U.S. Moves Towards Resolving Permitting US Companies to Collaborate with Huawei on 5G Standards

Department of CommerceRegular readers will know that the addition of Huawei and scores of its subsidiaries to the U.S. Bureau of Industry and Security Entity List last May has had a serious impact on standards setting organizations (SSOs). Specifically, the related rules bar companies from disclosing certain types of U.S. origin technology to companies on the Entity List, and technology is exactly what is disclosed in the course of standards development. Due to a lack of guidance from the Department of Commerce, SSOs have been left wondering whether they can allow Huawei and its subsidiaries (collectively, “Huawei”) to participate in their technical activities. When they decide that the answer is yes, U.S. companies must then decide whether they read the regulatory tea leaves the same way. Many have not.

Over the past two weeks the situation has taken a more hopeful turn. The impetus for this change has a lot to do with the law of unexpected consequences – in this case, the results of the Department of Commerce refusing to provide the type of certainly that the private sector needs when political winds shift.

That uncertainty has led many modern-era consortium SSOs, on the one hand, and a number of traditional, old school SSOs, on the other, to reach different conclusions about whether they can or cannot safely allow Huawei to participate. Many of the consortia concluded that they would need to make radical changes to their technical processes in order to be sure they would fall under one or both of two exemptions that are to a degree analogous – holding open meetings and offering material for publication in journals.

Several of the old school SSOs, and particularly those with a strong European orientation, decided that their processes would qualify without further change. The problem for US companies was that their attorneys disagree with that conclusion.

The result was the exact opposite effect of what the Trump Administration had intended. Instead of Huawei being excluded from venues in which U.S. technology was disclosed with the objective of embedding it in 5G standards, Huawei was enjoying a seat at the table, while the U.S. companies self-quarantined from afar. There have been rumors of new regulations being on the verge of release in the past, but months have continued to pass without anything new.

The logjam began to shift last week, when five Republican U.S. senators sent a letter to the Secretaries of Energy, Defense and Commerce asking for help. The specific relief they sought was as follows:

We understand that the Department plans to issue regulations confirming that standards participation is largely exempt from export control rules.  Given that almost a year has passed since Huawei was first designated to the Entity List, we urge the Administration to promptly issue these regulations to affirm that U.S. participation in 5G standards-setting is not restricted by export control regulations, and we request that you inform us regarding the status of this rulemaking.

The fact that the signatories are all members of the President’s party is significant, as it provides a degree of cover for any action that might indicate softness in policy in relation to China during an election year.

The good news, according to Reuters reporter Karen Freifeld, is that the Department of Commerce will shortly send a draft regulation to the Secretaries of Defense and Energy. The bad news is that the regulation reportedly will apply to Huawei only, and not Entity List companies broadly. So even if the rule goes through as reported, it will still leave SSOs in the dark with respect to other companies on the Entity List, such as ZTE, another Chinese company the Trump administration added to the Entity List.

Also up in the air is whether the text of the regulation will be more helpful than previous guidance in defining what types of SSOs can and cannot assume they are covered by the exemption. It is possible that an existing definition under an Office of Management and Budget Circular (OMB A-119) may serve as the reference point. If this is the test, most traditional SSOs would likely qualify. Many modern consortium SSOs would need to modify their processes in order to take advantage of the safe harbor. And while the regulation might not apply to other companies on the Entity List, some SSOs might decide to use this reference point as indicative of what changes might suffice to permit other Entity List companies to participate in the technical activities.

Finally, there is the question of timing and text. Each of the other two agencies has a right to object and/or requests changes, and each is operating under Corona virus conditions. Traditionally, the regulatory process comes to a halt in September in an election year, so unless the final text of the new regulation appears in the Code of Federal Regulations by that deadline it may be that nothing will happen at all until after the election – or the inauguration, depending on who wins.

Meanwhile, the rest of the marketplace continues to make its own decisions. As previously reported, the RISC-V Foundation decided last year to leave the U.S., reincorporating in Switzerland. And today, the Eclipse Foundation, one of the three largest software development umbrella organizations, announced that it is moving to Belgium. While its announcement is phrased in terms of embracing Europe rather than rejecting the U.S., it’s hard not to see a trend that is unfavorable for U.S. interests – a trend which the limited and belated, and still tentative, relief described above is unlikely to reverse.

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