Exclusive: U.S. to tighten restrictions on Huawei access to technology, chips - sources

[August 17, 2020]  By David Shepardson

WASHINGTON (Reuters) - The Trump administration is set to announce on Monday it will further tighten restrictions on Huawei Technologies Co, aimed at cracking down on its access to commercially available chips, officials briefed on the matter said.

The U.S. Commerce Department actions will expand restrictions announced in May aimed at preventing the Chinese telecommunications giant from obtaining semiconductors without a special license - including chips made by foreign firms that have been developed or produced with U.S. software or technology.

The administration will also add 38 Huawei affiliates in 21 countries to the U.S. government's economic blacklist, the sources said, raising the total to 152 affiliates since Huawei was first added in May 2019.

"Huawei and its affiliates have worked through third parties to harness U.S. technology in a manner that undermines U.S. national security and foreign policy interests,” Commerce Secretary Wilbur Ross said in a statement to Reuters, adding: "this multi-pronged action demonstrates our continuing commitment to impede Huawei’s ability to do so."

With U.S.-China relations at their worst in decades, Washington is pushing governments around to world to squeeze Huawei out, arguing it would hand over data to the Chinese government for spying. Huawei denies it spies for China.

The new actions, effective immediately, should prevent Huawei’s attempts to circumvent U.S. export controls, the sources said.

It "makes clear that we're covering off-the-shelf designs that Huawei may be seeking to purchase from a third-party design house," one Commerce Department official told Reuters.

A separate Commerce official said the order aims to "ensure the ability for foreign-produced items to backfill" chips covered under the restrictions in May are subject to the same U.S. oversight.

A new separate rule will stipulate that all companies on the economic blacklist will require a license when a company like Huawei on the list acts "as a purchaser, intermediate consignee, ultimate consignee, or end user," the sources said.

A Huawei sign is seen outside its store at a shopping complex in Beijing, China July 14, 2020. REUTERS/Tingshu Wang/File Photo

The 38 additional Huawei entities added to the blacklist include Huawei cloud units in Beijing, Hong Kong, Paris, Berlin and Mexico.

The Commerce Department is separately adding addresses for four Huawei assembly locations on the Entity List "so no one unwittingly is moving items" to those locations, a Commerce official said.

The department also confirmed it will not extend a temporary general license that expired Friday for users of Huawei devices and telecommunication providers. Parties must now submit license applications for transactions previously authorized by the temporary license.

The Commerce Department will adopt a limited permanent authorization for Huawei entities to allow "ongoing security research critical to maintaining the integrity and reliability of existing" networks and equipment, the sources said.

Existing U.S. restrictions have already had a heavy impact on Huawei and its suppliers have already taken action on the May restrictions which do not fully go into effect until Sept 15.

On Aug. 8, financial magazine Caixin reported it will stop making its flagship Kirin chipsets next month due to U.S. pressure on Huawei’s suppliers.

“From Sept. 15 onward, our flagship Kirin processors cannot be produced,” Richard Yu, head of Huawei’s consumer business unit was quoted as saying. “Our AI-powered chips also cannot be processed. This is a huge loss for us."

Huawei’s HiSilicon division has relied on software from U.S. companies such as Cadence Design Systems Inc and Synopsys Inc to design its chips and it outsourced the production to Taiwan Semiconductor Manufacturing Co (TSMC), which uses equipment from U.S. companies.
 

TSMC has said it will not ship wafers to Huawei after Sept. 15.

(Reporting by David Shepardson in Washington; Editing by Edwina Gibbs)

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