US companies find legal ways around ‘Huawei blacklist’

Bloomberg

American technology companies have resumed selling certain products to Huawei Technologies Co after concluding there are legal ways to work with the Chinese telecom giant in spite of its inclusion on a Trump Administration blacklist.
Micron Technology Inc, the largest US maker of computer memory chips, said that it had started shipping some components to Huawei after its lawyers studied export restrictions. Intel Corp, the largest microprocessor maker, has also begun selling to Huawei again, according to a person familiar with the matter. It’s not clear how many other suppliers have reached the same conclusion.
The US Commerce Department added Huawei last month to what’s known as an entity list, a move designed to bar the Chinese company from buying American components and software. The Trump Administration said Huawei helps Beijing in espionage and represents a security threat — charges the company denies. Officials at Commerce and the White House are frustrated that companies have resumed Huawei shipments, according to another person familiar with the matter. The White House didn’t immediately respond to a request for comment.
The chipmakers are taking advantage of certain exceptions to the export restrictions. Even when companies have headquarters in the US, they may be able, through ownership of overseas subsidiaries and operations, to classify their technology as foreign, according to Cross Research analyst Steven Fox. If less than 25 percent of the technology in a chip originates in the US, for example, then it may not be covered by the ban, under current rules.
“It took them weeks to figure this out,” Fox said. “What they did was look at the laws and the rules and applied them to their business.”
Shares in Asian chipmakers from Tokyo Electron Ltd to SK Hynix Inc rose on Wednesday, after Micron reported results ahead of estimates. Micron was up 9.2 percent in New York during pre-market trading.
Micron has operations all over the world, some added through acquisitions, and it owns plants in Singapore, Japan and Taiwan.
Intel has factories in China and Ireland. The company declined to comment.
Companies like Micron and Intel can legally continue some shipments to Huawei under what’s known as the de minimis rule, says Kevin Wolf, former head of the Commerce Department’s export control section.
“Commodities made overseas from US-origin technology are only subject to the entity list prohibitions if the technology and commodity are sensitive items controlled for ‘national security’ reasons,” Wolf said. “But a commodity made overseas from less sensitive US-origin technology is not subject to the entity list prohibitions.”
The de minimis threshold is 25 percent, according to the Commerce Department.
National security hawks in the Trump Administration thought that inclusion on the entity list would ratchet up pressure on Huawei, but they didn’t understand or misinterpreted the existing rules, people familiar with internal deliberations said.
Those advisers didn’t fully grasp the limits of export controls in constricting supply chains that reach deeply into China.
Micron Chief Executive Officer Sanjay Mehrotra, in a conference call discussing his company’s earnings, declined to explain his analysis, despite repeated questions.
In a brief interview after the call, he also wouldn’t elaborate and said he hopes the US and China quickly resolve their trade dispute.