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Jan 24 (Reuters) – The Biden administration is preparing a U.S. export rule used against Chinese telecoms equipment maker Huawei (HWT.UL) that could restrict Russia’s access to global electronics supplies if President Vladimir Putin decided to invade Ukraine.
While the rule’s impact on Russia is unclear, the restrictions have hampered Huawei’s smartphone business. Last month, the company said it expected 2021 revenue to decline nearly 30% and forecast continued challenges this year.
WHAT IS THE RESTRICTION?
The so-called foreign direct product rule could be tailored to prevent Russia from importing smartphones, key aircraft and automobile components, Reuters reported last month.
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The administration is considering restricting chips and integrated circuit products destined for Russia, a senior official said, imposing its authority on items made overseas if they are designed with US software or technology, or produced using US equipment.
WHICH EXPORTS TO RUSSIA COULD BE AFFECTED?
The restrictions could apply to critical industrial sectors like artificial intelligence, navy, defense and civil aviation, the official said, and could also be imposed more broadly, to include consumer electronics.
The scope of the rule against Russia has not been defined, but White House National Security Council officials have warned leaders of the Semiconductor Industry Association, a chip lobby group, of possible actions without previous, as Reuters reported last week.
It’s unclear whether the rule could have the kind of devastating effect on Russia that it had on Huawei.
“Strict imposition of the foreign direct proceeds rule would significantly affect trade and production in Russia, although it’s hard to say to what extent,” said Jeffrey Schott, international trade policy and economic sanctions expert at the Peterson Institute for International Economics.
HOW DOES THIS IMPACT HUAWEI?
The Foreign Direct Goods Rule now prohibits US and non-US companies from shipping items to Huawei that are the direct product of US technology or software. These shipments can only be made with a US license.
The rule was added to restrictions imposed on Huawei after the telecoms equipment maker was placed on an export control blacklist known as the ‘Entity List’ in 2019 and it hasn’t stopped the global flow of chips to the enterprise.
The initial list was for products made in the US and some limited items made overseas with US technology, but did not block overseas shipments to Huawei from companies such as Taiwan’s largest TSMC. contract chipmaker in the world.
So, in 2020, the United States added the Foreign Direct Product Rule to expand its power to stop shipments of foreign-made items to Huawei. Companies like TSMC that use US chipmaking equipment are required to obtain US licenses before supplying Huawei, and licenses for sophisticated chips are denied.
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Reporting by Karen Freifeld in New York; Editing by Lisa Shumaker
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