Pentagon blocks new sales restrictions on Huawei, could harm US tech firms

The US Commerce Department is preparing new rules to tighten trade restrictions on Huawei coming soon but it seems like but US pentagon has become a big obstacle to the plan of the commerce department.

The Commerce Department official has withdrawn proposed regulations following the objections from the US Defence Department as well as the Treasure Department, people familiar with the matter told WSJ.

The Commerce Department sent this new rule to the Office of Management and Budget (OMB) that would reduce that percentage of technology supplies to 10% when it comes to Huawei, said administration officials, which would sharply limit the items that U.S. companies could sell without an export license.

OMB then circulated the rule to agencies for comment, and the Defense Department objected—it “nonconcurred,” in regulatory jargon.

The Huawei rule required the State, Commerce, Defense and Energy departments to sign on, with the Treasury Department also getting a say. Generally, agencies proposing rules informally clear away any objections before submitting proposals to OMB.

After the Pentagon’s objection, the Commerce Department pulled the rule back from OMB. Pentagon officials believe the change would harm U.S. companies, as do some officials at the Commerce Department, which is split internally on the proposed rule.

Huawei is a big customer for U.S. high-tech companies. The semiconductor manufacturer Micron, for instance, said in its 2019 annual report that Huawei accounts for 12% of its revenue.

Pentagon concerns that if those companies can’t continue to ship to Huawei, the firms would fall behind economically and not have the funds to invest heavily in research and development.

A Pentagon spokeswoman said the agency is “aware of Commerce’s proposed rule change” but wouldn’t “prematurely discuss ongoing interagency collaboration.” The Treasury Department declined to comment.

Currently, there’s no information when the US commerce department will get the clearance to apply the new rule. However, some government officials believe that the commerce department should make some amendments to the rule or temporarily.

On the other hand, the semiconductor industry has opposed this rule or at least to have a formal comment period before it goes into effect.