Trump administration moves against Chinese telecom firms citing national security

U.S. President Donald Trump addresses the daily coronavirus task force briefing at the White House in Washington, U.S., April 8, 2020. REUTERS/Kevin Lamarque

WASHINGTON – The Trump administration is moving aggressively on national security grounds against Chinese telecom firms, with key agencies this week recommending that a subsidiary of China’s largest landline provider have its U.S. license revoked.

The advice to pull a license from China Telecom Americas was prompted by long-standing concerns that the firm, whose parent company is state-owned, poses unacceptable risks of Chinese espionage and disruption of U.S. networks, U.S. officials said.

The action comes on the heels of advice by the same agencies to deny Google permission to run a high-speed Internet cable to Hong Kong. And it follows the Federal Communications Commission’s barring last year of state-owned China Mobile from operating in the United States, as well as the Commerce Department’s blacklisting of Huawei Technologies, discouraging U.S. companies from doing business with the telecom equipment-maker.

These steps represent a ratcheting up of pressure on Beijing by an administration increasingly unwilling to abide any threat to the integrity of the nation’s telecommunications network and what it sees as a massive theft of America’s advanced technologies in a bid to dominate the world economy.

“To have a telecommunications company that is ultimately subject to the direction or control of an adversary power isn’t a safe situation – it’s not in the interests of national security,” Adam S. Hickey, deputy assistant attorney general in the Justice Department’s national security division, said in an interview.

At the same time, such moves are raising concerns among some in industry and academia about the risks to American companies as the world’s two largest economies struggle to regain their footing in the midst of a global pandemic.

“Every time the United States invokes its discretionary power to block entry and operation by foreign telecom carriers, it sets a precedent for nationalists in other countries who want to block entry to networks operated by U.S. companies, including the fiber optic networks that fuel American technology giants like Google,” said Peter Cowhey, a former FCC chief of the international bureau who is now a professor at the University of California at San Diego. “An ounce of prudence in regulation can discourage a pound of pain in protectionist regulations around the world.”

Zhao Lijian, a spokesman for China’s Foreign Ministry, told reporters at a news conference in Beijing on Friday that the government is “firmly opposed” to having China Telecom’s license pulled. “The Chinese government asks Chinese enterprises to abide by local laws and regulations and follow market principles when carrying out economic cooperation,” Zhao said. He urged Washington to “stop abusing the concept of national security and politicizing economic issues, and stop wantonly oppressing Chinese companies.”

In a statement to The Washington Post, China Telecom Americas spokesman Ge Yu said: “CTA looks forward to responding to the allegations in detail. The company has been extremely cooperative and transparent with regulators. In many instances, we have gone beyond what has been requested to demonstrate how our business operates and serves our customers following the highest international standards.”

The momentum against China is bipartisan. Senate Minority Leader Charles Schumer, D-N.Y., in September joined Sen. Tom Cotton, R-Ark., in urging the FCC to review China Telecom’s license and if necessary revoke it.

Sen. Mark Warner, D-Va., a former wireless industry venture capitalist who once held the view that engagement with a rising China would bring mutual benefit, said he is now persuaded otherwise. “It is time to wake up to the fact that Beijing is pursuing a strategy to not only strengthen China, but also to explicitly diminish U.S. power and influence globally,” Warner said in a speech in the fall at the U.S. Institute of Peace.

Warner, vice chairman of the Senate Intelligence Committee, helped write legislation banning the use of Huawei and ZTE, another Chinese telecom equipment-maker, in U.S. government systems.

Thursday’s recommendation to the FCC on China Telecom’s license came from an ad hoc group of agencies, led by the Justice Department and informally dubbed Team Telecom, which reviews foreign telecom licenses for national security and law enforcement risks. The China Telecom advice marked the first time the group has urged that an existing license be pulled on national security grounds.

The firm misled the U.S. government about where it was storing U.S. records, a violation of assurances it had made to obtain the license, the agencies said in a filing to the FCC.

The recommendation would apply to China Telecom’s services regulated by the FCC: “international basic switched data, private line, data, television and business services,” according to the filing. The company would be permitted to run its data centers and cloud services, which are not regulated by the FCC.

Still, the move “is a pretty big deal,” Richard Sofield, who ran Team Telecom for 10 years as an attorney in the Justice Department’s national security division. “China Telecom’s been active for over a decade in the United States,” said Sofield, now a partner at Wiley Rein, noting the license was granted in 2007. “The government has had increasing concerns regarding the company’s capability to intercept communications and access customer data here and their ability to evade lawful surveillance by U.S. authorities.”

According to the filing, China Telecom targets its cellphone service to more than 4 million Chinese Americans, 2 million Chinese tourists visiting the United States annually, 300,000 Chinese students at U.S. colleges and more than 1,500 Chinese businesses in the United States. Moreover, the FBI is disadvantaged in wiretapping Chinese diplomats using the service because the bureau could not serve an order on the company for fear of tipping off the Chinese government, U.S. officials said.

Team Telecom, which includes Pentagon and Department of Homeland Security officials, last week was given an official status and name through an order issued by Trump, creating the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector. That gives its recommendations more legal heft.

Industry officials are already fretting about the potential for retaliation. “The concern we would have is you’re taking a shot at the Chinese,” said one telecom industry official, who spoke on the condition of anonymity to be candid. “They’re going to shoot back. What are they going to do to us?”

The administration is also drafting a rule targeting a major Chinese tech firm’s ability to make semiconductor chips, part of its broader effort to slow Huawei Technology’s drive to dominate the emerging high-speed wireless 5G market.

At a White House meeting called by Treasury Secretary Steven Mnuchin on Tuesday, Trump raised no objections to proceeding with the rule, though its timing remains uncertain, according to several individuals familiar with the meeting who, like others, spoke on the condition of anonymity to discuss internal deliberations.

The “foreign direct product” rule, which is being written by the Commerce Department, would affect Huawei’s domestic chip design arm, a Shenzhen-based firm called HiSilicon, according to the individuals. The rule would bar any company from using American semiconductor technology to make chips for HiSilicon, a move that would substantially affect Huawei’s principal supplier in Taiwan

American companies could still sell semiconductor chips to Huawei, as long as they have a license from the Commerce Department and the activity does not pose a risk to national security.

Huawei U.S. spokesman Glenn Schloss said the potential restrictions would be bad not only for Huawei but for U.S. leadership in semiconductors and would pose long-term economic and supply chain consequences.

“There has been a warning that decoupling in this area will be a death knell for the U.S. industry similar to its networking equipment manufacturing sector,” said Schloss, noting that no American firms make the base stations and radio antennas that go into 5G networks. “Covid-19 is already devastating the U.S. economy and these restrictions would add more fuel to the fire.”

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