Commerce Department withdraws Huawei rule after Pentagon pushback: reports 

The Department of Commerce has withdrawn a proposal to limit the ability of U.S. companies to sell products to Huawei after pushback from the Pentagon, multiple outlets reported Friday.

The New York Times and The Wall Street Journal both cite individuals familiar with the matter saying that the Pentagon expressed concern about the effect the regulation could have on American businesses.

The Department of Commerce placed Huawei on the “entity list” in May, preventing U.S. firms from conducting business with the company unless they obtain a specific license, citing national security concerns with the Chinese telecommunications giant.

It has subsequently issued temporary licenses to delay that designation, but companies have already begun finding ways to continue selling equipment to Huawei without falling afoul of Commerce penalties.

One way to do that is a loophole which allows companies to sell products made outside of the U.S. to Huawei without a license, as long as the products contain less than 25 percent U.S.-made content subject to export restrictions.

The rule proposed by Commerce would reportedly have lowered that threshold to 10 percent when companies do business with Huawei.

Commerce reportedly pulled back the rule after pushback from the Pentagon.

A spokesperson for the Commerce Department told The Hill that “if or when we have something to announce, we will do so.”

Pentagon spokesman Jonathan Hoffman told reporters Friday that he is “not going to comment on any kind of interagency conversation on this topic.” The Hill has reached out to the Pentagon for further comment.

The Journal reported that the Treasury Department also opposed the rule, with a source telling the outlet that they wanted to make sure Secretary Steven Mnuchin had a chance to weigh in. 

The Treasury Department did not immediately respond to The Hill’s request for comment. 

Concerns around Huawei, which is the largest producer of telecom equipment in the world, mostly stem from a Chinese intelligence law that requires Chinese companies provide a backdoor into their operations for the central government.

The Federal Communications Commission (FCC) has also taken steps against Huawei, with the commission unanimously voting in November to designate Huawei as a national security threat and to block U.S. telecom companies from using FCC funds to purchase Huawei equipment.

Huawei has repeatedly denied claims that it is a national security threat, and announced in December that it is suing the FCC.

Lawmakers on both sides of the aisle expressed concern about the reported pushback against the rule from the Pentagon.

Sen. Tom Cotton (R-Ark.), who has been a vocal opponent against Huawei and who has introduced multiple pieces of legislation aimed to limit business with the company, said in a statement on Friday that he was “deeply troubled” about the reports of the Defense Department blocking the proposed rules change.

“I’m deeply troubled by reports that the Department of Defense blocked regulations to blacklist Huawei, an intelligence-gathering arm of the Chinese Communist Party,” Cotton said in a statement. “It’s bad enough when capitalists are willing to sell the rope that will be used to hang us, but worse still when our military acts as their lobbyist. I intend to get to the bottom of this ill-considered decision.”

Cotton was joined by Republican Sens. Ben Sasse (Neb.) and Marco Rubio (Fla.) in sending a letter to Defense Secretary Mark Esper on Friday asking that he brief them within 60 days on the “rationale” involved in deciding to block the Commerce Department rule. 

“Huawei is an arm of the Chinese Communist Party and should be treated as such,” the senators wrote. “It is difficult to imagine that, at the height of the Cold War, the Department of Defense would condone American companies contracting with KGB subsidiaries because Moscow offered a discount. We are concerned that the Department of Defense is not appropriately weighing the risks.”

Sen. Mark Warner (Va.), the top Democrat on the Senate Intelligence Committee, told The Hill during a break in impeachment inquiry proceedings that he was “concerned” about the rule being pulled.

Sen. Josh Hawley (R-Mo.), an outspoken opponent of Huawei in the Senate, told reporters that he “didn’t love” the rule being pulled. 

“I’m very concerned about these types of technology exports,” Hawley said. “I have proposed measures to add lots of these technologies to the export control list, and it’s concerning, I found that report very concerning. I would like to get more of the facts, but based on what I read initially, I was surprised and concerned by that.”

–Updated at 6 p.m. to include the letter from Sens. Cotton, Sasse, and Rubio.