U.S. mulls changes to Foreign Direct Product Rule to cut off Huawei from global chip supply chain

According to two sources familiar with the matter at hand, the Trump administration is mulling options, which includes changing U.S. regulations to allow it to block shipments of chips to Huawei Technologies from companies such as Taiwan’s TSMC, the world’s largest contract chipmaker.

These are among the many proposal the U.S. Administration is looking at vis-a-vis Huawei which it will review at a high-level meetings later this week as well as the next.

While the chip proposal has been drafted, its approval is far from certain, said a source.

If the measure comes into force it would significantly affect the supply chains of Taiwain’s TSMC, a major chip producer for Huawei’s HiSilicon unit, as well as for Apple Inc and Qualcomm Inc.

“What they’re trying to do is make sure that no chips go to Huawei that they can possibly control,” said a second source.

China’s Huawei is at the heart of a battle for supremacy in tech dominance between the United States and China.

This measure is likely to bring about changes to the Foreign Direct Product Rule, which subjects some foreign-made goods based on U.S. technology or software to U.S. regulations.

Under the draft proposal, the U.S. government would force foreign companies that use U.S. chipmaking equipment to seek a U.S. license before supplying Huawei – a major expansion of export control authority that could anger U.S. allies worldwide.

The U.S. Commerce Department declined to comment.

Recently in a statement, a spokesman for the U.S. Commerce department had said, U.S. charges against Huawei, including conspiring to steal trade secrets, “reaffirm the need for caution in considering license applications. The U.S. continues to have major concerns about Huawei.”

Neither TSMC nor Huawei responded to requests for comments.

According to a 2019 report from China’s Everbright Securities, most chip manufacturers rely on equipment produced by U.S. companies including KLA, Applied Materials, and Lam Research.

“There is no production line in China that uses only equipment made in China, so it is very difficult to make any chipsets without U.S. equipment,” wrote Everbright.

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