By: Divya Prasad, J.D. Candidate, American University
and Margaret Ververis, Trade Compliance Counsel at Hughes Network Systems, an Echostar Company
Recent trade restrictions exemplify an alarming trend of isolationism that could cripple the United States technology industry. On May 15, 2019, President Trump issued an Executive Order declaring a national emergency with respect to threats against information and communications technology. Shortly thereafter, the U.S. Department of Commerce formally added Huawei Technology (“Huawei”), and its non-U.S. affiliates to the Department’s Entity List, which prohibits Huawei from purchasing American parts for its consumer electronics business without an export license from the U.S. government. Given that Huawei is a giant in the telecommunications industry, this post examines Huawei’s role in U.S. trade, and discusses the consequences faced by domestic technology businesses that depend on Huawei as a major source of income.
Headquartered in Shenzhen, China, Huawei is one of the leading telecommunications providers. It stands tall as the “biggest seller of telecom-network equipment, and the second-biggest seller of smartphones” in the world after Samsung. Featured on Forbes’ World’s Most Valuable Brands list, Huawei employs nearly 180,000 people in 170 countries. “With a 20 percent market share,” Huawei plays an prominent role in the technology industry.
In addition to impeding Huawei’s ability to obtain integral parts for its business by cutting off its connection with U.S. manufacturers, the Department’s decision also bars U.S. companies’ access to a valuable customer. U.S. technology companies that sell cell phone components to Huawei derive a great deal of revenue from these supplier agreements, and are likely losing substantial profit as a result of the Department’s decision. For example, Skyworks Solutions’ contract with Huawei accounts for nearly 12 percent of Skyworks’ business. Similarly, a California-based optoelectronic technology designer, NeoPhotonics, relies on Huawei for nearly 46 percent of its revenue. Other U.S. technology companies, including mobile device parts manufacturers Qorvo and Lumentum, also amended their financial forecasts to reflect a downturn in future earnings. Facing a massive disruption in global trade, U.S. tech companies are understandably worried that increased trade barriers to foreign companies like Huawei may “disrupt supply chains and lead to increased prices” as well.
In response to the trade regulations obstructing its U.S. sales, Huawei issued a statement clarifying that restrictions placed on its business with U.S. companies will not safeguard U.S. national security, but “instead, will . . . limit the [U.S.] to inferior yet more expensive alternatives, leav[e] the [U.S.] lagging behind in 5G deployment, and eventually harm the interests of [U.S] companies and consumers.” Huawei’s statement implies that while it may ultimately recover by hiring non-U.S. manufacturers, the U.S. will likely never recoup its lost revenue or access to ground-breaking technology.
In addition to lost revenue, U.S. companies face many challenges regarding the maintenance of existing critical networks, and infrastructure that contain Huawei-sourced equipment and software. The U.S. Government acknowledged these challenges at least in some respect by offering a reprieve through the issuance of a Temporary General License (“TGL”). The TGL, effective May 20, 2019 for a limited period of 90 days, authorizes certain transactions related to the continued operation of existing networks and equipment to “grant operators time to make other arrangements.” The Department extended the TGL for an additional 90 days, and expressly acknowledged the competing interests of providing much needed time to “prevent any disruption” to existing networks, while “urg[ing] consumers to transition away from Huawei’s products.”
Efforts to obtain an export license may be difficult, thereby leaving U.S. companies with the near impossible task of determining low-cost, and low-impact alternatives in only a matter of months. A few U.S. tech companies, such as Google and Facebook, are taking a hardline approach and considering severing ties with Huawei completely, while others are left with the task of strengthening internal controls, and oversight so as not to run afoul of the new export restrictions. The complexity of the latter approach is a daunting one, requiring U.S. companies to carefully analyze existing networks, equipment, and contractual obligations to comply with the new legal framework while sustaining operations. The waters are further muddied by the fact that the Entity List identification is not a blanket prohibition on the provision of services, meaning that U.S. companies may continue to provide and receive technical support to and from Huawei.
Thus, the question becomes whether, and to what extent, it makes sense to continue dealing with Huawei from a commercial and practical standpoint. As it stands today, the feasibility of doing so remains possible; however, the future sustainability of such an approach may be further limited in view of the TGL’s looming expiration and the forthcoming implementation of Executive Order 13873.
While there are still many unknown consequences of the Department’s actions against Huawei, and unavoidably, the U.S. manufacturers that Huawei employs, it is almost certain that these trade restrictions will fuel future discussions on balancing national security objectives with those of trade expansion, and technological advancement.
 See, e.g.,Jordan Novet, Trump’s Blacklisting of Huawei is Hammering Some US Manufacturers — Skyworks is the Latest, CNBC (June 5, 2019), https://www.cnbc.com/2019/06/04/huawei-blacklist-by-trump-hammering-skyworks-and-other-manufacturers.html (sharing examples of domestic companies that were crippled by consequences of the Huawei trade ban).
 Exec. Order No. 13873, 84 FR 22689 (May 15, 2019). See generally Tucker Higgens, Trump Declares National Emergency Over Threats Against US Technology Amid Campaign Against Huawei, CNBC (May 16, 2019), https://www.cnbc.com/2019/05/15/trump-signs-executive-order-declaring-national-emergency-over-threats-against-us-technology.html (providing background information on President Trump’s Executive Order).
 15 C.F.R. § 744 (2019).
 Jeanne Whalen, Huawei Digs in for a Long Battle With the U.S., Wash. Post (June 23, 2019), https://www.washingtonpost.com/business/2019/06/23/huawei-digs-long-battle-with-us/.
 See Novet, supra note 1.
 Whalen, supra note 4; see #97 Huawei, Forbes (May 2019), https://www.forbes.com/companies/huawei/#32b98a855d26 [hereinafter #97 Huawei].
 #97 Huawei, supra note 6.
 Higgens, supra note 2.
 Novet, supra note 1.
 See id. See generally About Skyworks, Skyworks Sols. Inc., https://www.skyworksinc.com/About.aspx; Contact Us, Skyworks Sols. Inc., https://www.skyworksinc.com/AboutContact.aspx (providing background information on Skyworks business as a Massachusetts-based semi-conductor manufacturer)
 Company Overview, NeoPhotonics Corp., https://www.neophotonics.com/company/
 Novet, supra note 1.
 John H., Restricting Huawei from Doing Business will not Make the US More Secure or Stronger: Responds Huawei, Huawei Central (May 16, 2019), https://www.huaweicentral.com/huawei-unveiled-its-notebook-series-in-singapore-along-with-a-new-p30-pro-color-variant/.
 Press Release, U.S. Dep’t of Com., Department of Commerce Announces the Addition of Huawei Technologies Co. Ltd. to the Entity List (May 15, 2019), https://www.commerce.gov/news/press-releases/2019/05/department-commerce-announces-addition-huawei-technologies-co-ltd. See generally Angela E. Giancarlo et al., US Government Restricts Certain Exports to Huawei and Affiliates by Adding It to Entity List While Permitting Temporary Narrow Exceptions, Mayer Brown (May 22, 2019), https://www.mayerbrown.com/en/perspectives-events/publications/2019/05/us-government-restricts-certain-exports-to-huawei-and-affiliates-by-adding-it-to-entity-list-while-permitting-temporary-narrow-exceptions (providing background information on the components of the Temporary General License).
 Press Release, U.S. Dep’t of Com., Department of Commerce Issues Limited Exemptions on Huawei Products (May 20, 2019), https://www.commerce.gov/news/press-releases/2019/05/department-commerce-issues-limited-exemptions-huawei-products; see Reuters, US Eases Some Restrictions on China’s Huawei, Reportedly Halting Google’s Plans to Cut Access, CNBC (May 21, 2019), https://www.cnbc.com/2019/05/21/us-eases-restrictions-on-chinas-huawei-to-keep-networks-operating.html.
 Press Release, U.S. Dep’t of Com., Department of Commerce Adds Dozens of New Huawei Affiliates to the Entity List and Maintains Narrow Exemptions through the Temporary General License (August 19, 2019), https://www.commerce.gov/news/press-releases/2019/08/department-commerce-adds-dozens-new-huawei-affiliates-entity-list-and.
 See Giancarlo et al., supra note 20 (suggesting that “these license applications will be subject to a presumption of denial under [the Bureau of Industry and Security’s] license review policy.”)
 See Kenneth Li & Douglas Busvine, Huawei Plans High-End Phone Launch Under Cloud of Google Ban, Reuters (Aug. 28, 2019), https://www.reuters.com/article/us-huawei-tech-alphabet/huawei-plans-high-end-phone-launch-under-cloud-of-google-ban-idUSKCN1VI240; Dan Strumpf, New Huawei Phones Won’t Come With Facebook, Instagram or WhatsApp, Wall St. J. (June 7, 2019) https://www.wsj.com/articles/new-huawei-phones-wont-come-with-facebook-instagram-or-whatsapp-11559906724.
 Dan Strumpf et al., American Tech Companies Find Ways Around Huawei Ban, Wall St. J. (June 25, 2019), https://www.wsj.com/articles/american-tech-companies-find-ways-around-huawei-ban-11561517591.
 See generally, Entity List, Bureau of Industry and Security (2019) https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list (providing background information on the Entity List).