Discussions within the Commerce Department to expand U.S. export control jurisdiction over foreign exports to Huawei would have a chilling effect on the U.S. semiconductor industry, said Semiconductor Industry Association President John Neuffer. Current U.S. export restrictions on Huawei are already hurting the industry’s ability to sell to China, said Neuffer during an Information and Technology Innovation Foundation workshop Tuesday. China is about 35 percent of U.S. semiconductor sales, and more restrictions would further alienate Chinese customers who are weary of being added to Commerce’s Entity List, he said: “Some of them are afraid they’re next.” Neuffer said the semiconductor industry remains uncertain about the U.S. approach toward Huawei and China. He warned the Trump administration against further revisions to the U.S. export control system. “We think that’s not necessary,” Neuffer said, adding the U.S. shouldn’t place controls on nonsensitive products with no national security nexus, such as smartphone chips. “There have been some confused waters for us in terms of understanding exactly what the U.S. government intends on doing with Huawei and the China market generally,” Neuffer said.
Chip export news
Friday’s announcement of a phase one U.S.-China trade deal that included halving 4A tariffs in place since Sept. 1 (see 1912130042) could do little to change damage done to small audio companies smacked by the previous three tranches of tariffs still in place, they said. Executives we spoke to this month have been hit hard by the duties with little hope other than to wait them out.
The U.S. should study China’s efforts to dominate emerging technology sectors, said the U.S.-China Economic and Security Review Commission. The congressionally created commission's annual report said China's outpacing the U.S. in artificial intelligence. Though it recommended Congress consider increased export controls, it said curbs on smart chips may “only accelerate China’s efforts to produce sophisticated chips domestically.” China faces “nearly insurmountable” hurdles in its effort to develop comparable technology to that of the U.S., as China’s semiconductor industry “is still heavily reliant on foundational technology dominated by U.S. firms,” the panel said Thursday. China's taking a “commanding position” in commercial satellite sectors, the commission found: That lets the country undercut some U.S. and other countries’ launch and satellite providers. The commission urged Congress to direct the National Science Foundation and the Trump administration to study China’s influence in international bodies charged with developing standards for emerging technologies. The China Embassy didn't comment.
The Commerce Department gave rural U.S. carriers that use Huawei equipment a 90-day reprieve Monday from a ban on doing business with the company. At the same time, the U.S. ratcheted up pressure on the Chinese vendor, adding 46 more of Huawei’s non-U.S. affiliates to a list of subsidiaries subject to export restrictions. Three months ago, the U.S. similarly gave U.S. carriers more time to deal with sanctions (see 1905210013). The delay means Huawei can continue to send updates to handsets and maintain existing networks and equipment.
Members of Congress continue introducing or working on bills targeting national security concerns with Chinese telecom equipment manufacturer Huawei, including a pending bill from House Commerce Committee Chairman Frank Pallone, D-N.J., lawmakers and lobbyists told us. Some on Capitol Hill said they're holding out hope that a conference committee to marry the disparate House and Senate versions of the FY 2020 National Defense Authorization Act will agree to include a trio of House-passed amendments that target Huawei and ZTE. But they and others said legislative vehicles and these recent stand-alone bills should be considered as an alternative if the conference process fails to bear fruit.
Los Angeles resident Yi-Chi Shih, former president of China-based Chengdu GaStone Technology Co. (CGTC), was found guilty of conspiring to illegally export semiconductor chips to China, violating the International Emergency Economic Powers Act, DOJ said Tuesday. Shih gained access to a “protected computer” of a U.S. company that makes monolithic microwave integrated circuits (MMICs), before exporting the chips, which are used by the U.S. military for missiles and fighter jets, it said. Shih accessed the company’s computer systems with a co-conspirator by posing as a domestic customer looking to buy custom-designed MMICs that would be used only in the U.S., DOJ said. Shih illegally exported the ICs, without a license from the Commerce Department, to CGTC, which was building a MMIC manufacturing company in China, said Justice. CGTC was added to Commerce’s entity list in 2014, for “illicit procurement of commodities and items for unauthorized military end use in China.” Shih faces a statutory maximum federal sentence of 219 years.
The net effect of U.S. concessions on Huawei is murky, much like U.S. trade policy at present, experts said in interviews this week. President Donald Trump and Chinese President Xi Jinping agreed at the G20 conference in Osaka, Japan, to delay discussion of such U.S. sanctions “until the end” of trade talks (see 1907010070). Such penalties were seen as one of the best U.S. bargaining chips with China (see 1905240038). It’s unclear whether Congress will be able to channel into action bipartisan outcry over President Donald Trump’s move to ease federal restrictions on the Chinese telecom equipment manufacturer, experts said.
With President Donald Trump’s announcement that U.S. companies will be allowed to sell to Huawei (see 1907010070 or 1907010015), it remains unclear how and if the Commerce Department will amend its May notice that added Huawei to the agency’s entity list and banned all exports of items subject to the export administration regulations with a review policy of presumption of denial. “That does not appear to be decided yet,” said William Reinsch of the Center for Strategic and International Studies and Commerce’s former undersecretary for export administration. Reinsch expects Commerce to keep its “presumption of denial” policy “but manage it by adding and subtracting to the” temporary general license. The temporary general license will likely be extended past the original 90-days and be expanded to cover more items, Reinsch said. “The debate will be about what items will be covered,” Reinsch emailed. “Everything else will be subject to a presumption of denial, which means you can apply but don’t hold your breath waiting for a ‘yes.’” Alternatively, Commerce could change its review policy to a case-by-case basis, Reinsch said, noting it’s more likely the agency simply expands its temporary general license. “I think it’s easier for them administratively,” Reinsch said. “If they change it, it would require another” Federal Register notice. Semiconductor Industry Association President John Neuffer called the announcement “good news for the semiconductor industry, the overall tech sector, and the world’s two largest economies.” Commerce plans to grant export licenses for products that China can easily get from other countries, including “various chips and software,” said National Economic Council Director Larry Kudlow Sunday on CBS and Fox News. “Anything to do with national security concerns will not receive a new license from the Commerce Department,” Kudlow said on CBS. A U.S.-China Business Council spokesperson said the specifics of the announcement were unclear but the move likely will provide relief for U.S. exporters. The net effect and next steps in Congress are difficult to predict (see 1907020060).
An internal “review” at Micron Technology found the memory-chip supplier could “lawfully resume shipping a subset of current products” to Huawei because they aren't subject to Commerce Department export administration regulations and entity list restrictions, said CEO Sanjay Mehrotra on a fiscal Q3 earnings call. Micron reinstated those shipments about two weeks ago, he said Tuesday.
Senate Intelligence Committee Vice Chairman Mark Warner, D-Va., and Sen. Marco Rubio, R-Fla., urged President Donald Trump's administration Thursday not to use U.S. restrictions on Huawei as a “bargaining chip in trade negotiations” with China. Trump's May executive order bars some foreign companies' technology from U.S. networks and the Commerce Department's Bureau of Industry and Security filed a notice adding Huawei and affiliates to a list of entities subject to export administration regulations (see 1905160081). BIS issued a general license temporarily allowing certain transactions by Huawei and the affected affiliates through Aug. 19 (see 1905210013). Trump later said sanctions against Huawei could be part of trade negotiations with China (see 1905240038). OMB acting Director Russel Vought later requested a two-year delay in implementing government contracting and procurement-related restrictions on Huawei included in the FY 2019 National Defense Authorization Act (see 1808130064). “Europeans have publicly expressed fears that the Administration will soften its position on Huawei,” especially given Trump's instigation of a settlement that lifted the Commerce Department ban on U.S. companies selling telecom software and equipment to Chinese firm ZTE (see 1807130048), Rubio and Warner wrote Secretary of State Mike Pompeo and U.S. Trade Representative Robert Lighthizer. “Instead, the U.S. should redouble our efforts to present our allies with compelling data on why the long-term network security and maintenance costs on Chinese telecommunications equipment offset any short-term cost savings.” Any modifications to BIS' temporary general license for Huawei “must be pursued in a risk-based way, separate from any trade negotiations, and consistent with national security considerations,” the senators said. “Conflating national security considerations with levers in trade negotiations undermines” U.S. work with Europe, India and other “international partners.” The House Armed Services Committee, meanwhile, Thursday advanced its version of the FY 2020 NDAA with language directing the defense secretary to conduct a comprehensive assessment of DOD policies on telecom and video surveillance services and equipment from foreign contractors and subcontractors, including identifying ways to mitigate threats via the debarment and suspension process. The bill would direct the defense secretary to implement a strategy for 5G technologies. It recommends giving DOD $175 million to ensure effective Joint Force operations in 5G spectrum.