China's Huawei, 70 Affiliates Blacklisted By US Commerce Department

Update (1815ET): That did not take long...

Reuters reports that the U.S. Commerce Department is adding Huawei Technologies Co Ltd and 70 affiliates to its so-called "Entity List" - a move that will make it much more difficult for the telecom giant to buy parts and components from U.S. companies. U.S. officials said the decision would also make it difficult for Huawei to sell some products because of its reliance on U.S. suppliers.

Department of Commerce Announces the Addition of Huawei Technologies Co. Ltd. to the Entity List

WASHINGTON – Today, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce announced that it will be adding Huawei Technologies Co. Ltd. and its affiliates to the Bureau’s Entity List. This action stems from information available to the Department that provides a reasonable basis to conclude that Huawei is engaged in activities that are contrary to U.S. national security or foreign policy interest. This information includes the activities alleged in the Department of Justice’s public superseding indictment of Huawei, including alleged violations of the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA by providing prohibited financial services to Iran, and obstruction of justice in connection with the investigation of those alleged violations of U.S. sanctions.

The sale or transfer of American technology to a company or person on the Entity List requires a license issued by BIS, and a license may be denied if the sale or transfer would harm U.S. national security or foreign policy interests. The listing will be effective when published in the Federal Register.

“This action by the Commerce Department’s Bureau of Industry and Security, with the support of the President of the United States, places Huawei, a Chinese owned company that is the largest telecommunications equipment producer in the world, on the Entity List. This will prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests,” said Secretary of Commerce Wilbur Ross. “President Trump has directed the Commerce Department to be vigilant in its protection of national security activities. Since the beginning of the Administration, the Department has added 190 persons or organizations to the Entity List, as well as instituted five investigations of the effect of imports on national security under Section 232 of the Trade Act of 1962.” Additions to the Entity List are decided by the End-User Review Committee which is comprised of officials from the Department of Commerce, Department of Defense, State Department, and Department of Energy. Under § 744.11(b) of the Export Administration Regulations, persons or organizations for whom there is reasonable cause to believe that they are involved, were involved, or pose a significant risk of becoming involved in activities that are contrary to the national security or foreign policy interests of the United States, and those acting on behalf of such persons, may be added to the Entity List.

The Bureau of Industry and Security’s mission is to advance U.S. national security and foreign policy objectives by ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership. BIS is committed to preventing U.S.-origin items from supporting Weapons of Mass Destruction (WMD) projects, terrorism, or destabilizing military modernization programs.

Commerce Secretary Wilbur Ross said in a statement President Donald Trump backed the decision that will "prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests."

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Update (1645ET): Confirming what we previewed earlier, in a move that is seen as aimed at keeping the Chinese company Huawei out of the US market, President Trump has declared a "national emergency" to protect U.S. communications networks giving the federal government broad powers to bar American companies from doing business with certain foreign suppliers.

"The president has made it clear that this administration will do what it takes to keep America safe and prosperous, and to protect America from foreign adversaries who are actively and increasingly creating and exploiting vulnerabilities in information and communications technology infrastructure and services in the United States," the statement said.

The order authorizes the commerce secretary to block transactions involving communications technologies built by firms controlled by a foreign adversary that puts U.S. security at "unacceptable" risk — or poses a threat of espionage or sabotage to networks that underpin the day-to-day running of vital public services... which would include the Chinese firm Huawei.

As WaPo details, Trump's executive order instructs the commerce secretary to develop an enforcement regime and permits the secretary to name companies or technologies that could be barred, according to officials.

The order acknowledges that, although an open investment climate is generally positive, the United States needs to do more to protect the security of its networks.

The national emergency declaration comes a day after a congressional hearing in which senators from both parties joined administration officials in calling out the risks of doing business with a company like Huawei. They emphasized that the problem was less about the company than the authoritarian country whose system of laws, which lacks due process and transparency, it must obey.

"It's not about overseeing Huawei. It's about overseeing China," said Sen. Lindsey O. Graham (R-S.C.), chairman of the Senate Judiciary Committee during the hearing on 5G security.

But, of course, "The executive order is company and country agnostic," replies a senior White House official when asked if the executive order targets Huawei and China (h/t @W7VOA)

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As we detailed earlier, in what appears to be the US government's latest salvo in its war against Huawei, President Trump is reportedly preparing to sign an executive order that would prohibit American firms from using equipment made by foreign telecom companies that pose a 'security threat', according to Bloomberg, which sourced its report to administration insiders.

The official who spoke with Bloomberg insisted the order wasn't intended to single out any country or company, but anybody who has been following the ongoing spat with Huawei should instantly recognize that this simply isn't true (though, with the trade negotiations at a very delicate impasse, we understand why the administration needs to maintain this pretense). Though Huawei and its fellow Chinese telecoms giant ZTE already face serious restrictions on selling their products in the US, Huawei still maintains a US subsidiary in Texas.

Huawei

The order, which could be signed as soon as Wednesday, wouldn't outright ban sales to US entities, but it would grant the Commerce Department more authority to review products and purchases made by firms with connections to adversarial countries (we doubt that's directed at Ericsson and Sweden).

China's foreign ministry has already lashed out at the US over reports of the executive order.

"This is neither graceful nor fair," ministry spokesman Geng Shuang said at a news briefing in Beijing. "We urge the U.S. to stop citing security concerns as an excuse to unreasonably suppress Chinese companies and provide a fair and equitable and non-discriminatory environment for Chinese companies to operate in the U.S."

Washington has been campaigning for months to stop its allies around the globe from allowing Huawei products to be used in their 5G networks, but to little avail. Yesterday, Huawei promised to sign a "no spy" pledge to governments like the UK that are still deciding how much reliance on Huawei they are willing to stomach.

As Huawei pushes to assume a global leadership position in 5G, the US's efforts to try and discredit the company have included successfully pushing for the arrest of its CFO, Meng Wanzhou, in Canada, on charges she helped the company violate US sanctions on Iran.

American lawmakers suspect Huawei's equipment could be used for spying - and not without reason.

Just last month, Ars Technica found a backdoor like vulnerability in Huawei's Matebook laptop series which could have allowed remote hackers to gain access to the system. Chinese law also could technically compel companies like Huawei to cooperate with authorities.

But even if the order is signed on Wednesday, it might not take effect for six months, as it would take time for the Commerce Department to "fashion an approach" to the order.

In the meantime, Verizon and other US telecoms firms are still way behind in the war to dominate the global market for 5G networking equipment.

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