Effective August 19, 2019, the US Commerce Department’s Bureau of Industry and Security (“BIS”) (i) added forty-six (46) additional non-US affiliates of Chinese-headquartered Huawei Technologies Co. Ltd. (“Huawei”) to the Entity List, and (ii) extended and modified the Temporary General License (“TGL”) authorizing certain transactions involving the export, reexport, and transfer of items subject to the Export Administration Regulations (“EAR”) to Huawei and its designated non-US affiliates. The extended and modified TGL (“New TGL”) covers the Huawei entities added to the Entity List on May 16, 2019, as well as the ones added on August 19, 2019. The New TGL will be effective through November 18, 2019. As further discussed below, the New TGL (i) mitigates the impact of the Entity List designation by waiving the Entity List restrictions for certain transactions, and (ii) imposes strenuous certification requirements for the use of the New TGL. Please see our blog post on the initial designation of Huawei and its non-US affiliates here and the original TGL here.
Authorized Transactions under the New TGL
As with the original TGL, the New TGL waives the Entity List restrictions for certain transactions, with certain modifications or clarifications as summarized below. For the complete details of the authorizations under the New TGL, a close reading of the full text of the New TGL here is encouraged. If a transaction is authorized under the New TGL, the transaction is subject to pre-designation, pre-May 16 controls under the EAR, e.g., licensing requirements to the country of destination. Unless the underlying transaction is authorized under the New TGL, license applications will continue to be reviewed under a presumption of denial.
- Authorization for continued operation of existing networks and equipment is extended and clarified. The original TGL authorized transactions subject to legally binding contracts and agreements executed on or before May 16, 2019, between Huawei and third parties, or designated affiliates of Huawei and third parties, that are necessary to maintain and support Huawei’s existing and currently fully operational networks and equipment. The New TGL continues to authorize such transactions, but clarifies that (i) end-devices such as general-purpose computing devices are not considered to be part of an existing and fully operational network; (ii) transfers of equipment for general business purposes or for activities that are not in direct support of an existing and fully operational network are not included in the New TGL; (iii) a third party refers to a party that is neither Huawei, one of its designated non-US affiliates, nor the exporter, reexporter, or transferor, but rather an organization such as a telecommunications service provider, and (iv) fully operational network means a third party network that is providing services to that third party’s customers.
- Authorization for support to existing “handsets” is extended but modified. The New TGL replaces the term “handsets” with the term “personal consumer electronic devices,” which refers to phones and other personally-owned equipment, such as tablets, smart watches, and mobile hotspots such as MiFi devices. This authorization also includes support for personal use of the telecommunications hardware known as customer premises equipment, such as network switches, residential Internet gateways, set-top boxes, home networking adapters, and other personally-owned equipment that enables consumers to access network communications services and distribute them within their residence or small business.
- Authorization for cybersecurity research and vulnerability disclosure is extended. The original TGL authorized, and the New TGL continues to authorize, disclosure to Huawei and/or its designated affiliates of information regarding security vulnerabilities in items owned, possessed, or controlled by Huawei or any of its designated affiliates when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently fully operational networks and equipment.
- Authorization for engagement for the development of 5G standards as part of a duly recognized international standards body has been eliminated and is no longer effective. BIS stated in the final rule that existing provisions of the EAR suffice for purposes of addressing the application of the Entity List-based license requirements to activities in connection with standards development bodies, including 5G standards bodies. Related to this, BIS published guidelines titled “General Advisory Opinion Concerning Prohibited Activities in the Standards Setting or Development Context When a Listed Entity Is Involved.”
Significant New Certification Requirements
A certification statement is required before parties can export, reexport, or transfer items subject to the EAR pursuant to the New TGL. Although the original TGL had certification requirements, the New TGL imposes a higher compliance burden around the certification requirements, which is a significant departure from the original TGL.
The New TGL shifts the burden of creating a certification statement from an exporter, reexporter, or transferor to the relevant designated Huawei entity who is to receive items subject to the EAR. Now the exporter, reexporter, or transferor needs to obtain a certification statement from the designated Huawei entity along with any supporting documentation, which could add a layer of complexity. Further, the New TGL specifies detailed requirements that must be met in order for the required certification to be valid. For example, the certification needs to include a complete list of all items to be exported, reexported, or transferred under the authority of the New TGL, including their quantity and applicable Export Control Classification Numbers (ECCN) or EAR99 designation, and needs to be signed and dated by an individual with sufficient authority to legally bind the designated Huawei entity. Further, with respect to the authorization for the continued operation of existing networks and equipment, documentation must be obtained from the relevant designated Huawei entity showing that there was a legally binding contract or agreement executed between the designated Huawei entity and a third party on or before May 16, 2019. Detailed recordkeeping requirements also apply.