The U.S. Commerce Department has withdrawn a rule aimed at further reducing sales to Chinese vendor Huawei Technologies amid concerns from the Defense Department the initiative would have a negative impact in U.S. companies, Reuters reported, citing people familiar with the matter.

The U.S. government plans a Cabinet-level meeting this week to discuss the rule, which could be revived, dismissed or rewritten, one of the sources said.

In May 2019, the U.S. Department of Commerce added Huawei to its Entity List, citing national security concerns. This decision effectively banned the company from buying parts and components from U.S. companies without U.S. government approval. Under the order, Huawei will need a U.S. government license to buy components from U.S. suppliers.

At that time, firms including Google, Intel, Qualcomm and Microm halted shipments due to the restrictions. Huawei relies heavily on computer chips imported from U.S. companies.

Under current rules, key foreign supply chains remain beyond the reach of U.S. regulations. With the new move, The Department of Commerce aimed to expand the scope of the restrictions.

However, U.S. firms believe that a new effort to enable the government to regulate more sales to Huawei to include low-tech items made overseas with very little U.S. technology could end up negatively impacting domestic companies while encouraging Huawei to source more goods abroad.

In November, Reuters had reported that the Commerce Department was considering broadening the De minimis Rule, which defines how much U.S. content in a foreign-made product gives the U.S. government authority to regulate an export.

Under current regulations, the U.S. government can require a license or block the export of many high-tech products shipped to China from other countries if U.S.-made components represent more than 25% of the total value of the good.

According to previous reports, the Commerce Department has drafted a rule that would lower the threshold only on exports to Huawei to 10%.

The Commerce Department has also reportedly drafted a regulation that would expand the Foreign Direct Product Rule, which subjects foreign-made goods that are based on U.S. technology or software to U.S. oversight. This would be broadened to include low-tech items made abroad that are based on U.S. technology and shipped to Huawei.

The draft rule had been sent to the Office of Management and Budget, where agencies, including the Department of Defense, were given until January 22 to submit comments. When the Pentagon expressed disagreement with the initiative, the Department of Commerce pulled it out of the review process in an unusual move, according to Reuters.

However, a group of lawmakers opposed the decision saying that the government should increase restrictions on Huawei sales.

Senators Tom Cotton, Ben Sasse and Marco Rubio, all Republicans on the Select Committee on Intelligence, wrote to Defense Secretary Mark Esper to demand a rationale for the department’s reported objections.

“Huawei is an arm of the Chinese Communist Party and should be treated as such. 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 Defense Department is not appropriately weighing the risks,” the lawmakers wrote in the letter.

Washington believes that the deployment of Huawei’s gear in 5G networks represents a threat for the national security as the government considers that the Chinese government could use Huawei’s equipment for spying purposes, something that has been repeatedly denied by the Chinese vendor.

The Trump administration has tried to convince Washington’s allies to ban the use of Huawei’s equipment in 5G network rollouts.


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