Caixin
May 22, 2020 05:19 AM
WORLD

New Huawei Sanctions by U.S. Are Less Than Meet the Eye, Lawyers Say

Huawei is seeking to diversify its supply chains and reduce its reliance on U.S. technologies amid increasing sanctions.
Huawei is seeking to diversify its supply chains and reduce its reliance on U.S. technologies amid increasing sanctions.

The most recent American government move to tighten restrictions on Huawei Technologies Ltd. will not hit the Chinese telecom equipment giant as hard as expected, according to several American export-control lawyers.

The new rules, unveiled by the U.S. Commerce Department Friday, expand the government’s authority to require foreign manufacturers using American chipmaking equipment and technology to obtain a license before selling chips to Huawei.

That will hit Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), which supplies more than 90% of Huawei’s smartphone chips. TSMC uses American-made equipment to manufacture those chips.

But the rules apply only to chips designed by Huawei, lawyers said. Foreign chip manufacturers will still be able to sell chips to Huawei that are not custom-made for Huawei.

The new rules focus on a specific list of U.S.-origin source technologies and software, and it’s not clear what level of activities would trigger a Huawei design, said Maria Alejandra del-Cerro, a Washington, D.C., lawyer specializing in international trade.

“If a U.S. company’s offshore factory is selling a foreign-manufactured product that they sell to many companies including Huawei, it would not seem to meet the definition of ‘produced or developed by’ Huawei,” she said.

Other lawyers said they expect the new direct-product rule to have little further impact on the U.S. semiconductor industry as companies have been essentially prohibited from selling U.S.-origin products to Huawei since the Chinese company was placed on the Commerce Department’s “entity list” in May 2019.

The Commerce Department put Huawei on the list citing national security concerns. The Chinese company was also accused of violating U.S. sanctions on Iran, stealing intellectual property and potentially spying on customers, allegations Huawei denied.

Besides TSMC, there aren’t many other non-U.S. companies that use controlled American technology to make chips, said Christopher R. Wall, a partner at Pillsbury Winthrop Shaw Pittman LLP.

In response to new export-control rule changes, the Semiconductor Industry Association, which represents 95% of U.S. semiconductor manufacturers, said it’s concerned the new rule may create uncertainty and disruption for the global semiconductor supply chain, but it seems to be less damaging to the U.S. semiconductor industry than the very broad approaches previously considered.

The new rules aim more at cutting off Huawei’s ability to dictate specification standards to the chip industry, former White House trade adviser Clete Willems told Caixin.

If Huawei wants to advance its technology in a specific way and provides the design and specifications to a semiconductor company, this would be impeded by the new rules, which could impact Huawei’s future technology advancement and efficiency, Willems said.

Huawei warned that the new U.S. curbs on its business will inflict a “terrible price” on the entire industry worldwide, inflaming tensions between Washington and Beijing while harming American interests.

Huawei has sought to diversify its supply chains and reduce its reliance on U.S. technologies since it was sanctioned by the Trump administration. The company said in March that it sold 50,000 5G base stations that did not contain U.S. technology.

Meanwhile, the company has reportedly already shifted part of its chip production from the Taiwan supplier to the Chinese mainland’s leading chipmaker Semiconductor Manufacturing International Corp. (SMIC), which recently secured funding from two state-owned funds to scale up production.

However, the new U.S. rule will also affect SMIC, as it relies on U.S.-made equipment to produce chips, and it is not clear whether the Chinese company would be able to gain a license to continue selling to Huawei.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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