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The Commerce Department's Bureau of Industry and Security (BIS), in coordination with the National Institute of Standards and Technology (NIST), released an interim final rule on September 9 clarifying that U.S. companies no longer require an export license to release certain cryptographic technologies and software in the context of legitimate “standards-related” activities to entities on the BIS Entity List. The rule change was promulgated in response to industry concerns that U.S. firms could unintentionally violate U.S. export controls in the course of normal standards-setting activities, especially if Huawei representatives or those from other organizations on the Entity List were present, causing these U.S. firms to limit or forgo participation in standards-setting out of an abundance of caution.
Q1: What prompted this rule change?
A1: In May 2019, the Trump administration placed Huawei, along with 68 of its non-U.S. affiliates, on BIS’s Entity List. The Entity List is comprised of foreign persons, including companies, universities, and other types of organizations, designated under the Export Administration Regulations (EAR) as suspected of posing “a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States.” Firms hoping to export, reexport, or transfer items to entities on the Entity List must obtain a separate license from the BIS before doing so.
Huawei’s inclusion on the Entity List coincided with President Trump’s simultaneous invocation of the International Economic Emergency Powers Act (IEEPA) to block telecommunications equipment providers controlled by a “foreign adversary” from accessing the U.S. market. While these actions dealt a blow to Huawei’s mobile phone, and to a lesser extent, its 5G businesses, placing Huawei on the Entity List also created a disincentive for U.S. firms to participate in those standards-settings forums in which Huawei was also present, lest they inadvertently run afoul of the export restrictions. To address these concerns, the Trump administration released a rule in June 2020 which created an exemption for the release of “certain technology to Huawei and its affiliates on the Entity List without a license if such release is made for the purpose of contributing to the revision or development of a ‘standard’ in a ‘standards organization.’” However, with the increasing number of entities being added to the Entity List in recent years, U.S. firms argued that limiting the scope of exemptions to only Huawei and its non-U.S. affiliates failed to sufficiently alleviate risk for U.S. firms seeking to participate in global standards-setting bodies.
Q2: What did the September rule change?
A2: The June 2020 rule allowed companies to release “technology” designated as EAR99 (widely available low-tech consumer goods) or controlled on the Commerce Control List (CCL) strictly for anti-terrorism purposes to standards-setting bodies whose members included Huawei and its affiliates without obtaining a license beforehand.
The September 2022 interim final rule makes three key amendments to the June 2020 rule:
The June 2020 exceptions for technologies designated as EAR99 goods and items on the CCL only for anti-terrorism reasons applied just to Huawei and its affiliates, whereas the revised rule applies to all entities on the Entity List.
Q3: Why is the rule change important?
A3: Technical standards are an important component of U.S.-China technological competition. They are what allow firms around the world to manufacture products that are safe, reliable, and interoperable. Standards setting, and particularly technical standards, are set in large part through international standard-developing organizations, standards-setting organizations, and market-based consortia. Firms that hold standard-essential patents reap financial rewards as their products and technologies become necessary enablers of interoperability and of reliable product performance. China has taken a government-led approach to standards setting, incentivizing its firms to participate in standards-setting activities and to promote standards that align with China’s strategic interests. The United States, on the other hand, has maintained a private-sector-led approach, with government serving as expert collaborator and resource in standards development. China’s participation in standards-setting organizations overall has increased, as has its market share, and China has emerged as a leader in information and communication technologies (ICT) standards. Huawei holds more 5G-related standard-essential patents than any other firm, and Chinese firms collectively hold one-third of such patents. If U.S. firms are disincentivized from participating in the standards-setting process for fear of violating export controls, China could continue to expand its lead in this critical space.
Matthew Reynolds is an associate fellow with the Economics Program at the Center for Strategic and International Studies in Washington, D.C.
Research intern Joseph Vaughan assisted in researching and drafting this article.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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