Huawei’s Entity List Designation and Compliance for Taiwanese Companies

 

Effective May 16, 2019 the United States Commerce Department’s Bureau of Industry and Security (BIS) added Huawei Technologies Co., Ltd. (Huawei) and 68 non-US Huawei affiliates to the BIS Entity List (the “Huawei Entities’). The designation imposes an export license requirement on all exports, reexports, and transfers of goods subject to the United States Export Administration Regulations (EAR) to the Huawei Entities.

 

Licensing Requirements

Licenses will be required to export, reexport, or transfer to the Huawei Entities all items “subject to the EAR” located in or originating from the United States. License applications will be reviewed on a case-by-case basis but under the principle of “presumption of denial” it is unlikely licenses will be approved.

Of importance to Taiwan companies, items outside of the United States with US-origin content or produced as the “direct product” of US-origin technology could, in many circumstances, fall within the scope of the licensing requirements.

 

Ninety Day Temporary License

On 20 May 2019 the BIS issued a ninety (90) day Temporary General License (TGL) to partially restore previous licensing requirements and policies for export, reexport, and transfer of items to the Huawei Entities. The TGL scope includes: (1) continued operation of existing networks and equipment (2) support to existing handsets (3) cybersecurity research and vulnerability disclosure, and (4) engagement as necessary for development of 5G standards by a recognized standards body.

 

Savings Clause

The Entity List designation also includes a “savings clause”, which authorizes shipments if the goods were ordered by a customer and on 16 May 2019 were en route aboard a carrier to a port for export or reexport.

 

Huawei Entities & Taiwan

Taiwan companies (as well as multinational companies with business operations in Taiwan) should engage Taiwan counsel to review their ability to comply with both the latest US licensing requirements along with applicable Taiwan laws and regulations. This includes:

Know Your Customer. The United States government will expect technology industry supply chain participants to conduct appropriate know your customer due diligence to ensure compliance with the 16 May 2019 Entity List designations that add the Huawei Entities.

Ongoing License Requirements: Compliance with license requirements that pre-date the 16 May 2019 Entity List designations is still required. For example, goods within the scope of the TGL that required licenses for export to China prior to 16 May 2019 will still require such license.

Record Keeping: Compliance with US and Taiwan record keeping requirements. For example, if products are sold under the TGL, exporters, reexporters, and transferors are required to issue a “certification statement” that explains why the sale is within the scope of the TGL and maintain the record for five years. Such record keeping requirements imposed by the United States will need to be assessed for compliance with record keeping requirements under Taiwan laws and regulations.

Changes to Taiwan Laws and Regulations: In the current environment we also advise clients to refresh their understanding of both Taiwan’s existing export regulations, as well as regulations that government investment in China’s technology sector. We also advise clients to engage counsel to monitor potential changes that might be made to Taiwan’s laws and regulations under pressure from the US government.

Reporting Requirements: For publicly listed companies, we advise engaging counsel to determine whether the Entity List designations or similar developments trigger public disclosure requirements.

 

Conclusion

Titan’s team of Taiwan and US-trained and licensed lawyers is able to assist clients on the rapidly changing legal and regulatory environment for technology industry companies.