Supply Chain Issues Raised at Chamber Amidst Growing China Concerns

The Commerce Department Bureau of Industry and Security issued its notice adding Huawei and 68 of the Chinese telecomm equipment manufacturer’s affiliates to the entity list. Effective May 16, the notice imposes a license requirement on Huawei and its listed affiliates for all items subject to export administration regulations, with a license review policy of presumption of denial. No license exceptions will be allowed for the listed entities.

"We urge the United States to stop the wrong approach," a Chinese government spokesperson emailed. Huawei criticized the Commerce Department for adding it to the department’s so-called Entity List. “The decision is in no one’s interest," Huawei tweeted. “ It will do significant economic harm to the companies with which Huawei does business.”

The potential ban against Huawei points to broader supply chain concerns, said Christopher Boyer, AT&T assistant vice president-global public policy, on a 5G panel at the Chamber event. “The biggest issue that we have … is how do we incentivize a more diverse set of suppliers, particularly in the radio-access part of the network.” Carriers have to choose between Huawei, ZTE (also from China), Nokia, Samsung and Ericsson.

“If a few of the options are off the table for whatever reasons … that leaves us basically with three major suppliers,” Boyer said. “How do we ensure that we have a robust supply chain?”

“The essence of the executive order is that given the nature of the threat … we need to be prepared to use additional authorities to the [information and communications technology] supply chain,” said Robert Kolasky, director of the Department of Homeland Security's National Risk Management Center. There’s no “silver bullet solution” that will address all concerns, he said.

“I like that fact that we’re having this discussion now about 5G rather than seven years from now,” Kolasky said. The world will be better at a lot of things because of 5G “and that should include security,” he said.

BIS' ruling on Huawei said shipments aboard a carrier to a port of export or re-export as of May 16 may proceed to their destination under their previous eligibility for a license exception or no license required. The notice is scheduled for publication Tuesday.

Hill Reacts

Trump's EO and Commerce's action against Huawei drew support from senators in both parties, though some also criticized the Trump administration on its overall direction on 5G policy. Senate Commerce Committee Chairman Roger Wicker, R-Miss., said Wednesday he'd spoken to Secretary of Commerce Wilbur Ross to give his “full support” for placing Huawei on the BIS list. “This is a necessary step to prevent the use of communications equipment that poses a threat to the United States,” Wicker said.

Sen. Tom Cotton, R-Ark., a critic of Huawei and fellow Chinese telecom equipment manufacturer ZTE, said after the EO's release that both companies “effectively serve as an intelligence-gathering arm of the Chinese Communist Party, and the administration is right to restrict the use of their products. Chinese components remain a Trojan horse for telecommunications infrastructure around the globe.” When Commerce subsequently announced its Huawei decision, he simply tweeted its 5G program will now “RIP. Thanks for playing.”

Senate Intelligence Committee Vice Chairman Mark Warner, D-Va., called the EO a “needed step” that “reflects the reality that Huawei and ZTE represent a threat to the security of U.S. and allied communications networks.” Commerce will need to ensure it implements the order “in a fair and responsible fashion as to not harm or stifle legitimate business activities,” he said. Warner called out the Trump administration for not yet having a “compelling strategy” on 5G, “including how the Administration intends to work cooperatively with our allies and like-minded nations to ensure that international standards set for 5G reflect Western values and standards for security and privacy.” There's also no “stated plan for replacing this equipment from existing commercial networks -- a potentially multi-billion dollar effort that, if done ineptly, could have a major impact on broadband access in rural areas,” Warner said.

Sen. Chris Van Hollen, D-Md., questioned the EO's efficacy given Trump's past actions, including his instigation last year of a settlement that lifted Commerce's ban on U.S. companies selling telecom software and equipment to ZTE (see 1902210057). Van Hollen and others “raised the alarm” for months on the threat Huawei and ZTE pose “to American national security,” but the Trump administration's “loss of credibility with our European allies and others around the world has significantly hindered our efforts to present a united force against these companies,” Van Hollen said in a statement.

“I am deeply concerned about the challenges and potential risks posed by adversarial foreign actors and manufacturers seeking to influence or subvert American telecommunication systems,” Sen. Dan Sullivan R-Alaska, chairman of the Commerce Subcommittee on Security, said Thursday. “It’s important for the American people to understand this security threat affects both our larger national security interests as well as our everyday personal communication devices which, with 5G technology, will be of even greater importance to our daily lives in the coming years.”

5G, Concerns

USTelecom CEO Jonathan Spalter said his industry pays close attention to cybersecurity and such issues, in an interview (see 1905160077) to appear this weekend on C-SPAN's The Communicators and be posted here. "We've been taking those concerns very seriously."

Congress alerted industry in 2012 to issues with companies in China like Huawei and ZTE that could threaten U.S. networks, the telecom representative noted. The association's members "are taking those threats dead seriously," Spalter added. "We are working very closely with" DHS "and ensuring our supply chain can have risk management tools" to avoid being "an on-ramp to potential risks from certain companies that are domiciled in China," he continued. USTelecom chairs a task force on such issues, Spalter noted.

John Godfrey, senior vice president–public policy at Samsung Electronics America, said 5G will mean, in effect, carrying a fiber connection in your pocket. “That alone would be significant,” he said. “But it’s also putting the equivalent of fiber in your wristwatch, in your car, in every traffic light as you drive down the road.”

“We’re the only company in the world that can supply its own 5G chips, network equipment and devices from a secure, trusted supply chain,” Godfrey said. “Samsung is very excited about 5G. We’re committed to 5G.” Samsung sees 5G as the “most significant transformation in the history of mobile,” said Godfrey. It’s the “innovations on top of 5G” that will bring “the real economic value” of the platform to fruition, “easily in the trillions of dollars of economic opportunity worldwide,” he said.

Raymond James & Associates raised concerns about the latest U.S. actions in a report to investors. "The administration's actions likely invite retaliatory steps against U.S. companies operating in China, and further complicate the path to resolution of the trade dispute,” the firm said.