Huawei Blacklist: Can it Survive? (Part1)

By Charles F. Moreira, Editor

On 15 May 2019, President Trump signed – Executive Order on Securing the Information and Communications Technology and Services Supply Chain.

In it, Trump alleged that :- “Foreign adversaries are increasingly creating and exploiting vulnerabilities in information and communications technology and services, which store and communicate vast amounts of sensitive information, facilitate the digital economy, and support critical infrastructure and vital emergency services, in order to commit malicious cyber-enabled actions, including economic and industrial espionage against the United States and its people.”

Also, that “The unrestricted acquisition or use in the United States of information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries augments the ability of foreign adversaries to create and exploit vulnerabilities in information and communications technology or services, with potentially catastrophic effects, and thereby constitutes an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.”

Based upon that, Trump declared a national emergency and issued the order to deal with these supposed threats.

Section 1 of the order states that any acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service (transaction) by any person, or with respect to any property, subject to the jurisdiction of the United States, where the transaction involves any property in which any foreign country or a national thereof has any interest (including through an interest in a contract for the provision of the technology or service), where the transaction was initiated, is pending, or will be completed after the date of this order, and where heads of relevant U.S. government agencies, incluidng the Director of National Intelligence have determined that:-

(i)   The transaction involves information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary; and

(ii)  The transaction:

(A)  poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of information and communications technology or services in the United States;

(B)  poses an undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the digital economy of the United States; or

(C)  otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.

The U.S. Department of Commerce followed up on the order and blacklisted China-based telecommunications giant Huawei and 70 of its affiliates. Thus U.S. based corporations are prohibited from selling or transferring technology to Huawei without a license from the the Bureau of Industry and Security (BIS). However, there is a 90-day grace period for Huawei to continue doing business with U.S. firms.

Whilst this is not the first time that the U.S. has blacklisted a Chinese telecommunications company, since ZTE was blacklisted last year and ZTE closed its operations for four months after which it reopened business after a loss of US$1 billion, which raises the question as how well Huawei will survive this ordeal.

Already, Huawei has begun to be adversely affected by this blacklist. Google was the first to comply with the order on 20 May 2019, when it suspended the the transfer of hardware, software and technical services to Huawei. Thus, immediately loses access to Google’s Android device operating system on its smartphones and tablets, whilst popular Google services, including the Google Play Store, Gmail and YouTube apps will not be available on its future phone models, though Google Play and security protections from Google Play Protect will continue to be available on its existing phone models.

According to Google, there are 2.5 billion Android devices worldwide, though since access to most Google products are already banned in China, this blacklist is not expected to affect Huawei’s domestic market. However, there’s more to smartphones than Android and apps and besides Google, other corporations in the U.S. and in other countries have witheld suspended doing business with Huawei as well.

For instance U.S.-based chipmakers Intel, Qualcomm, Xilinx & Broadcom had reportedly told their employees that no new deliveries would be made to Huawei “until further notice”. Lumentum Holdings, announced plans to suspend its supply of components to Huawei which contributes 18% to its revenue.

There have been mixed signals from Japan-based giant Panasonic which said it would would stop supplying some components to Huawei but later said it was scrutinising whether its products break U.S. restrictions on trading with Huawei.

U.S.-based software giant Miсrosoft, removed Huawei’s products from its retail stores as well as its Azure Stack on-premises clound-based services. Microsoft may also sever its time with Huawei in consumer electronics and B2B decisions. The U.K. telecom group Vodafone announced that it would suspend pre-orders of Huawei 5G handsets due to an alleged security controversy involving Huawei. This move comes shortly after EE, a British mobile network operator and internet service provider said it had suspended launch of Huawei’s 5G phones.

Japan-based mobile operators SoftBank and KDDI said they would postpone sales of new Huawei smartphones, whilst Japan-based telecommunications giant NTT, said it would stop taking orders for the new Huawei handsets. Amazon Japan, the Japan-based subsidiary of U.S. e-commerce giant Amazon suspended online sales of Huawei products, though it will continue to allow third-party vendors to sell Huawei’s smartphones, tablets and PCs through its site.

U.K.-based chip designer ARM told its staff to suspend “all active contracts, support entitlements, and any pending engagements” with Huawei.

Not just phones

However, Huawei is a lot more that Android smartphones, tablets and PCs, it’s also a major supplier of telecommunications and networking infrastructure equipment and therecent U.S. blacklist could also impact its sales of telecoms and networking infrastructure not only in the U.S. but also in other countries.

For instance, in 2012, alleging “security concerns” and that Huawei “enaged in cyber-warfare”, Australia banned Huawei from supplying equipment for that country’s National Broadband Network.

The U.S. House of Representatives warned of threats of “potential state influence” by Huawei and advised business owners not to use Huawei products, though according to You Tube commentator Nathan Rich who had read their 60-page report following 11 months of investigation, the report appeared to have been written by people who did not understand corporate relations with the China government which are not western style – i.e. basically that the conclusions in the report have no merit.

In 2012, the White House completed and 18-month review of Huawei and concluded that there was no evidence of spying by the company. In 2013, Japan’s SoftBank acquired 70% in U.S. telecom giant Sprint and promised not to use Huawei technology.

In 2015, the U.K.’s Intelligence and Securty Committee finished reviewing all of Huawei’s source code and  concluded that – “There is no evidence that Huawei has presented any risk to the U.K’s national security”. In 2018, the U.S. government essentially blocked a deal between Huawei and AT&T, again citing “security reasons”.

And, on the handset security side, in 2016 Huawei was ranked “remarkably well”, with 77% of its phones running the most recent patches compared to 15% for a major South Korean brand.

Despite all these allegations and fearmongering about Huawei, no one has presented clear evidence of spying, hacking or threats to security by Huawei. Huawei’s response to this was, “Our products and solutions are trusted in more than 170 countries and regions. In 30 years, not a single operator has experienced a security issue with our equipment. This includes U.S. operators”.

Then Australia outright banned Huawei and ZTE on the ground that companies that were likely to be subject to extra-judicial directions from a foreign government could present a security risk”.

Then Japan started to consider a ban and Canada followed suit but after Canada investigated Huawei, their intelligence head said that Canada’s anti cyber-warfare programme is good enough that Canada should be confident enough to accept Huawei’s technology and found no reason for a ban.

However that wasn’t good enough for the U.S. which warned Canada that despite its extensive anti cyber-warfare programme, they should ban Huawei anyway. Huawei responded by giving their source code to German security analysts for inspection but despite Huawie being open but the U.S. persisted and started to pressuring their their allies to ban Huawei from 5G networks and even considered giving money to countries which refuse to sign up with Huawei.

By now, with the lack of evidence to backup all these allegations, the public were beginning to not takethem seriously and Huawei’s chief financial officer Meng Wan Zhou was arrested in Canada for extradition to the U.S. on ground that Huawei had “violated U.S. sanctions agains Iran”, according to media headlines, when the claim was that Huawei has relationships with U.S. banks and Huawei has an “unofficial subsidiary” in Hong Kong which has done some business with Iran and therefore Huawei has violated the law., according to Bloomberg Technology. But what’s an “unofficial subsidiary”, it’s either a subsidiary or its not.

Then the German head of the Federal Office for Information Securitywho has access to all of Huawei’s code, declared that they have found no evidence of Huawei conducting espionage but in December 2018, the U.S. publicly considered a total ban on all American companies buying Huawei products.

Then the U.S. files 23 charges against Meng Wang Zhou and for some reason T-Mobile’s claim of IP infringement by Huawei despite the court having years earlier ruled against T-Mobile’s law suit against Huawei for allegedly stealing its intellectual property.

Huawei responded by publicly stating that anyone who is concerned is welcome to inspect its laboratories in China. Then Alex Louder, leader of the U.K.’s external intelligence agency M16 warns against a blanket ban on Huawei, as there is no evidence.

Then Eric Xu from Huawei publicly asks whether these parties making these allegations are really concerned about cyber-security and privacy of people of other nations or are there possibly other motives. Some people argue that they are trying to find leverage for U.S.-China trade negotiations, whilst others arguue that if Huawei equipment was used in those countries,U.S. agencies would find it harder to access information on those people or find it harder to intercept their mobile communications.

IT BYTES BACK Says: Despite the many allegegations against Huawei as being a “security threat”, despite there being no evidence, well so far, still Huawei not faces sanctions  by the U.S. governement, with U.S. and some non-U.S. corporations toeing the line and this can have serious repercussions on Huawei’s business.

In Part 2, we’ll look at ways how Huawei can overcome the limitations place upon it by these sanctions.