December 16, 2019

Industry rejects statement of principles that could cut out Chinese companies

Kiran Stacey in Washington

US technology companies have rebuffed a Trump administration request that they pledge to stop sourcing supplies from some Chinese companies, amid concerns that such a policy could break competition laws.

The state department asked telecoms carriers and chipmakers to sign up to a set of principles which would have in effect shut out Huawei, and possibly others, according to three people briefed on the proposals.

The initiative, led by Keith Krach, under-secretary of state for economic growth, energy and the environment, and a former tech industry executive who oversees its Office of Global Partnerships, was aimed at securing support for what the department called a Global Digital Trust Standard.

One person who saw the plans said the principles included not buying from companies that were deemed to have broken sanctions, or whose domestic intelligence agencies could have accessed their data. “These were quite obviously aimed at Huawei,” the person said.

The same industry executive consulted on the plans said: “This was the latest attempt by the Trump administration to get us to shut out Huawei. But if we had come together to act against a global competitor like this, we would almost certainly have been sued.”

The Trump administration has already sanctioned Huawei, the Chinese telecoms equipment maker, taking steps to shut it out of the US 5G market and forcing its US suppliers to seek a licence before selling to the company. Officials in Washington argue the company poses a threat, saying its equipment could be used by Beijing for spying.

But Mr Krach has been exploring another way to target international technology companies deemed to pose a threat to the US. In the past few months he approached a group of 13 different companies and trade associations to ask them to sign up to the principles, including big telecoms carriers such as AT&T and Verizon and several large chipmakers.

Following discussions with the state department, industry representatives consulted lawyers, who told them that co-operating in such a way to shut out a global competitor could leave them open to being sued on antitrust grounds for acting as a cartel, and they backed out.

Mr Krach had organised a dinner last Friday to pursue the idea, but invitees were wary about the meeting and the event was postponed.

The state department said: “Working in conjunction with Secretary [of State Mike] Pompeo, under-secretary Krach has been engaging with leaders to leverage the innovation and resources of the private sector to advance global economic security and prosperity around the world.

“As part of that effort, he invited leaders from the business, education and social sectors to a gathering at the state department this month which was postponed due to scheduling conflicts until early 2020.”

Mr Krach, who has been under-secretary since June, was previously chairman of document signing software group DocuSign and describes himself on his website as a “transformational leader on a global scale”. The Office of Global Partnerships helps the private sector invest in fields which support the US government’s foreign policy goals.

The refusal of big American companies and industry groups to sign up to the administration’s latest initiative comes amid a wider pushback from the US business community against some of its tougher China policies.

Many companies are also concerned about a separate proposal by the commerce department that would give the commerce secretary the power to block imports of any sensitive technology from a country dubbed a “foreign adversary”.

Business leaders warn privately that such rules have been too widely drawn and could slow down large swaths of the global technology trade. “This is a huge power grab,” said one technology industry lobbyist.

The commerce department declined to comment.

Commerce has given companies until December 27 to submit their comments on the proposals. But in a sign of the unease they are causing among senior business leaders, a group of 27 industry groups has asked for that deadline to be extended by two months, citing the “complexity” of the planned rules.

Companies have been relieved, however, by one recent change made by the US government: to begin issuing licences for suppliers such as chipmakers to sell their equipment to Huawei.

With dozens of licences having now been issued, businesses say that chips that go into handsets are generally being approved, while those that go into network equipment are not.

https://www.ft.com/content/4b37c67a-1df1-11ea-9186-7348c2f183af