As we reported several weeks ago, the Biden administration is divided over whether to add Chinese smartphone maker Honor Device Co. Ltd. to an export blacklist on the basis of its past connections with Chinese tech company Huawei (the issue also came up at a recent Senate hearing). Now U.S. Senators Marco Rubio (R-FL), Rick Scott (R-FL), and John Cornyn (R-TX) are weighing in, with a letter urging Commerce Department Secretary Gina Raimondo to add Honor to the Department’s Entity List.
The letter begins by expressing concern regarding "the national security threat" posed by Honor, which the letter characterizes as "a smartphone producer and Huawei offshoot owned by a Chinese state-led consortium." By neglecting to add Honor to the Entity List, "the Biden Administration is allowing what amounts to an arm of the Chinese Communist Party (CCP) to exploit our technological sector."
According to the letter, after the Trump Administration placed Huawei on the Entity List in 2019, Huawei, in order to avoid export controls, "spun off its mid-range smartphone line, Honor, by selling it to the Shenzhen Zhixin New Information Technology Co., a company controlled by the municipal government of Shenzhen," with many former Huawei managers and employees moving to Honor.
By spinning off Honor, the letter says, "the CCP has so far guaranteed continued access to critical American technology required to ensure one of its companies can continue to produce smartphones – right as Huawei itself has otherwise begun to feel severe market consequences of a successful American export control regime leveled against it." The letter then states: "Through a state-administered transaction of Huawei assets to a Shenzhen government-owned firm, Beijing has effectively dodged a critical American export control." By failing to act in response, it says, "the Department of Commerce risks setting a dangerous precedent and communicating to adversaries that we lack the capacity or willpower to punish blatant financial engineering by an authoritarian regime." Honor provides a clear example of where the Biden Administration can "use the full range of tools we have … to defend American economic interests from harmful policies and practices," and the letter urges that "the Department of Commerce add Honor to its Entity List."
As we noted in our earlier piece, this case illustrates the difficulties in drawing lines related to national security. It is worth noting that Huawei has a leading role in telecommunications and 5G more broadly, while Honor focuses on producing smartphones. A number of Republicans are pushing the Biden administration to add Honor to the list, but the administration has not yet made a decision.
