June and does not immediately affect export controls. The listed companies, however, could potentially be the subject of future sanctions and inclusion on the list should be considered a “red flag” under the expanded restrictions on Chinese military end-users. Some companies are already sanctioned under other authorities.
Screening Matters
With these significant expansions of the Entity List and the Direct Product Rule, the importance of denied party screening throughout supply chain networks takes on added significance. Customers, as well as intermediate parties and end users must be screened before an export can take place. With lists like the Entity List being updated on a nearly daily basis, continuous screening of those parties is the best way to keep up to date with changes.