Trump administration inches closer to new regulations restricting supplies to Huawei

The US government plans rule changes to extend the potential scope of export restrictions on Huawei's suppliers

The Trump administration is close to publishing new regulations that would tighten restrictions on Huawei and block shipments of foreign-made goods to the Chinese firm.

According to Reuters, the US Department of Commerce recently sent a new regulation to the Office of Management and Budget to remove a loophole that allowed US firms to sell goods to Huawei from their overseas facilities.

The US government considers Huawei a national security threat. It alleges that the equipment supplied by Huawei could be used by the Chinese government to spy on other countries.

That is the reason why the US government added Huawei to the Department of Commerce's Entity List in May 2019, effectively banning the company from US communications networks.

The ban allowed the government to regulate sales of US-made goods, as well as a limited number of foreign-made items containing US technology, to Huawei.

However, a major problem for the government is that under current regulations, foreign supply chains remain beyond the reach of the US authorities, limiting their impact.

The US government therefore wants to expand its power to block foreign shipments of products containing US technology to Huawei by making some changes to two key rules.

One of them is the de minimis rule, which dictates that the US government can only block exports of many high-tech, foreign-made items to China from other countries if US-sourced components make up more than 25 per cent of the total value of the item.

According to Reuters, the US Commerce Department is modifying this rule to lower the threshold to 10 per cent for exports to Huawei and to also include non-technical goods, such as consumer electronics.

The second rule is the so-called direct product rule, which enables US authorities to oversee foreign-made items based on US technology or software. The government wants to expand this rule to include US-technology-based low-tech products that are manufactured in foreign countries and are shipped to Huawei.

According to Reuters, the US government could issue its de minimis rule change in a matter of weeks if other government agencies approve the changes in the next few days.

It is interesting to note here that, despite US restrictions on Huawei, the company reported an 18 per cent increase in revenue for 2019, while its smartphone shipments jumped by 20 per cent last year.