On 15 May 2019, the U.S. government made two major announcements that are expected to disrupt the telecommunications equipment, technology, software and services sector.

  1. Huawei Trade Sanctions. Effective 16 May 2019, the U.S. Commerce Department added Huawei and 68 affiliates, from 26 countries, to the “Entity List.” The Entity List trade sanctions prohibit the export or transfer of U.S. commercial and dual-use goods, software and technology to Huawei and the listed affiliates (all items subject to the Export Administration Regulations). In addition, the restrictions apply to non-U.S. goods or software with more than “de minimis” U.S. content.
  2. Restrictions on Telecommunications Trade. President Trump issued an Executive Order for U.S. authorities to establish rules prohibiting transactions involving “information and communications technology or services” supplied by “foreign adversaries.” The Executive Order requires the U.S. Commerce Department to implement rules within 150 days.
  • The term “information and communications technology or services” is broadly defined to include any hardware, software, or other product or service primarily related to the function of information or data processing, storage, retrieval, or communication by electronic means. This includes transmission, storage, and display.
  • China and Russia are likely to be designated as “foreign adversaries.”

Thus, the U.S. government will assert broad discretion on national security grounds to prohibit or require changes to mitigate perceived risk for transactions and trade in the United States or subject to U.S. jurisdiction relating to Chinese information and communications technology or services.

Here is what companies in Asia need to know.

  • Huawei and U.S. Jurisdiction both have a broad reach. Huawei and its affiliates have a broad presence in Asia, and Entity List affiliates cover 26 countries in Asia, the Middle East, Africa, Europe and the Americas. U.S. assertions of jurisdiction are broad and extraterritorial. Any company having commercial dealings with Huawei or a Huawei affiliate will need to assess whether it is providing goods, software or technology that is subject to U.S. jurisdiction.
  • Supply chains may be disrupted. Companies should assess current and alternate supply chains relating to Huawei, as well as telecommunication and equipment trade with the United States. It will be important to review obligations under existing commercial contracts.
  • Expect new announcements and evolving rules in the coming year. May 15, 2019’s announcements are related both to near-term trade negotiations and long-term national security concerns. Companies should take steps to understand their legal risk exposure and monitor trade sanctions developments.

We will continue to update this notice.

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