As detailed in a previous Ankura alert, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) added Chinese telecommunications equipment producer Huawei Technologies Co., Ltd. (“Huawei”) and 68 of its non-U.S. affiliates (the “Huawei Entities”) to the EAR Entity List (Supplement No. 4 to Part 744), effective May 16, 2019, thus prohibiting parties from providing the listed entities with items subject to the Export Administration Regulations (“EAR”) without a BIS-issued license (which would presumably be denied). BIS also created a 90-day Temporary General License (“TGL”), effective May 20, 2019, to authorize certain types of transactions to allow exporters, reexporters, and transferors time to wind down ongoing business with Huawei and the Huawei Entities.
Through a final rule effective August 19, 2019, BIS extended the validity period of the TGL to November 18, 2019, but with some significant strings attached, as detailed below.
A separate final rule, also effective August 19, 2019, added an additional 46 non-U.S. affiliates of Huawei to the Entity List and modified existing entries for Huawei and three Huawei Entities in China. As with the original Entity List designations, these additional designations prohibit providing the newly-added entities with items subject to the EAR without a BIS-issued license, and continue the license review policy of a presumption of denial.
Significant Changes to the TGL Certification Statement Requirement
Bottom Line: If you have been using the TGL based on a certification statement you as the exporter, reexporter, or transferor created, you now must obtain a certification statement from the recipient listed Huawei entity itself prior to making further exports, reexports, or transfers.
- The final rule requires that prior to making exports, reexports, or transfers under the TGL, the exporter, reexporter, or transferor must obtain a certification statement from the listed Huawei entity that is to receive the items; it is no longer permissible for the statement to be created by the exporter, reexporter, or transferor.
- Additionally, the certification statement must:
- Specify how the transaction(s) satisfies the criteria of the TGL and identify the TGL paragraph that authorizes the transaction(s); and
- Provide information about the item(s), including the quantity to be exported, reexported, or transferred; the applicable ECCN (or designation as EAR99); and the end-use(s).
Significant Changes to the Scope of TGL Authorizing Paragraphs
Bottom Line: If your transaction(s) appeared to fit within the scope of one of the TGL authorizing paragraphs as set forth in the TGL version effective May 20, 2019, you should reassess the transaction(s) in light of the changes described below.
- For authorizing paragraph (c)(1) (i.e., Continued operation of existing networks and equipment), the final rule:
- Clarifies that the requisite legally binding contract/agreement must be between the listed Huawei entity and an entity that is not Huawei or another Huawei Entity, and is not the exporter/reexporter/transferor, but rather is a third party such as a telecommunications service provider;
- Clarifies that the term ‘fully operational network’ means a network provided by an entity that is not Huawei or another Huawei Entity, and is not the exporter/reex-porter/transferor, and that provides services to such an entity’s customers;
- Adds exclusions to clarify what the scope does not include (e.g., general-purpose computing devices; equipment not directly related to support/maintenance; etc.); and
- Specifies that certain updates to existing software versions are included in the scope of (c)(1), provided they do not enhance the functional capacities of the original software or equipment.
- For authorizing paragraph (c)(2) (i.e., Support to existing handsets), the final rule:
- Replaces the term “handsets” with the defined term ‘personal consumer electronics devices’ to clarify that the scope includes phones and other personal devices such as tablets, smart watches, and mobile hotspots;
- Clarifies that the scope includes support for personal use of ‘Customer Premises Equipment (CPE)’ and includes a definition for CPE; and
- Specifies that certain updates to existing software versions are included in the scope of (c)(2), provided they do not enhance the functional capacities of the original software or equipment
- For authorizing paragraph (c)(3) (i.e., Cybersecurity research and vulnerability disclosure), the final rule:
- Clarifies that the term ‘fully operational network’ means a network provided by an entity that is not Huawei or another Huawei Entity, and is not the exporter/reex-porter/transferor, and that provides services to such an entity’s customers.
- Lastly, the final rule removes authorizing paragraph (c)(4) (i.e., Engagement as necessary for development of 5G standards by a duly recognized standards body).
How Ankura can help companies and counsel:
- Jurisdictional assessment – The Ankura team has subject matter expertise in conducting technology/commodity classifications and de minimis analyses and can provide advice regarding interpretation and application of the EAR and Entity List restrictions.
- Licensing – Ankura advises and assists clients to engage with BIS to obtain reexport or transfer licenses, and also helps in interpreting, applying, and operationalizing the TGL.
- Compliance risk mitigation – Ankura has deep experience assisting companies adapt to changing regulatory environments with smart, managed application of business-integrated controls.
- Crisis response – Ankura helps clients navigate dynamic regulatory environments, by drawing on our unique blend of substantive expertise and experience as in-house, government, and professional services leaders.
- Chinese language capability – Ankura’s team integrates U.S. persons with fluency in Mandarin.
© Copyright 2019. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.