This article alerts all foreign-based suppliers of Huawei, or its affiliates, on the latest US export licensing requirements for all products sold to Huawei using US technology or software.
Pursuant to Bureau of Industry and Security’s (BIS) August 17, 2020 rule Intel, Micron, Media Tek, SK Hynix, SMIC and Qualcomm have applied export license from BIS of the US Commerce Department for their products (including all commodities, software, technology) sold to Huawei (altogether 152 Huawei affiliates around the world) using US technology or US-origin equipment.
According to the August 17 rule, all US and foreign suppliers are subject to the license requirement (a) so long as US technology, software or US-origin equipment are used in their “items” (meaning chip, part, component, equipment or such foreign-made off-the-shelf items as chip design software) produced or developed anywhere in the world, or (b) if products are produced by a factory or major component of a factory (such as chip manufacturing equipment) which are products of US-origin technology or software.
This scope of application covers almost all chip makers around the world regardless of where they are, be it Taiwan, South Korean or China based. The only exception is the de minimis rule, allowing a less than 25% (in most cases by value by their market price) de minimis amount, for which the licensing requirement is exempt.
At present, the BIS will review case-by-case for US sellers so long as it is not 5G technologies. But it is still not clear whether the same leeway is affordable to non-US sellers when they are exporting, reexporting, transferring items (products, electronic components, software, etc.) that could keep Huawei afloat in the business or give it a competitive edge (over US companies) on the market. Huawei’s smart phone business does not look promising unless BIS loosens the August 17 rule.
Note that the August 17 rule has mandated that so long as it is a Huawei entity, the transaction is subject to the BIS control regardless of the Huawei acting as a purchaser, intermediate, or end-user in the line of items to supply. This has practically filled out all the loopholes for foreign-based Huawei suppliers because it places the due diligence on the suppliers, so that they are held accountable for a violation regardless of whether Huawei entity acts as a purchaser, intermediate consignee, ultimate consignee, or end-user.
It is clear that foreign-based suppliers cannot circumvent the rule (nor should it) if any Huawei entity is involved in the transaction. If you fail to do your homework before placing your “items” on route for shipping, directly or indirectly involving a Huawei entity, it could constitute as a US export violation. Pursuant to the August 17 rule, no knowledge about the rule or where the product’s destination will not help you reduce your risks because it is the supplier’s duty to investigate and do due diligence.
(1) Almost all electronic products shipped to Huawei’s 152 entities by both US and non-US suppliers are subject to the August 17 BIS license requirement.
(2) BIS has tightened grip to close all loopholes to circumvent the licensing requirement, so compliance is a must.
(3) Sellers and suppliers should create and enforce their internal self-checking system to ensure compliance.
Kingdoms Law Firm would be happy to help you streamline your process to meet these guidelines.
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