Regulatory intelligence for US exporters

Trump Administration to Hold Meeting About Disagreements on Huawei Restrictions, Expanded Export Controls

Trump administration officials will meet this month in an attempt to resolve differences in the matter of restricting technology exports to China and Huawei, according to a Feb. 4 Reuters report. But Commerce is also discussing expanding its export control jurisdiction to a broader array of foreign sales containing U.S. goods that go beyond exports to just Huawei, according to a person familiar with the situation. “That is the one that would be a nuclear bomb for business,” the person said, adding that Commerce is discussing expanding its export control jurisdiction to “the maximum possible point.”

The Feb. 28 meeting, which will feature top officials from the Commerce, State and Defense departments, will be held about a month after reports surfaced that the Defense and Treasury departments objected to a proposed Commerce rule that would have further restricted foreign exports to Huawei containing a percentage of U.S. goods (see 2001240012). The meeting is expected to feature Commerce Secretary Wilbur Ross, Defense Secretary Mark Esper and Secretary of State Mike Pompeo, Reuters said. Rich Ashooh, Commerce’s assistant secretary for export administration, said in December the agency was considering a host of expanded restrictions on foreign exports to Huawei, including changes to the de minimis rule and the Direct Product Rule (see 1912100033). Commerce declined to comment.

Changes to the de minimis and direct product rule have “obviously been under extensive discussion” within Commerce, said Kevin Wolf, a trade lawyer with Akin Gump and Commerce's assistant secretary for export administration from 2010 to 2017. He said the changes would have “dramatic” implications for global supply chains (see 1912130052). But Wolf said it is difficult to assess the impact of any potential changes that go beyond foreign-made sales to Huawei without first knowing the license requirements Commerce would impose. Wolf said those topics may be discussed at the Feb. 28 meeting.

Ashooh said in December that any changes would likely be issued as proposed rules and would be made available for public comment. But some Commerce officials disagree on proposing rules for public comment versus publishing them as final regulations, said Peter Lichtenbaum, a Covington & Burling trade lawyer who was assistant secretary of Commerce for export administration from 2003 to 2006. “That’s a debate that’s going on within the Commerce Department,” Lichtenbaum said.

Publishing a rule without the opportunity for public comments can be helpful in situations when officials want to “move quickly” or when “signaling a change might have a counterproductive effect,” Wolf said. Some officials might want to publish rules quickly for political reasons, Lichtenbaum said, such as perceived pressure from Congress.

Most recently, Commerce proposed an interim final rule that placed export controls on geospatial imagery software (see 2001030024) as part of the agency’s effort to restrict emerging technologies. Although Commerce is soliciting public comments on the control until March 6, the rule took effect immediately. It is unusual for Commerce to skip the formal public comment period, Lichtenbaum said, but in some cases it may be necessary. “Going straight to final illustrates the level of national security concern around this software,” he said.

Although Commerce has struggled to pinpoint a timeline for releasing its next set of emerging technology controls (see 2002040057), which originally spiked fear within the industry of overbroad restrictions (see 1911070014), Lichtenbaum said industry has grown more confident that Commerce will only control narrow slices of technology. “The industry angst that is out there was gradually easing throughout this last year,” he said. “The [narrow control] on geospatial imagery software probably helped with that.”