Huawei Technologies Co., Ltd. (Huawei)—the world's largest telecommunications equipment manufacturer¹—is at the center of a host of legal activities that seek to protect the United States' national security and economy. In 2012, the House Permanent Select Committee on Intelligence (HPSCI) released a report describing the counterintelligence and security threat posed by Huawei's access to U.S. telecommunications systems and supply chains.² Senior executive branch officials in the Trump Administration, including the Vice President and Secretary of State, stated that Huawei's products present an inherent security threat because the Chinese government may be able to access confidential information via secret "backdoors" by forcing Huawei to share such information or provide access to its networks.³ Huawei denies that it purposefully creates "back doors" for the Chinese government,⁴ and third-party analysts have not reached uniform conclusions about the security of Huawei's products.⁵

Given the security debate, Congress and the executive branch have initiated a variety of legal efforts to limit Huawei's access to international supply chains, telecommunications systems, and markets. These legal actions have evolved from narrow restrictions on federal spending to an international effort to remove Huawei equipment from telecommunications networks domestically and abroad.

After HPSCI's 2012 report, the United States enacted several laws that restrict federal procurement of, and grant and loan spending on, Huawei systems.⁶ These efforts soon expanded beyond federal spending limitations to include restrictions on a broad set of Huawei-related public and private sector transactions.⁷ In 2019 and 2020, Congress and the executive branch crafted laws and policies designed to eliminate Huawei's presence in U.S. telecommunications networks—even if existing Huawei equipment must be "ripped and replaced."⁸ The United States took other forceful legal actions during this time, pursing criminal charges against Huawei and its Chief Financial Officer (CFO),⁹ issuing visa restrictions for Huawei employees,¹⁰ banning trade in Huawei securities,¹¹ and engaging in international efforts to convince foreign countries to ban Huawei from their networks.¹² Most recently, in the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (FY2021 NDAA; Pub. L. No. 116-283),¹³ passed over President's Trump's veto, the 116th Congress embarked on a new endeavor of using federal funds to support private competitors to Huawei that can offer secure and affordable communications networks domestically and internationally.¹⁴

Some observers view this suite of legal actions involving Huawei as part of a broader effort to "decouple" the United States' economy from problematic aspects of China's economy.¹⁵ Some contend, however, that these efforts may have unwanted side effects, such as denying low-cost technology to American consumers, loss of profitability for American companies that can no longer sell to Huawei, and the risk that technology companies may move operations overseas to avoid U.S. trade restrictions.¹⁶ Efforts to account for these considerations are ongoing and may continue in the 117th Congress and in the Biden Administration.¹⁷ This report outlines recent Huawei-related legal activities by the U.S. government and examines the statutory authorities underlying each action.¹⁸

Background on Huawei

Ren Zhengfei, a former member of the engineer corps of China's People's Liberation Army (PLA), founded Huawei in Shenzhen, China in 1987.¹⁹ The company started as an importer of telecommunications switches—a basic networking technology—but began to develop its own products in the early 1990s.²⁰ Early on, Huawei promoted its products to rural communities in China.²¹ By the late 1990s, it had won large contracts to provide communications infrastructure for the PLA and major Chinese cities like Beijing.²² Since then, Huawei has expanded its operations internationally and grown to be the world's largest manufacturer of telecommunications equipment.²³ Some observers attribute Huawei's success to financial and other state support from the Chinese government,²⁴ but the extent to which Huawei's growth stems from government support is the subject of debate.²⁵

Early Legal Actions and Congressional Interest

Huawei first attracted congressional attention in the early 2000s, when observers accused it of violating U.N. sanctions by providing fiber optic technology to the Saddam Hussein regime in Iraq.²⁶ The company again became the subject of congressional scrutiny in 2007 as part of a review by the Committee on Foreign Investment in the United States (CFIUS).²⁷ CFIUS is an interagency committee that advises the President on whether to block or suspend mergers, acquisitions, and takeovers of U.S. companies because of national security risks.²⁸ In 2007, Huawei partnered with American private investment firm Bain Capital LP in an effort to acquire an ownership interest in 3Com Corporation (3Com)—an American digital electronics firm.²⁹ The deal raised national security concerns because 3Com provided cybersecurity systems to the U.S. military.³⁰ Some executive branch officials and Members of Congress argued that the acquisition would compromise cybersecurity protections at the Department of Defense (DOD).³¹ Several Members of the 110th Congress urged CFIUS to analyze the transaction and identify national security concerns, ³² which CFIUS ultimately did.³³ Bain Capital abandoned the deal after CFIUS stated that it intended to recommend that the President stop the acquisition.³⁴

By 2010, Huawei faced greater U.S. government scrutiny as it tried to expand operations in the United States. At the urging of executive branch officials and some Members of Congress, Sprint Nextel Corp. (Sprint) excluded Huawei and ZTE Corporation (ZTE)—China's second largest telecommunications equipment manufacturer—from a multi-billion contract to supply telecommunications equipment in the United States.³⁵ Later that year, a group of Senators wrote to the Federal Communications Commission (FCC) Chairman expressing concerns about using Huawei or ZTE technology in U.S. telecommunications systems.³⁶

In 2011, Huawei divested itself of assets purchased from an American company that specialized in server technology, 3Leaf Systems, after CFIUS raised national security concerns.³⁷ Later that year, Huawei published an "open letter" to the U.S. government denying the security concerns and inviting a formal investigation to relieve the U.S. government's apprehensions.³⁸ HPSCI responded to the invitation by investigating potential counterintelligence and security threats posed by Huawei and ZTE.³⁹ In its 2012 report, HPSCI recommended, among other things, that the United States view Chinese telecommunications companies' efforts to penetrate U.S. markets "with suspicion."⁴⁰ HPSCI also recommended that Congress consider legislation to "better address the risk posed by telecommunications companies with nation-state ties or otherwise not clearly trusted to build infrastructure."⁴¹

Federal Spending Restrictions

Beginning in 2013, the year after HPSCI's report, Congress began to enact legislation limiting Huawei and other Chinese telecommunication companies' access to U.S. markets and supply chains.⁴² These legislative efforts began with limitations on specific agencies' ability to procure Huawei products and services, but later expanded into broader spending restrictions that apply to all executive branch agencies.

Appropriations Restrictions

Beginning with the Consolidated and Further Appropriations Act, 2013 (2013 Appropriations Act), the federal government has enacted a series of appropriations laws that prohibit some executive branch agencies from using appropriated funds to acquire information technology systems from entities connected with the Chinese government.⁴³ The provision, which Congress has placed in an amended format in later appropriations laws,⁴⁴ applies to the Department of Commerce (Commerce), Department of Justice (DOJ), National Aeronautics and Space Administration (NASA), and the National Science Foundation.⁴⁵ It restricts these agencies from using appropriated funds to acquire an information technology system made or assembled by an entity owned, directed, or subsidized by the Chinese government.⁴⁶ Although the provision does not name Huawei, some observers and Members of Congress described it as designed to address risks posed by Huawei and ZTE.⁴⁷

2018 NDAA

In the National Defense Authorization Act for Fiscal Year 2018 (2018 NDAA; Pub. L. No. 115-91), the United States placed Huawei-related restrictions into federal law beyond the appropriations context.⁴⁸ The 2018 NDAA prohibits DOD from procuring certain telecommunications equipment or services from Huawei and others as part of DOD's missions related to nuclear deterrence and homeland defense.⁴⁹ Unlike earlier appropriations provisions, the 2018 NDAA names Huawei in the legislation.⁵⁰ The 2018 NDAA prohibits DOD from procuring, obtaining, extending, or renewing contracts that include telecommunications equipment or services provided by Huawei, ZTE, or any entity that the Secretary of Defense reasonably believes is owned, controlled by, or "otherwise connected to" the Chinese or Russian governments.⁵¹ To fall within the 2018 NDAA, the telecommunications equipment or services must be a substantial or essential component⁵² or critical technology⁵³ of the system provided to DOD for its nuclear deterrence or homeland defense missions.⁵⁴

2019 NDAA

While the appropriations restrictions and 2018 NDAA were limited to specific federal agencies, section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (2019 NDAA; Pub. L. No. 115-232) provides a broader set of Huawei-related restrictions that apply across the executive branch.⁵⁵ Section 889(a)(1)(A) bars all executive branch agencies from procurement or contracting that includes telecommunications equipment or services from Huawei, ZTE, and certain other Chinese corporations⁵⁶ as a substantial or essential component or critical technology.⁵⁷ Section 889(a)(1)(B) of the 2019 NDAA bars executive agencies from transacting with a company that uses Huawei or other covered entities' telecommunications equipment or services as a substantial or essential component or critical technology.⁵⁸ Whereas the first prohibition (Part A) restricts executive agencies from procuring systems that contain Huawei equipment or services, the second provision (Part B) prohibits executive agencies from contracting with companies that use Huawei equipment or services in the companies' own systems—even if those systems are not sold to the government.⁵⁹ Section 889 also prohibits the use of federal grant or loan funds to obtain anything prohibited in Parts A and B, unless an exception applies.⁶⁰

If a company that would be barred from transacting with an executive branch agency requests a waiver of section 889, the head of the executive agency can issue a one-time waiver for up to two years, provided the request meets certain conditions.⁶¹ The Director of National Intelligence (DNI) possesses broader waiver authority when the DNI determines that a waiver is in the U.S. national security interest.⁶²

Huawei's Legal Challenge to Section 889 of the 2019 NDAA

Section 889 of the 2019 NDAA names Huawei as an entity that is barred from covered transactions.⁶³ Huawei has argued, however, that the Constitution's Bill of Attainder Clause⁶⁴ prohibits Congress from singling out and excluding a specific company in this fashion.⁶⁵ The Bill of Attainder Clause forbids the United States from inflicting a "punishment" on a person or entity by legislative act without a judicial trial.⁶⁶ Huawei filed a lawsuit in the United States District Court for the Eastern District of Texas alleging, among other things, that the 2019 NDAA violates this prohibition.⁶⁷ Relying on the Supreme Court's interpretation of the Bill of Attainder Clause⁶⁸ and recent federal appellate court decisions rejecting claims based on it,⁶⁹ the district court rejected Huawei's constitutional challenge and dismissed the suit in February 2020.⁷⁰

Export Restrictions

While annual appropriations provisions and the 2018 and 2019 NDAAs marked the opening salvo in what has become a broader legal confrontation between Huawei and the U.S. government, those restrictions generally were limited to transactions involving federal spending in the form of procurement and grant and loan funds.⁷¹ Entities that did not participate in federal procurement or receive grant and loan funds could continue to transact business with Huawei without violating the restrictions.⁷² In May 2019, the Trump Administration expanded the scope of Huawei-related prohibitions outside the federal spending context by exercising its authority under the Export Controls Act of 2018 (ECA).⁷³

The ECA provides the President with powers to control the export of, among other things, certain U.S. dual-use goods and technology.⁷⁴ A dual-use item can serve both civilian purposes and military, terrorism, weapons of mass destruction, or law enforcement purposes.⁷⁵ The ECA requires the Secretary of Commerce to establish and maintain a list, known as the Entity List, of foreign entities that are subject to export license requirements because they are threats to U.S. national security and foreign policy.⁷⁶ The ECA authorizes the executive branch to control exports, re-exports,⁷⁷ and "in-country transfers" (i.e., transfers within a foreign country⁷⁸) to companies on the Entity List.⁷⁹ The Bureau of Industry and Science (BIS) in the Department of Commerce maintains the Entity List.⁸⁰

Addition of Huawei to the Entity List

In several final rules, issued over the course of 2019 and 2020, BIS added Huawei and more than 150 non-U.S. affiliates of Huawei to the Entity List.⁸¹ An interagency committee⁸² determined that there is reasonable cause to believe that Huawei has been involved in activities that are contrary to the national security or foreign policy interests of the United States.⁸³ The interagency committee cited Huawei and its affiliates' alleged violation of U.S. sanctions on Iran (which are also the subject of a criminal prosecution, discussed below⁸⁴) as an illustration of the risks Huawei poses to U.S. national security and foreign policy.⁸⁵

Because Huawei and other Chinese telecommunications companies depend on certain U.S. products, such as microchips, for their equipment, the prohibition of exports from the United States can potentially damage their business.⁸⁶ For example, in 2018, U.S. export restrictions on ZTE reportedly forced ZTE to suspend business operations temporarily when it could not access the U.S. semiconductors needed for its supply chain.⁸⁷ At the same time, there may be compelling reasons to avoid causing serious commercial harm to Huawei and other Chinese telecommunications firms. For example, some rural areas of the United States depend on Huawei for their telecommunications infrastructure, and an export ban can hinder telecommunications in rural America.⁸⁸ Denial of exports may also affect the revenue and profitability of U.S. businesses that cannot sell their products to companies on the Entity List.⁸⁹ Moreover, not all exports to Huawei present the same level of national security concerns, according to Commerce.⁹⁰ And addition of Huawei and its affiliates to the Entity List could prevent American companies from participating in international organizations that develop standards for 5G systems and other technology.⁹¹

To account for these competing considerations, BIS has sought to calibrate its export restrictions—contained in the Export Administration Regulations (EAR)⁹²—by authorizing certain limited types of exports to Huawei. Shortly after adding Huawei to the Entity List, BIS temporarily authorized exports to Huawei and its affiliates, provided the exports were: (1) necessary to maintain and support existing telecommunications networks and equipment; (2) necessary to provide service and support to existing Huawei handsets; (3) made to provide information related to cybersecurity vulnerabilities in Huawei networks or products or research related to cybersecurity; and (4) part of engagement with Huawei and its affiliates necessary for developing 5G standards at a recognized international standards body.⁹³

This temporary authorization—which BIS called a temporary general license—expired on August 13, 2020.⁹⁴ But BIS amended its regulations to exclude permanently variations of the third⁹⁵ and fourth⁹⁶ categories from export restrictions. Some commentators and stakeholders called for BIS to extend or adopt permanently all facets of the temporary general license, but BIS determined that the United States national security and foreign policy interests did not support maintaining the first and second categories of transactions.⁹⁷

BIS also issues other licenses, known as specific licenses, that authorize individual U.S. companies to export to Huawei and its affiliates under defined conditions.⁹⁸ While the temporary general license automatically applied to all exporters that met its requirements, BIS only grants specific licenses to companies that apply for them.⁹⁹ For example, Microsoft Corp. (Microsoft) reportedly applied for and received a specific license to export certain "mass-market" software to Huawei and its affiliates.¹⁰⁰ Media outlets report that Commerce officials have told members of the semiconductor industry that it will grant licenses if companies can demonstrate their technology does not support 5G systems.¹⁰¹

Foreign Direct Product Rule and De Minimis Rules

While U.S. export restrictions in the EAR apply to all U.S. origin items, wherever located,¹⁰² they can also apply to certain foreign-made items. Under the foreign direct product rule, the EAR applies to certain foreign-made goods that are created as a "direct product" of U.S.-origin items.¹⁰³ And under the de minimis rules, the EAR applies to items that contain more than certain specified percentages of U.S. content.¹⁰⁴ After Huawei was added to the Entity List in 2019, reports emerged that many U.S.-owned companies were able to use foreign subsidiaries and affiliates to continue exporting to Huawei under these rules.¹⁰⁵ In particular, Commerce found that Huawei "continued to use U.S. software and technology to design semiconductors, undermining the national security and foreign policy purposes of the Entity List by commissioning their production in overseas foundries using U.S. equipment."¹⁰⁶

To counteract this trend, BIS amended the foreign direct product rule twice in 2020 so that it has broader application to Huawei and its affiliates on the Entity List.¹⁰⁷ The amended rule makes technical changes to the EAR designed to prevent Huawei from acquiring microchips made outside the United States that are developed or produced with tools sourced from the United States.¹⁰⁸ Although the rule changes are technical, some commentators view them as likely to cause a major disruption to Huawei's manufacturing capability.¹⁰⁹ Other observers assert that the rule change will adversely affect the U.S. semiconductor industry and other American technology companies that sell products used in Huawei's supply chains.¹¹⁰ Commerce and Department of State officials contend the change is necessary to prevent Huawei and its affiliates from circumventing U.S. export restrictions.¹¹¹

Media outlets reported in 2020 that the Trump Administration also was considering modifying the de minimis rules in an attempt to limit transactions further with Huawei involving U.S.-sourced items.¹¹² The de minimis rules permits companies that make and export products to Huawei from outside the United States to incorporate U.S. components, technology, and software if the U.S. content does not exceed 25% of the product's value.¹¹³ News outlets reported that the Trump Administration considered reducing the de minimis threshold to 10% for Huawei transactions,¹¹⁴ and the 116th Congress introduced at least one bill that would require Commerce to reduce the threshold,¹¹⁵ but thus far no change has been made.

Conditions on Huawei's Removal from the Entity List

Normally, an interagency committee¹¹⁶ in the executive branch chaired by Commerce is responsible for "all decisions to make additions to, removals from or changes to the Entity List."¹¹⁷ In Huawei's case, however, Congress placed conditions on Commerce's ability to remove Huawei from the list.¹¹⁸ The National Defense Authorization Act for Fiscal Year 2020 (2020 NDAA; Pub. L. No. 116-92) provides that the Secretary of Commerce may not remove Huawei from the Entity List unless the Secretary certifies¹¹⁹ that four conditions exist:

• 1. Huawei has resolved the charges that were the basis for its addition to the Entity List;
• 2. Huawei has resolved any other charges that it violated U.S. sanctions;
• 3. "[R]egulations have been implemented that sufficiently restrict exporting to, and importing from, the United States items that would pose a national security threat" to U.S. telecommunications systems;
• 4. Commerce has mitigated, to the maximum extent possible, other threats to U.S. national security posed by Huawei.¹²⁰

The 2020 NDAA also requires Commerce to provide an annual report describing licenses issued for exports to Huawei.¹²¹

Executive Orders Under the International Emergency Economic Powers Act (IEEPA)

Although U.S. export restrictions have significant legal and economic consequences, they do not affect all transactions involving Huawei and U.S. companies. In particular, the addition of Huawei to the Entity List does not, on its own accord, prevent importing Huawei products into the United States.¹²² Under the International Emergency Economic Powers Act (IEEPA), the President possesses much broader authority to influence Huawei imports and other Huawei-related transactions and property interests.¹²³

IEEPA grants the President power to regulate diverse economic transactions when the President declares that a national emergency exists.¹²⁴ Upon an emergency declaration, the President may (subject to certain exceptions¹²⁵) investigate, regulate, or prohibit foreign exchange transactions, transfers of credit involving foreign nationals or foreign countries, and imports or exports of currency and securities involving any persons or property subject to U.S. jurisdiction.¹²⁶ IEEPA also allows the President to block or "freeze"¹²⁷ foreign-owned property and assets.¹²⁸

Executive Order 13873: Information and Communications Technology and Services

On May 15, 2019 (the same day Commerce announced the addition of Huawei to the Entity List), President Trump issued Executive Order 13873.¹²⁹ In that executive order, President Trump declared that a national emergency exists because of the threat of foreign adversaries creating and exploiting vulnerabilities in information and communications technology and services (ICTS).¹³⁰ In response to this threat, Executive Order 13873 prohibits various transactions¹³¹ involving foreign-owned¹³² ICTS when Commerce, in consultation with other executive branch agencies,¹³³ makes two determinations.¹³⁴

First, Commerce must determine that the transaction involves ICTS designed, developed, manufactured, or supplied by persons or entities owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary.¹³⁵ The executive order defines foreign adversary as those "engaged in a long-term pattern or serious instances of conduct significantly adverse" to U.S. security or the safety of U.S. persons.¹³⁶ In its regulations implementing the order, discussed below,¹³⁷ Commerce identified China (including Hong Kong), Cuba, Iran, North Korea, Russia, and the Nicolás Maduro regime¹³⁸ in Venezuela as foreign adversaries.¹³⁹

Second, to fall within the scope of Executive Order 13873, Commerce must determine that the transaction presents:

• 1. An undue risk of sabotage or subversion to ICTS in the United States;
• 2. An undue risk of catastrophic effects on the security or resiliency of critical infrastructure or the digital economy in the United States; or
• 3. Unacceptable risk to U.S. national security or the security and safety of U.S. persons.¹⁴⁰

Executive Order 13873 authorizes the Secretary of Commerce to develop rules and regulations to implement the order and to employ all powers granted to the President by IEEPA.¹⁴¹ Some observers interpreted the order as designed to, among other things, address the risks posed by Huawei and other Chinese communications equipment manufacturers.¹⁴²

ICTS Review Process

In January 2021, Commerce issued an interim final rule (ICTS Rule) which implements Executive Order 13873 in a way that differs from many prior IEEPA-based national emergencies.¹⁴³ Many executive orders that invoke IEEPA lead to the compilation of a list of individuals¹⁴⁴ or entities¹⁴⁵ with whom transactions are restricted.¹⁴⁶ Other IEEPA-based executive orders prohibit transactions involving specific items.¹⁴⁷ In the ICTS Rule, however, Commerce has established a new review process through which the Secretary of Commerce will evaluate individual transactions on a "case-by-case basis, based upon the particular facts and circumstances" to determine whether they raise the risks described in Executive Order 13873.¹⁴⁸ Because the rule regulates individual ICTS transactions—broadly defined as "any acquisition, importation, transfer, installation, dealing in, or use of any [ICTS]"¹⁴⁹—it could subject a wide range of commercial interactions to a new review process.¹⁵⁰

The ICTS Rule provides three ways to initiate review of a transaction: (1) Commerce can unilaterally begin review at the Secretary of Commerce's discretion; (2) other federal agencies can request that Commerce review a transaction; or (3) Commerce can begin review upon receipt of public or other types of information.¹⁵¹ Commerce also plans to create a licensing process through which companies can seek pre-approval for a proposed or pending ICTS transaction.¹⁵² If, after an initial review, Commerce concludes that an ICTS transaction may pose an undue or unacceptable risk, Commerce must engage in an interagency consultation.¹⁵³ After the consultation, Commerce will make an initial determination on whether to permit a transaction, prohibit it, or propose measures to mitigate risks.¹⁵⁴ Unless it permits the transaction in full, Commerce must provide a written determination to the parties.¹⁵⁵ Next, the parties have 30 days to respond to the initial determination and propose their own remedial measures.¹⁵⁶ If the parties respond,¹⁵⁷ Commerce must engage in a second interagency consultation.¹⁵⁸ After that consultation, Commerce may issue a final, written determination on whether the transaction is prohibited, not prohibited, or permitted subject to an agreement on risk-mitigation measures.¹⁵⁹ The total process must be completed within 180 days, unless Commerce determines in writing that additional time is necessary.¹⁶⁰ Violation of Commerce's final determination can result in civil and criminal penalties.¹⁶¹

To be subject to the ICTS review process, a transaction must meet several criteria. An individual or entity owned, controlled by, or subject to the jurisdiction of a foreign adversary must conduct the transaction.¹⁶² The transaction must have a nexus to the United States by involving property subject to U.S. jurisdiction or being conducted by an individual or entity subject to U.S. jurisdiction.¹⁶³ The transaction also must involve property in which a foreign country or foreign national has an interest, and the process only applies to transactions initiated, pending, or completed after January 19, 2021.¹⁶⁴ Finally, the transaction must involve one of the following types of technology:

• 1. ICTS that will be used by a party to a transaction in a critical infrastructure sector, as designated in Presidential Policy Directive 21 (PPD 21);¹⁶⁵
• 2. Software, hardware, or any other product or service integral to wireless local area networks, mobile networks, satellite payloads, satellite operations and control, cable access points, wireline access points, core networking systems, or long- and short-haul systems;
• 3. Software, hardware, or products or services integral to data hosting or computing services that process or are expected to process sensitive personal data on more than one million U.S. persons;
• 4. Certain ICTS products—including webcams, routers, modems, and drones—when more than one million units have been sold to U.S. persons;
• 5. Software designed primarily for connecting with and communicating on the Internet that is in use by more than one million U.S. persons; or
• 6. ICTS that is integral to artificial intelligence and machine learning, quantum key distribution, quantum computing, drones, autonomous systems, or advanced robotics.¹⁶⁶

The ICTS Rule excludes from review a U.S. person's acquisition of ICTS items as part of a U.S. government-industrial security program because those acquisitions are subject to other forms of U.S. government oversight. ¹⁶⁷ It also excludes any transaction that CFIUS, discussed above,¹⁶⁸ is actively reviewing or has reviewed.¹⁶⁹

Executive Order 13959: Securities Ban

In November 2020, President Trump issued his second Huawei-related executive order using IEEPA authority, Executive Order 13959, Addressing the Threat from Securities Investments that Finance Chinese Military Companies.¹⁷⁰ The executive order prohibits U.S. persons from engaging in any transaction in publicly traded securities of any Communist Chinese Military Company (CCMC), effective January 11, 2021.¹⁷¹ It also prohibits any transaction in securities that are derivative of, or designed to provide investment exposure to such publicly traded securities.¹⁷² Companies that purchased such securities before the order's effective date must divest them by November 11, 2021.¹⁷³ The definition of CCMC is derived from the National Defense Authorization Act for Fiscal Year 1999, as amended (1999 NDAA; Pub. L. No. 105-261), which defines CCMC as an entity that is (i) owned or controlled by, or affiliated with, the People's Liberation Army or a ministry of the Chinese government, or that is owned or controlled by an entity affiliated with the Chinese government's defense industrial base; and (ii) is engaged in commercial services, manufacturing, producing, or exporting.¹⁷⁴ Huawei is included in the list of CCMCs, which the Secretary of Defense prepares.¹⁷⁵

Other Supply Chain Protection Initiatives

Other executive branch agencies have started efforts to protect U.S. communications networks from alleged security threats potentially caused by Huawei and other entities. For example, in November 2018, the Department of Homeland Security convened the Information and Communications Technology Supply Chain Risk Management Task Force—a public-private partnership formed to provide recommendations on how to identify and manage risk to the global information and telecommunications supply chain.¹⁷⁶ The Department of State engaged in the Multilateral Action on Sensitive Technologies (MAST) process, a group of 15 nations that meet to share information about technology transfer threats.¹⁷⁷ And the SECURE Technology Act,¹⁷⁸ which became law in December 2018, established an interagency Federal Acquisition Security Council (FASC).¹⁷⁹ The FASC is responsible for, among other things, developing a government-wide strategy that addresses information and telecommunications supply chain risks and facilitates information-sharing within the government and with the private sector.¹⁸⁰

Federal Communications Commission's Actions

The FCC and the U.S. Congress have taken steps to restrict Huawei's access to U.S. telecommunications infrastructure. These actions primarily affect smaller telecommunications carriers who rely on the Universal Service Fund (USF). The USF subsidizes, among other things, voice and broadband internet service in rural and high-cost areas.¹⁸¹ Federal law requires long-distance telecommunications carriers (such as AT&T and Verizon) to contribute a percentage of their revenue to maintain the USF,¹⁸² and the FCC uses the fund to support eligible telecommunications carriers (ETCs) that serve high-cost areas.¹⁸³

In November 2019, the FCC issued an order (2019 Order) prohibiting ETCs from using USF funds to purchase Huawei or ZTE equipment or services.¹⁸⁴ At the same time, it issued a Further Notice of Proposed Rulemaking (2019 FNPRM) that proposed requiring ETCs to remove and replace existing Huawei and ZTE equipment from their networks (often called "rip-and-replace"¹⁸⁵) and proposed establishing a reimbursement program to cover the cost of the removal and replacement.¹⁸⁶

Following the FCC's adoption of its order and proposed rule, Congress passed the Secure and Trusted Communications Networks Act of 2019 (Secure Networks Act), which the President signed into law in March 2020.¹⁸⁷ Like the 2019 Order, the Secure Networks law prohibits companies from using FCC administered subsidies to obtain or maintain "covered communications equipment or services" that pose national security risks to U.S. communications networks, including certain Huawei or ZTE equipment.¹⁸⁸ The Secure Networks Act also directs the Commission to establish a rip-and-replace reimbursement program, similar to the one contemplated in the 2019 FNPRM, and requires ETCs to remove covered equipment if they participate in that program.¹⁸⁹

The FCC has taken steps to implement the Secure Networks Act, most notably by adopting another final order in December 2020.¹⁹⁰ This order establishes the reimbursement program required by the Secure Networks Act.¹⁹¹ The order also goes beyond the Secure Networks Act by requiring carriers receiving USF support to remove and replace existing covered equipment in their networks, regardless of whether they choose to participate in the reimbursement program.¹⁹² Shortly after this final order was adopted, Congress passed the Consolidated Appropriations Act, 2021 (Pub. L. No. 116-260), which provides funding for the reimbursement program and makes several changes to the program's scope.

These actions have significant implications for rural carriers and their customers and are discussed further below.

2019 Order

In November 2019, the FCC adopted the 2019 Order, prohibiting ETCs from using USF funds to purchase, upgrade, maintain, or otherwise support any services or equipment provided by Huawei and ZTE.¹⁹⁷ To support its action, the FCC explained that Congress and the executive branch had repeatedly raised concerns over the threat of foreign actors exploiting U.S. communications networks.¹⁹⁸ The Commission cited, in particular, congressional and executive actions such as the 2019 NDAA and Executive Order 13873.¹⁹⁹ The 2019 Order also states that the Commission found it "very significant" that the DOJ supported its conclusion that USF funds should "be used to deploy infrastructure and provide services that do not undermine our national security."²⁰⁰

The FCC further reasoned that the record supported specifically designating Huawei and ZTE as the initial entities covered by the USF fund prohibition.²⁰¹ The 2019 Order states that both companies have "ties to the Chinese government and military apparatus," and it cites the 2012 HPSCI report for the proposition that Chinese state security laws obligate these companies "to cooperate with any request by the Chinese government to use or access their systems."²⁰² The FCC rejected Huawei's arguments that its U.S. affiliates are not subject to these state security laws, reasoning that affiliates remain subject to Chinese law "[i]rrespective of their physical location."²⁰³ While the 2019 Order's designation of Huawei and ZTE as covered entities only served as an "initial designation," the 2019 Order gives the FCC's Public Safety and Homeland Security Bureau (PSHSB) authority to make a final designation after a period of public comments.²⁰⁴ It further directs the PSHSB to make future determinations about whether to designate additional companies or to reverse earlier determinations.²⁰⁵ On June 30, 2020, following the comment period, the PSHB issued its final designation decision on Huawei and ZTE, naming them as covered entities (Designation Orders).²⁰⁶ Huawei sought review of the designation, but, on Dec. 11, 2020, the Commission rejected its challenges and upheld the PSHB's designation.²⁰⁷

As a legal basis for the 2019 Order's prohibition, the FCC reasoned that its "authority to place reasonable public interest conditions on the use of USF funds" is "well established."²⁰⁸ The FCC explained that Section 254 of the Communications Act allows the Commission to consider the extent to which USF-supported telecommunications services are "consistent with the public interest, convenience, and necessity."²⁰⁹ More generally, section 201(b) of the Communications Act allows the Commission to promulgate rules and regulations "as may be necessary in the public interest to carry out the provisions of [the] Act."²¹⁰ The FCC wrote that it is "well established" that "promotion of national security is consistent with the public interest" because Section 1 of the Communications Act states that the FCC was created for, among other things, "the purpose of national defense [and] for the purpose of promoting safety of life and property."²¹¹ The 2019 Order also states that it is implementing or otherwise furthering the goals of other federal laws, including Section 889 of the 2019 NDAA²¹² and federal law that prohibits unauthorized surveillance in telecommunication carriers' networks.²¹³

Huawei has petitioned for review of the 2019 Order in the U.S. Court of Appeals for the Fifth Circuit.²¹⁴ While this case remains ongoing, one key issue is the extent to which the Communications Act allows the FCC to consider national security as part of its public-interest analysis. In its briefing, Huawei argues that the Act does not allow the Commission to make national security determinations—both in the universal service context and generally—because, among other things: (1) national security does not further any of the statutorily enumerated goals of the universal service program;²¹⁵ (2) whenever the Act confers power to make national security judgments, it gives it to the President, rather than the Commission;²¹⁶ and (3) the Act's public-interest standard must be interpreted based on the broader context of the Act and "cannot be interpreted to give national security authority to the FCC, when that authority is statutorily and constitutionally committed to the President."²¹⁷Along with the arguments based on the Communications Act, Huawei's briefing makes several other statutory and constitutional arguments. For instance, Huawei argues that the 2019 Order is "arbitrary and capricious" in violation of the Administrative Procedure Act because, among other thing, it ignores evidence that the rule would undermine the purposes of the USF provision.²¹⁸ Huawei further argues that the Order's initial designation of Huawei violated the Constitution's Due Process Clause by depriving it of its "constitutionally protected reputational interests" without affording an adequate pre-deprivation hearing.²¹⁹

2019 FNPRM

Along with the Order, the FCC issued the 2019 FNPRM.²²⁰ In the 2019 FNPRM, the Commission proposed to condition any future USF support on recipients agreeing not to use equipment or services from "covered companies" for a period of time.²²¹ The proposed covered companies would be the same companies designated national security threats under the 2019 Order (i.e., Huawei and ZTE).²²² The FCC also proposed requiring ETCs receiving USF funds to remove and replace existing equipment and services provided by covered companies from their network operations.²²³ To mitigate the cost of this replacement, the FCC proposed to establish a "reimbursement program" that would offset "reasonable transition costs."²²⁴ The FCC proposed seeking an "appropriation or authorization of funds from Congress" to fund this reimbursement program.²²⁵ It also sought comment on the appropriate funding needed to cover replacement costs, noting that the estimated costs of removing and replacing the covered equipment varied, with one commentator estimating it at "approximately $150 million plus installation" and another estimating costs of "$800 million to $1 billion."²²⁶

Secure Networks Act

Overview

With the Secure Networks Act (Pub. L. No. 116-124), signed into law in March 2020, Congress acted to provide additional statutory grounds and direction for the FCC's current efforts to limit Huawei's presence in the U.S. communications network.²²⁷

Much like the 2019 Order, the Secure Networks Act prohibits companies from using FCC administered subsidies to obtain or maintain communications equipment or services that pose national security risks to U.S. communications networks.²²⁸ The Act directs the FCC to publish a list of the equipment and services subject to this limitation (the Covered List).²²⁹ Equipment or services must meet two conditions for it to be added to the Covered List. First, either (1) certain agencies have made a "specific determination" that the particular equipment or services are a national security risk²³⁰ or (2) the equipment or services are covered by section 889(f)(3) of the 2019 NDAA (i.e., be equipment or services provided by Huawei and ZTE).²³¹ Second, the equipment or services must be "capable of" (1) "routing or redirecting user data traffic or permitting visibility into any user data or packets that such equipment or service transmits or otherwise handles," (2) "causing the network of a provider of advanced communications service to be disrupted remotely," or (3) "otherwise posing an unacceptable risk to the national security of the United States or the security and safety of United States persons."²³²

Furthermore, similar to the 2019 FNPRM, the law directs the FCC to implement a so-called "rip-and-replace" reimbursement program.²³³ Under this program, small²³⁴ communications providers would be reimbursed for the cost of removing and replacing equipment on the Covered List.²³⁵ To participate in the program, applicants would have to provide an "initial reimbursement cost estimate" and supporting materials.²³⁶ While participation in the program is voluntary, providers who chose to participate in the program must complete the "permanent removal, replacement, and disposal" of covered equipment or services within one year of receiving the funds, unless the FCC grants an extension.²³⁷ While the law does not expressly appropriate any funds for the program, it appears to assume an initial reimbursement budget of $1 billion, as it directs the FCC to notify Congress if it determines during implementation of the reimbursement program that $1 billion "will not be sufficient to fully fund all approved applications for reimbursements" under the program.²³⁸ The law requires the FCC to begin rulemaking within 90 days after its enactment to implement the reimbursement program.²³⁹

Lastly, the Act includes a reporting requirement, directing "each provider of an advanced communications service" to submit an annual report to the Commission detailing whether they have "purchased, rented, leased or otherwise obtained any covered communications equipment."²⁴⁰ Providers must further include a "detailed justification" for their use of the equipment and state whether they have removed or replaced the equipment or plan to do so.²⁴¹

FCC Implementation and the Consolidated Appropriations Act, 2021

The FCC has taken several steps to integrate the Secure Networks Act into its ongoing actions. On July 17, 2020, the FCC released a declaratory ruling finding that, by adopting the 2019 USF Order, it had already "substantially implemented" the Secure Networks Act's subsidy limitations.²⁴² Furthermore, on December 11, 2020, the FCC issued a final order (2020 Order) implementing the Act's remaining provisions.²⁴³ Namely, the 2020 Order implements the Secure Networks Act by (1) establishing the reimbursement program to subsidize small communications providers that rip-and-replace equipment on the Covered List; (2) establishing procedures and criteria for creating and maintaining the Covered List; and (3) adopting reporting requirements for carriers to inform the FCC about the ongoing presence of equipment on the Covered List in communications networks.²⁴⁴ The 2020 Order also goes beyond the Secure Networks Act by requiring any ETCs receiving USF funds, as well as participants in the reimbursement program, to rip-and-replace covered equipment from their networks.²⁴⁵

While the 2020 Order made ETC's rip-and-replace obligation contingent on a "Congressional appropriation to fund the Reimbursement Program,"²⁴⁶ the Consolidated Appropriations Act, 2021, appropriates $1.9 billion to "carry out" the Secure Networks Act, with $1.895 billion of that amount going towards the reimbursement program.²⁴⁷ The Appropriations Act also includes several amendments to the Secure Networks Act's provisions on the reimbursement program. For instance, it broadens the entities eligible for funding, allows reimbursement for the removal of equipment covered by the 2019 Order and Designation Orders (which cover any Huawei and ZTE equipment, rather than simply Huawei and ZTE equipment on the Covered List), and establishes a prioritization paradigm that favors small providers and non-commercial educational institutions in the allocation of reimbursement funds.²⁴⁸ On February 17, 2021, the Commission adopted a notice of proposed rulemaking that seeks comment on proposals to implement these changes.²⁴⁹

United States' Criminal Prosecutions

The United States has brought several criminal charges involving Huawei.²⁵⁰ In the United States District Court for the Western District of Washington, a grand jury indicted two Huawei affiliates²⁵¹ on charges arising from the alleged theft of trade secrets from T-Mobile USA (T-Mobile) and obstruction of justice when T-Mobile threatened to file a lawsuit.²⁵² In the United States District Court for the Eastern District of New York, the United States is pursuing a criminal indictment against Huawei, two corporate affiliates,²⁵³ and Meng Wanzhou—Huawei's CFO and the daughter of Huawei founder Ren Zhengfei.²⁵⁴ The New York prosecution arises out of alleged misappropriation of intellectual property and an alleged scheme to avoid U.S. sanctions on Iran and North Korea.²⁵⁵

Huawei denies the charges in both prosecutions.²⁵⁶ Huawei also has filed a Freedom of Information Act (FOIA) suit against the United States in the U.S. District Court for the District of Columbia seeking documents relating to the investigation and prosecution of Huawei and Meng, U.S.-China trade relations, and 5G competition. ²⁵⁷

In December 2018, Canadian authorities arrested Meng pursuant to a U.S. extradition request arising out of the New York prosecution.²⁵⁸ Later that month, Chinese authorities arrested two Canadian citizens in China on espionage charges, in what some observers interpret as retaliation for Meng's arrest.²⁵⁹ Meng is challenging the extradition request in the Canadian legal system.²⁶⁰ The two Canadian citizens remain in Chinese custody.²⁶¹ Some Members of the 116th Congress introduced measures that would have commended Canada for apprehending Meng and expressed concern over China's detention of Canadian citizens.²⁶²

The United States has also pursued charges against at least one Chinese national, Bo Mao, for conspiring with an unnamed company, which media outlets reported to be Huawei, to steal intellectual property (IP) from a U.S. company.²⁶³ Mao, a Chinese professor working at a Texas university, pled guilty as part of plea agreement to one count of making false statements to the Federal Bureau of Investigation during its investigation into the alleged IP theft.²⁶⁴ Mao was sentenced to time served with three years supervised release and has been permitted to return to China.²⁶⁵

Visa Restrictions

In July 2020, the United States stated it would use existing provisions in U.S. immigration law to restrict the ability of Huawei and other Chinese telecommunication company employees to obtain U.S. visas.²⁶⁶ Under the Immigration and Nationality Act, an alien is inadmissible to the United States if the Secretary of State has reasonable grounds to believe the alien's entry "would have potentially serious adverse foreign policy consequences for the United States . . . ."²⁶⁷ Secretary of State Pompeo announced that the United States was imposing visa restrictions on "employees of Chinese technology companies that provide material support to regimes engaging in human rights abuses globally."²⁶⁸ Secretary Pompeo described Huawei as an "arm of the [Chinese Communist Party's] surveillance state that censors political dissidents and enables mass internment camps . . . ."²⁶⁹ Huawei denies that it participates in human rights violations.²⁷⁰

Diplomacy and Foreign Aid

Some in Congress have expressed interest in whether U.S. allies abroad permit Huawei products in their communications networks.²⁷¹ Executive branch officials in the Trump Administration encouraged foreign countries not to use Huawei equipment in their 5G networks,²⁷² with some success.²⁷³ For example, after announcing that it would permit Huawei products in noncritical elements of its 5G networks,²⁷⁴ the United Kingdom changed course in July 2020 and announced that it would bar domestic telecommunications operators from using Huawei equipment when building the country's 5G networks.²⁷⁵ The Trump Administration launched or engaged in other multilateral efforts to promote construction and use of global 5G networks that do not use Huawei systems.²⁷⁶

Some observers contend that Huawei's access to Chinese financial state support has allowed Huawei to sell its products and services at discounted prices worldwide.²⁷⁷ Media outlets have reported that the Trump Administration considered using foreign aid and development programs to help wireless carriers in foreign countries buy equipment from Huawei's major non-Chinese rivals—Sweden's Ericsson AB, Finland's Nokia Corp., and South Korea's Samsung Electronics Co.²⁷⁸ Some Members of the 116th Congress introduced bills that would have prohibited the United States from sharing intelligence with any country that uses Huawei technology in its 5G networks.²⁷⁹ Other Members proposed resolutions encouraging U.S. allies not to use Huawei systems and equipment in their infrastructure.²⁸⁰

National Defense Authorization Act for Fiscal Year 2021 (FY2021 NDAA)

The most recently passed Huawei-related legislation came in the National Defense Authorization Act for Fiscal Year 2021 (FY2021 NDAA), passed over President's Trump's veto in December 2020.²⁸¹

Section 1058

Section 1058 of the FY2021 NDAA limits the Secretary of Defense's ability to locate a major weapons systems or permanently assign forces in a country with "at risk" 5G or sixth generation (6G) wireless network equipment, software, or services if U.S. military personnel and their families will be directly connected to the "at risk" networks.²⁸² Executive branch officials previously have voiced concern about Huawei equipment installed near U.S. military bases.²⁸³ Prior to making a base or forces assignment that falls within Section 1058's parameters, the Secretary of Defense must consider risks in the host country posed by "at-risk vendors," which is defined to include Huawei and ZTE.²⁸⁴

Section 9202

Some officials in the Trump Administration and Members of the 116th Congress expressed the desire to encourage development of information and communications companies in the United States or allied nations that can better compete with and serve as alternatives to Huawei.²⁸⁵ U.S. companies do not manufacture certain key elements of the infrastructure necessary for 5G telecommunications systems.²⁸⁶ At the same time, some observers believe Chinese state support of Huawei and other communications companies have helped those companies develop their products, gain market share, and reinvest profits in research and development.²⁸⁷ In response to this dynamic, the 116th Congress included provisions in the FY2021 NDAA that authorize funds to support 5G research and promote telecommunications equipment providers that can act as alternatives to Huawei in the United States and abroad.²⁸⁸

Section 9202 of the FY2021 NDAA establishes a Public Wireless Supply Chain Innovation Fund (Innovation Fund), which can make grants of up to $50 million to support, among other things, the promotion and deployment of certain communications network technology, including 5G technology and equipment.²⁸⁹ The Administrator of the National Telecommunications and Information Administration (NTIA) is to administer the Innovation Fund with the advice of an interagency advisory board.²⁹⁰

Section 9202 also creates a Multilateral Telecommunications Security Fund (Multilateral Telecom Fund) to be administered by the Secretary of State, in consultation with an interagency group.²⁹¹ The provision authorizes the Secretary of State to create a common funding mechanism with the United States' foreign partners to "support the development and adoption of secure and trusted telecommunications technologies."²⁹² It also calls for the Secretary of State "to secure commitments and contributions from trusted foreign partners such as the United Kingdom, Canada, Australia, New Zealand, and Japan" while pursuing three objectives:

(i) Advancing research and development of secure and trusted communications technologies;

(ii) Strengthening supply chains; and

(iii) Promoting the use of trusted vendors.²⁹³

Finally, Section 9202 requires the executive branch to consider how to enhance U.S. representation at international 5G standards-setting bodies, such as the International Telecommunication Union (ITU).²⁹⁴ Some observers believe that the Chinese government exerts influence over international bodies that set 5G technical standards to benefit Huawei and other domestic Chinese firms.²⁹⁵ Some Members of the 116th Congress and officials in the Trump Administration described American leadership in these standards-setting bodies as important for advancing U.S. national security, foreign policy, and economic interests.²⁹⁶

Title XCIX: Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America

Title XCIX of the FY2021 NDAA, titled Creating Helpful Incentives to Produce Semiconductors for America Act (commonly referred to as the CHIPS for America Act),²⁹⁷ requires the Secretary of Commerce to establish a program to provide financial assistance to incentivize investment in the U.S. semiconductor manufacturing industry.²⁹⁸ Grants are not to exceed $3 billion per project unless the President certifies to Congress that a larger investment is necessary to "significantly increase . . . reliable domestic supply of semiconductors relevant for national security and economic competitiveness[,]" and to meet national security needs.²⁹⁹ Title XCIX also requires, among other things: (1) establishment of public-private partnerships to incentivize domestic microchip production;³⁰⁰ (2) a study of the U.S. industrial base to support microelectronic production;³⁰¹ (3) the creation of a Multilateral Semiconductors Security Fund;³⁰² and (4) funding for microelectronic research and development in federal agencies.³⁰³ While these provisions do not target Huawei or its products directly, some observers view federal support for the microchip industry as part of a broader effort to ensure U.S. companies maintain a foothold in technology supply chains that are essential for products made by Huawei and other foreign technology companies.³⁰⁴

Conclusion

The federal government's legal actions involving Huawei have evolved from straightforward spending restrictions to a multifaceted effort to ban the company from telecommunications networks in the United States and internationally. What began as appropriations restrictions in 2013 evolved in the FY2018 NDAA into a procurement ban in DOD's sensitive nuclear and national defense missions.³⁰⁵ That narrow procurement ban expanded in the FY2019 NDAA to an executive branch-wide ban on procuring from any company that uses Huawei products and services.³⁰⁶ In 2019, legal actions transitioned from the procurement context to the realm of international trade as the executive branch added Huawei to the Entity List and invoked the President's IEEPA authority.³⁰⁷ In 2019 and 2020, the FCC took steps to limit Huawei's presence in U.S. telecommunications networks, and Congress provided additional direction for these efforts with the Secure Networks Act, enacted in early 2020.³⁰⁸ As the Trump Administration pursued diplomatic efforts to convince allied countries to ban Huawei from their 5G networks in 2020, the 116th Congress passed the FY2021 NDAA, which contemplates using federal funds to support private competitors to Huawei domestically and abroad.³⁰⁹

Some observers view the increasing complexity of the legal actions involving Huawei as a microcosm of the broader challenges presented by China's rise on the global stage.³¹⁰ At the same time, U.S. officials have sought to account for potential negative impacts of these escalating actions by, for example, calibrating U.S. export regulations to allow American companies to work with Huawei when identifying cybersecurity vulnerabilities or working in international standards-setting organizations.³¹¹ The United States also has shown willingness to take increasingly strict actions—such as narrowing the foreign direct product rule for Huawei and its affiliates or instituting a "rip and replace" program—when this is deemed necessary for national security and American interests.³¹² Given the competing considerations in Huawei policy, a balancing of interests may continue in the 117th Congress and in the Biden Administration.