US firms find legal route around Huawei blacklist

US firms find legal route around Huawei blacklist

American technology companies have resumed selling certain products to Huawei Technologies after concluding there are legal ways to work with the Chinese telecom giant in spite of its inclusion on a Trump Administration blacklist.

Micron Technology, the largest US maker of computer memory chips, said it had started shipping some components to Huawei after its lawyers studied export restrictions. Intel, the largest microprocessor maker, is understood to have also begun selling to Huawei again. It’s not clear how many other suppliers have reached the same conclusion.

The US Commerce Department added Huawei last month to what’s known as an entity list, a move designed to bar the Chinese company from buying American components and software. The Trump Administration said Huawei helps Beijing in espionage and represents a security threat -- charges the company denies.

Officials at Commerce and the White House are understood to be frustrated companies have resumed Huawei shipments. The chipmakers are taking advantage of certain exceptions to the export restrictions.

Even when companies have headquarters in the US, they may be able, through ownership of overseas subsidiaries and operations, to classify their technology as foreign, according to Cross Research analyst Steven Fox. If less than 25% of the technology in a chip originates in the US, for example, then it may not be covered by the ban, under current rules.

“It took them weeks to figure this out,” Mr Fox said. “What they did was look at the laws and the rules and applied them to their business.”

Micron has operations all over the world, some added through acquisitions, and it owns plants in Singapore, Japan and Taiwan. Intel has factories in China and Ireland and a major design centre and production facility in Israel.

Companies like Micron and Intel can legally continue some shipments to Huawei under what’s known as the de minimis rule, said Kevin Wolf, former head of the Commerce Department’s export control section.

“Commodities made overseas from US-origin technology are only subject to the entity list prohibitions if the technology and commodity are sensitive items controlled for ‘national security’ reasons,” Mr Wolf said.

But, a commodity made overseas from less sensitive US-origin technology is not subject to the entity list prohibitions

The de minimis threshold is 25%, according to the Commerce Department. National security hawks in the Trump Administration thought that inclusion on the entity list would ratchet up pressure on Huawei, but they didn’t understand or misinterpreted the existing rules, sources said. Those advisers didn’t fully grasp the limits of export controls in constricting supply chains that reach deeply into China.

Micron chief executive Sanjay Mehrotra, in a conference call discussing his company’s earnings, declined to explain his analysis, despite repeated questions. In a brief interview after the call, he also wouldn’t elaborate and said he hopes the US and China quickly resolve their trade dispute.

The Semiconductor Industry Association trade group put out a statement aimed at supporting its members’ right to keep working with an important customer: “SIA companies are committed to rigorous compliance with US export control regulations. As we have discussed with the US government, it is now clear some items may be supplied to Huawei consistent with the Entity List and applicable regulations.”

The trade war and Huawei sanctions put US chipmakers in a tough position. They need to comply with new rules in their home country, while at the same time navigating the intricacies of business in China, an increasingly crucial market. More than 60% of the $470bn (€413bn) of chips sold last year went through China.


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