Defense Department ends opposition to proposed Huawei export restriction

The U.S. Defense Department on Friday reversed its decision to restrain a Commerce Department proposal to reduce the licensable U.S. content in exports to Huawei Technologies Co. Ltd., according to The Wall Street Journal.

Currently, for exports to the Chinese telecom, a foreign-made product is subject to the Commerce Department’s Export Administration Regulations (EAR) if it contains 25% or more U.S.-origin “controlled content,” a general policy that has been in place in the U.S. for 30 years. The amount of U.S.-controlled content determines whether an export requires an export license from the Commerce Department.

To further restrict U.S. semiconductor technology acquisitions by Huawei, the Commerce Department proposed to reduce the controlled content amount requiring an export license to 10%.

In late January, the Defense Department reportedly rejected the Commerce Department’s proposal, suggesting that the lowered U.S. content would have a detrimental impact on U.S. semiconductor manufacturers. The Commerce Department then withdrew the proposal, stirring a backlash from Senate Republicans.

Several senators, including Ben Sasse of Nebraska, Tom Cotton of Arkansas and Marco Rubio of Florida, all members of the Senate Select Committee on Intelligence, on Jan. 24 asked Defense Secretary Mark Esper in a letter for a detailed explanation of why his department objected to the Commerce Department’s proposed action against Huawei.

On Thursday, a federal court in New York released a sweeping indictment that included charges of racketeering and sanctions violations against Huawei and a handful of subsidiaries, as well as the company’s chief financial officer, who is currently in the custody of Canadian authorities.

The court’s action was expected to further pressure the Defense Department to reverse course on the Commerce Department’s content proposal during a Cabinet-level meeting scheduled at the White House next week.

Republican Sen. Rick Scott of Florida introduced a bill on Friday that would force the implementation of the Commerce Department’s 10% content proposal for licensed exports to Huawei.

“We know Huawei is supported and controlled by the communist regime in Beijing, which continues to violate human rights and steal our data, technology, and intellectual property,” Scott said in a statement. “Companies in the United States should not be allowed to sell to Huawei, and my legislation will further restrict their ability.”

The Commerce Department added Huawei and 68 of its overseas affiliates and subsidies to the Entity List on May 16, 2019, citing national security concerns with the company’s technology and its close ties to the Chinese government. An additional 46 Huawei overseas affiliates were added to the list on Aug. 19, 2019.

The Entity List imposes significant restrictions on U.S. goods and technology exports to Huawei and requires a U.S. company or organization to obtain an export license from the Commerce Department’s Bureau of Industry and Security.