US to Block Huawei from Global Chipmakers, Closing a ‘Loophole’ Company Had Been Exploiting

US to Block Huawei from Global Chipmakers, Closing a ‘Loophole’ Company Had Been Exploiting
A woman wearing a face mask amid concerns over the COVID-19 coronavirus walks holding her smartphone past a Huawei shop (L) on a street in Beijing on April 22, 2020. (NICOLAS ASFOURI/AFP via Getty Images)
Cathy He

The Trump administration on May 15 announced plans to block Huawei from obtaining semiconductors from global chipmakers made with U.S. technology, the latest move to clamp down on Chinese tech firms that pose national security risks.

The U.S. Department of Commerce said it was amending an export rule—known as the foreign direct product rule—to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.”

The administration last year put Huawei and 114 affiliates on an “entity list” citing national security concerns, barring the company from doing business with U.S. firms.

However, the company has been able to find a workaround to this blacklisting by purchasing from foreign chip fabrication firms that use U.S. technology or software, department officials said.

“There has been a very highly technical loophole through which Huawei has been in able, in effect, to use U.S. technology with foreign fab producers,” Commerce Secretary Wilbur Ross told Fox Business on May 15.  He called the rule change a “highly tailored thing to try to correct that loophole.”

The department said its decision “cuts off Huawei’s efforts to undermine U.S. export control.”

Huawei, the world’s largest maker of telecom gear and second-largest smartphone maker, has come under intensifying scrutiny in the United States over concerns that its products could be used by the Chinese regime for spying or to disrupt communication networks. U.S. officials cite the company’s close ties to the regime, as well as Chinese law which compels companies to cooperate with intelligence agencies when asked.

Huawei, which relies on semiconductors for its smartphones and telecom gear, did not immediately comment on Friday. The company previously suggested that the Chinese regime could retaliate against the United States if more restrictions were placed on the firm.

“The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board,” Huawei Chairman Eric Xu told reporters on March 31.

In response to the announcement, Chinese state-run media Global Times wrote on Friday that Beijing was ready to place U.S. companies on an “unreliable entity list,” as part of countermeasures in response to the new limits on Huawei.

The countermeasures include launching investigations and imposing restrictions on U.S. companies such as Apple Cisco Systems, and Qualcomm, as well as suspending purchases of Boeing airplanes, the report said, citing a source.

Beijing first announced plans to draft an “unreliable entity list” of foreign companies in retaliation to the United States’ blacklisting of Huawei last year. However, since then no further details had been revealed.

Under the rule change, foreign companies that use U.S. chipmaking technology will be required to obtain a U.S. license before supplying certain chips to Huawei, or an affiliate like HiSilicon, a semiconductor manufacturer owned by Huawei. The rule targets chips designed or custom-made for Huawei.

In order for Huawei to continue to receive some chipsets or use some semiconductor designs tied to certain U.S. software and technology, it would need to receive licenses from the Commerce Department.

Separately, the Commerce Department extended a temporary license that was set to expire Friday to allow U.S. companies, many of which operate wireless networks in rural America, to continue doing business with Huawei through Aug. 13. It warned that it expected this would be the final extension.

Escalating Action

The new restrictions on Huawei come amid heightened tensions between Washington and Beijing triggered by the regime’s mishandling of the pandemic. This has accelerated the administration’s plans to reduce its supply chain dependence on China.

In recent weeks, the administration has taken a series of measures aimed at countering security threats posed by Chinese telecom firms, and to prevent the transfer of sensitive U.S. technology to China.

The Commerce Department recently released rules to make it tougher for U.S. companies to export certain types of advanced technology to China that might aid its military.

It now requires U.S. companies to obtain licenses to sell certain items—including semiconductor production equipment and sensors—to companies in China that support the Chinese military, even if the items are for civilian use.

The Federal Communications Commission (FCC) last month commenced steps to bar three Chinese state-controlled telecom companies from operating in the United States, citing security risks stemming from the concern that they are subject to influence from the Chinese Communist Party.

Reuters contributed to this report. 
Cathy He is the politics editor at the Washington D.C. bureau. She was previously an editor for U.S.-China and a reporter covering U.S.-China relations.
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