Exclusive: U.S. may scale back Huawei trade restrictions to help existing customers

[May 18, 2019]   By Karen Freifeld

(Reuters) - The U.S. Commerce Department said on Friday it may soon scale back restrictions on Huawei Technologies after this week's blacklisting would have made it nearly impossible for the Chinese company to service its existing customers.

The Commerce Department, which had effectively halted Huawei's ability to buy American-made parts and components, is considering issuing a temporary general license to "prevent the interruption of existing network operations and equipment," a spokeswoman said.

Potential beneficiaries of the license could, for example, include internet access and mobile phone service providers in thinly populated places such as Wyoming and eastern Oregon that purchased network equipment from Huawei in recent years.

In effect, the Commerce Department would allow Huawei to purchase U.S. goods so it can help existing customers maintain the reliability of networks and equipment, but the Chinese firm still would not be allowed to buy American parts and components to manufacture new products.

The potential rule roll back suggests changes to Huawei's supply chain may have immediate, far-reaching and unintended consequences.

The blacklisting, officially known as placing Huawei on the Commerce Department's entity list, was one or two efforts by the Trump administration this week allegedly made in an attempt to thwart national security risks. In an executive order, President Donald Trump also effectively barred the use of its equipment in U.S. telecom networks.

The United States believes Huawei's smartphones and network equipment could be used by China to spy on Americans, allegations the company has repeatedly denied.

The latest Commerce move comes as China has struck a more aggressive tone in its trade war with the United States, suggesting talks between the world's two largest economies would be meaningless unless Washington changed course.

A spokesman for Huawei, the world's largest telecommunications equipment maker, did not immediately respond to a request for comment.

A woman looks at her phone as she walks past a Huawei shop in Beijing, China May 16, 2019. REUTERS/Thomas Peter/File Photo

Out of $70 billion Huawei spent buying components in 2018, some $11 billion went to U.S. firms including Qualcomm, Intel Corp and Micron Technology Inc. If the Commerce Department issues the license, U.S. suppliers would still need separate licenses to conduct new business with Huawei, which would be extremely difficult to obtain, the spokeswoman said.

The temporary general license would last for 90 days, she said, and would be posted in the Federal Register, just as the rule adding Huawei to the entity list will be published in the government publication on Tuesday.

"The goal is to prevent collateral harm on non-Huawei entities that use their equipment," said Washington lawyer Kevin Wolf, a former Commerce Department official.

The entity listing bans Huawei and 68 affiliates in 26 countries from buying American-made goods and technology without licenses that would likely be denied.

The entities list identifies companies believed to be involved in activities contrary to the national security or foreign policy interests of the United States.

In a final rule posted on Thursday, the government tied Huawei's entity listing to a criminal case pending against the company in Brooklyn, New York.

U.S. prosecutors unsealed the indictment in January accusing the company of engaging in bank fraud to obtain embargoed U.S. goods and services in Iran and to move money out of the country via the international banking system.

Huawei Chief Financial Officer Meng Wanzhou, daughter of the company's founder, was arrested in Canada in December in connection with the indictment, a move that has led to a three-way diplomatic crisis involving the U.S., China and Canada.

Meng, who was released on bail, remains in Vancouver, and is fighting extradition. She has maintained her innocence, and Huawei has entered a plea of not guilty in New York.

Trump injected other considerations into the criminal case after Meng's arrest when he told Reuters he would intervene if it helped close a trade deal.

(Reporting by Karen Freifeld; Editing by Leslie Adler, Grant McCool, Chris Sanders and Diane Craft)

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