On May 15, President Trump issued an Executive Order barring United States companies from utilizing IT or communications products or services from entities identified by the United States government as posing a threat to national security. The Executive Order allows the Commerce Department to ban any foreign IT or communications company from conducting business in the United States if the entity poses a risk to national security. Although the Executive Order did not specifically identify any Chinese IT or communications company, the Commerce Department announced on the same day that Huawei and seventy of its affiliates had been “blacklisted” — officially added to the Restricted Party List. The move creates significant issues for American companies conducting business with Huawei or the banned affiliates.
Wilbur Ross, Secretary of Commerce, announced: “This will prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests.” It is important to note that the Executive Order applies only to future transactions and does not appear to include past business with Huawei or the banned affiliates. The administration pledged to develop more specific rules regarding the Executive Order over the next 150 days.
Huawei and ZTE have been under investigation by the United States for years. In 2012, the House Intelligence Committee conducted a year-long investigation wherein it concluded that both Chinese companies were a national security threat. Following the investigation, the Department of Commerce placed ZTE on the blacklist and only removed the sanction in 2017 after ZTE pleaded guilty to violating global trade sanctions involving Iran and paid close to $900 million to resolve the allegations.
The ramifications of the blacklisting of Huawei and the 70 affiliates are significant. The company and other Chinese IT companies are largely involved in the development of 5G networks throughout the world. Some estimate that Huawei controls 40 to 60 percent of networks throughout the world. Recent meetings between the Trump administration and leading US IT companies revealed that no American IT company currently manufactures the switches that are a key component to 5G networks. At the time of this article, the EU had not joined in blacklisting Huawei.
Many American telecoms utilize Huawei’s products, given their lower costs and extensive network. And the broader question becomes how the Executive Order will apply to other foreign IT and communication companies. Will the administration extend the order to other countries, or has Huawei been singled out as part of the administration’s trade-war campaign?
The bottom line for Weaver’s clients is, “How does the Executive Order affect your business, and what proactive steps should you take to ensure compliance with the order?” Weaver’s anti-corruption, compliance and ethics professionals are here to assist. With years of experience, Weaver's professionals have the knowledge and insight needed to provide thoughtful, relevant and concise analysis of any existing or planned business with Huawei, ZTE or any other Chinese IT company. Contact us for assistance untangling this Executive Order or any other compliance concern.