House C’tee’s ‘Don’t Buy From Huawei’ Report May Fall on Deaf Ears

The U.S. House Intelligence Committee is warning American companies not to purchase equipment from Chinese manufacturers ZTE or Huawei.

It has published a report stating that these two major Chinese telecommunications firms could constitute a national security risk.

The report was authored by Rep. Mike Rogers, R-Mich., the chairman of the committee, and Rep. Charles Albert “Dutch” Ruppersberger, D-Md., ranking member. The two have also authored the Cyber Intelligence Sharing and Protection Act of 2011, which has been strongly criticized for being too broad.

What the Report Says

Against a backdrop of fears of the threat posed to U.S. national security by vulnerabilities in the telecommunications supply chain and fears that China has the means, opportunity and motive to use telecommunications companies for malicious purposes, the Committee found that neither Huawei nor ZTE fully cooperated with its investigation into them.

Both companies were unwilling to explain their relationships with the Chinese government or Chinese Communist Party, and neither provided clear and complete information on their corporate structures and decision making processes.

Huawei didn’t provide detailed answers to questions about its alleged ties to the Chinese military, the report said. Further, it didn’t provide information about its investigation for tax fraud in 1999 by Beijing. Huawei also exhibits a pattern of disregard for the intellectual property rights of other entities and companies in the U.S., and there’s evidence of a pattern and practice of potentially illegal behavior by its officials.

ZTE failed to provide any answers or evidence about its compliance with intellectual property or U.S. export-control laws, the report said.

Some Steps Suggested

The report recommends that the U.S. block mergers, acquisitions or takeovers involving Huawei and ZTE.

U.S. government systems, particularly sensitive systems, shouldn’t include equipment or component parts from Huawei or ZTE, and government contractors should exclude equipment from these companies in their systems, the report said.

The report also strongly encouraged the U.S. private sector to stop purchasing from ZTE or Huawei.

Looking at the Committee’s Stance

“This reminds me very much of the 3-letter agencies in this country having said they won’t use Lenovo laptops anymore,” Darren Hayes, the CIS Program Chair at Pace University, told the E-Commerce Times. “With mobile devices there’s always going to be areas of memory that a forensic examiner can’t access, whether it’s a ROM chip or any other kind of memory, and one of the issues for intelligence here is, we don’t have access to all the memory on these devices and don’t know what they can do.”

“There’s been a concern for some time that the Chinese government is directly involved in these companies, being one of, if not the major, investor,” Rob Enderle, principal analyst. The Enderle Group, told the E-Commerce Times. “They may have a lot of weight in policy decisions, like the U.S. government does with GM, but the difference is, this is computer equipment and, if you can embed stuff in hardware, you can create a rootkit that’s incredibly difficult to discover.”

The Possible Result

It’s likely that large companies, particularly those doing business with the U.S. government, will adhere to the committee’s recommendations because “they’re risk averse, and if you buy from these two companies and it’s proven they were committing fraud, things will go south very quickly,” Enderle remarked.

“Unless they’re a government contractor, [the recommendations are] going to be a hard sell,” Pace University’s Hayes stated. Private companies “will go for the cheapest model or cheapest materials in any case.”

Whether adhering to the report’s recommendations will spark a new trade dispute between the U.S. and China, which is being counted on to lead the global economy out of recession, remains to be seen.

“This is a big threat to these companies’ business here in the U.S., and there may be some kind of retribution in terms of a trade dispute,” Hayes opined.

However, “if [the Committee is] making such a statement, it’s likely they’ll find something and … I think the U.S. is betting China’s going to roll on this,” Enderle suggested.