The Standards Blog

Department of Commerce Clears Huawei for Standards Development – Part Way

Dept.%20of%20Commerce%20Seal%20140.pngThe long face-off between the Trump administration and Huawei involving standards development has finally been resolved. Well, yes and no, on which more below.

Initially the issue was whether standards setting organizations (“SSOs”) would be able to permit the Chinese 5G technology company and scores of its affiliates (collectively, “Huawei”) to participate in their working groups. But over time, the political landscape shifted – many of the SSOs where the action was taking place took the position that their processes were sufficiently open to make the issue moot. But some of the most active American technology companies came to a different conclusion, thereby making it impossible for them to participate without risking liability to their own government (more details can be found here).

The saga began in May of 2019, when Huawei was added to the Bureau of Industry and Security (“BIS”) Entity List, making it illegal for U.S. companies to share many kinds of technology with Huawei without a special BIS license. Initially, a Temporary General License (“TGL”) was provided that included a clause that allowed Huawei to continue to participate in (only) 5G standards development, but in August 2020, that clause was removed. At the same time, BIS released a General Advisory Opinion, noting its determination that existing regulations sufficiently addressed how the Entity List-based license requirements applied to standards development bodies, including 5G.  That left SSOs in the difficult position of determining whether their standards development rules were sufficiently open to meet the requirements of one of two safe harbors (participating in meetings and contributing to journals), neither of which was a very good fit.  

In response, global SSOs fell into three camps: those that concluded their processes didn’t meet the safe harbors and were unwilling to change. They either terminated Huawei’s membership or allowed it to remain a member but not participate in working groups. Others changed their rules to allow Huawei to continue to participate in development, or even moved their headquarters and/or reincorporated abroad (not because it made the issue go away, but in part out of frustration with the present and uncertainty about the future). The last group concluded that their processes would pass muster without change. In some cases, U.S. member companies agreed. But in others, particularly in the case of those that were more European-centric, the SSOs decided that they made the cut by taking a more liberal view of what was needed to comply.

The result was that, far from limiting Huawei’s impact, the Department of Commerce’s position ended up diminishing the ability of American companies to influence crucial 5G technology outcomes.

Months of lobbying by U.S. companies succeeded in getting the Department to try to come up with a solution, but the efforts repeatedly hit snags, notwithstanding a request by five Republican senators in mid-April to accelerate the process.

Yesterday, the logjam broke, when the Department issued a press release stating that a new regulation would be issued that would permit U.S. companies to participate in SSOs with Huawei. In it, Secretary Wilbur Ross is quoted as follows:

The United States will not cede leadership in global innovation. This action recognizes the importance of harnessing American ingenuity to advance and protect our economic and national security. The Department is committed to protecting U.S. national security and foreign policy interests by encouraging U.S. industry to fully engage and advocate for U.S. technologies to become international standards.

As a measure of the urgency with which the regulation was (finally) issued, the new permission is being released as an “interim final rule,” meaning that it is subject to a comment period and possible adjustments down the road based on those comments. Normally, the process is reversed – comments on a draft regulation are solicited and responsive changes are often made before a legally binding rule is released.

That all sounds good, but there are two “buts.” The first is that not all types of technology can be disclosed. On that topic, the regulation stipulates as follows:

Specifically, technology subject to the EAR that is designated as EAR99 or controlled on the Commerce Control List only for anti-terrorism (AT) reasons may be released to members of a standards organization without a license, including Huawei, if released for the purpose of contributing to the revision or development of a standard. 

The parsing of that limitation is beyond the scope of this blog entry, but suffice it to say that a necessary step in determining whether the new regulation will be useful to a given SSO will rely in part on performing that analysis.

The second condition of concern is that an SSO must qualify as a “voluntary consensus standards bodies,” and be engaged in developing a "standard," each as defined in Office of Management and Budget Circular A-119 (Rev. 2016).

The full text of the draft regulation can be found here.

The good news is that the OMB Circular A-119 rules are reasonably well understood in the industry. However, in order to meet the VCSB definition, an SSO must embed a variety of processes in its rule book, including a requirement for a balance of relevant types of industry participants in working groups, a formal appeals process, and more. While wholesome in concept, these rules can slow down the process of standards development and are therefore lacking in many SSOs, particularly those in the fast-moving technology sector.

Why impose OMB Circular A-119 requirements? Compliance with this more due process-oriented approach has generally been favored for government procurement, in the case of health and safety standards, and where a standard may be referenced into law. But non-VCSB Standards are regularly consumed for all these purposes all the time despite this preference. There seems to be no compelling reason why these requirements would serve a useful purpose in this instance.

True, transparency is part of the OMB Circular A-119 requirements, and the existing exceptions for disclosing technology to Entity List companies are all based on establishing that the disclosed information can be regarded as "public." But OMB Circular A-119 has lots of other requirements that relate only to due process, and are therefore not relevant to national security concerns. Presumably OMB Circular A-119 was simply a convenient and familiar benchmark that could be recycled to meet this new and quite different need. (See the full list of requirements at the end of this blog post).

That said, a number of industry consortium SSOs will likely decide to retool their processes in order to meet the new requirements. The bad news is that the same 5G SSOs that took a liberal view of compliance with the old rules may be similarly unwilling to make any changes to meet the new ones. Happily, some of them may already fit within the box. Others likely will not make any amendments. Where that’s the case, U.S. companies may still be left out in the cold.

Underlying these SSO decisions is the fact that many non-U.S. companies have no reason to wish to accommodate the Trump administration. Others are 5G vendors themselves, and therefore may be happier if U.S. companies were kept outside the fold. All the SSOs involved have anywhere from scores to hundreds of members, and US companies are often not in the majority.

A final interesting point about the new regulation is that it does not explicitly "preempt" the exceptions that some SSOs were relying on already to permit Huawei to participate. Given that the new regulation includes so many restrictions in addition to openness, and the fact that it only applies to Huawei, some SSOs may elect to ignore the new safe harbor and address the situation solely by increasing the level of openness and transparency of their operations in reliance on the preexisting exceptions, rough fit though they may be.

So, where does that leave us today? Better off than before, but not as well off as we would have been if the Department of Commerce had simply exempted “any SSO generally recognized in the marketplace.” In other words, everywhere the action actually takes place. My firm will likely file comments Department urging that the OMB Circular A-119 requirements be pared back to reference only those that actually relate to transparency.

It will be interesting to see how things shake out from here: which SSOs will make changes and which won’t, and which companies will satisfy themselves that a given SSO makes the grade – or doesn’t. Where the last possibility occurs, many U.S. companies will be right back where they started.

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OMB Circular A-119

The two key elements of the Circular for current purposes are the definitions of “voluntary consensus standards body” and "standard," which reads as follows:

     “Voluntary consensus standards body” is a type of association, organization, or technical society that plans, develops, establishes, or coordinates voluntary consensus standards using a voluntary consensus standards development process that includes the following attributes or elements:

    (i)  Openness: The procedures or processes used are open to interested parties. Such parties are provided meaningful opportunities to participate in standards development on a non-discriminatory basis. The procedures or processes for participating in standards development and for developing the standard are transparent.

    (ii)  Balance: The standards development process should be balanced. Specifically, there should be meaningful involvement from a broad range of parties, with no single interest dominating the decision-making.

    (iii)   Due process: Due process shall include documented and publically available policies and procedures, adequate notice of meetings and standards development, sufficient time to review drafts and prepare views and objections, access to views and objections of other participants, and a fair and impartial process for resolving conflicting views.

    (iv)  Appeals process: An appeals process shall be available for the impartial handling of procedural appeals.

    (v)  Consensus: Consensus is defined as general agreement, but not necessarily unanimity. During the development of consensus, comments and objections are considered using fair, impartial, open, and transparent processes.

See Section 5h of this Circular for a discussion of “international standards.”

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a.  The term “standard,” or “technical standard,” (hereinafter “standard”) as cited in the NTTAA, includes all of the following:

(i) common and repeated use of rules, conditions, guidelines or characteristics for products or related processes and production methods, and related management systems practices;

(ii) the definition of terms; classification of components; delineation of procedures; specification of dimensions, materials, performance, designs, or operations; measurement of quality and quantity in describing materials, processes, products, systems, services, or practices; test methods and sampling procedures; formats for information and communication exchange; or descriptions of fit and measurements of size or strength; and

(iii) terminology, symbols, packaging, marking or labeling requirements as they apply to a product, process, or production method.

b.                  The term "standard" does not include the following:

(i)                 professional standards of personal conduct; or

(ii)                 institutional codes of ethics.