Fate of U.S. Exports to Honor in the Balance as BIS Faces Pressure from Congress and Other Agencies
*Shama Patari is Co-Chair of CITBA's Export Committee with Andrew Caridas of Perkins Coie and Executive Director, Legal Government Relations and Global Trade Regulation at Lenovo in Chicago.
Tension around additional Entity List designations of a former mobile phone unit of Huawei have reemerged in recent weeks. In August, Members of the China Task Force, led by Congressman Michael McCaul, sent a letter to Secretary of Commerce Gina Raimondo demanding that the End-User Review Committee designate Honor Device Co. Ltd. (“Honor”) to the Department of Commerce’s Entity List. Honor was formerly the mid-tier mobile phone division of Huawei and was sold to Shenzhen Zhixin New Information Technology, a majority state-owned company controlled by the Shenzhen municipal government, in November 2020. Members of Congress argued that Honor was sold to a third party to evade U.S. export control laws and to continue to obtain U.S. origin parts and technology otherwise subject to the Export Administration Regulations (EAR).
Legislation with similar language had been introduced in Congress in March 2021. Specifically, U.S. H.R. 1595 included a provision to add Honor to the Entity List. The introduced legislation was referred to the House’s Foreign Relations Committee.
Generally, the Bureau of Industry and Security (BIS) at the Department of Commerce administers the Entity List. However, other agencies play a significant role in deciding by consensus which parties are ultimately designated. Aside from BIS, the Departments of State and Energy and the Pentagon all review particular parties and determine whether they pose a threat to the National Security of the United States. Both BIS and State have indicated that Honor poses no threat to the National Security of the United States. The entity is located in China and produces foreign manufactured smartphones and similar consumer devices for non-U.S. markets. Furthermore, Huawei holds no ownership rights or control over Honor. Similarly, there is no evidence Honor has diverted U.S. origin products or technology to Huawei, or has acted in a way that violates U.S. export control laws. Nevertheless, the Pentagon and Energy Department are in favor of adding Honor to the Entity List.
During his Senate confirmation hearing, Alan Estevez, the nominee for Under Secretary of Commerce, indicated that he expects to maintain the firm stance BIS has taken with respect to Huawei and would consider whether restrictions on Honor were warranted. Estevez previously served in the Department of Defense but has been in the private sector for several years. Should he support BIS’s current decision regarding Honor, the decision of whether to list Honor will be escalated to the Cabinet level of the four agencies. If the disagreement persists, the White House will likely be required to resolve the deadlock.