Breton’s Push to Restrict Huawei and Chinese Companies Jeopardizes Global Cooperation in Tech

On June 15,  European Commission published a progress report on the implementation of the EU Toolbox on 5G cybersecurity, which was agreed in 2020 in an effort to curb the use of HRV, or “High Risk Vendors” due to national security concerns. The latest progress report claims that Huawei and ZTE represent “materially higher risks than other 5G suppliers”, and urges member states to take actions to follow the recommendation of restricting or excluding these companies from their 5G networks. However, as there is no mandatory ban yet, network operators in Europe are currently still free to continue using components from Huawei or ZTE for their 5G network expansion.

This controversial statement has rekindled debates over the rationale and technical validity underpinning these accusations. Beyond their lack of substantive evidence, such accusations may divert attention away from the real risk at hand: the underdeveloped state of the EU’s own 5G infrastructure.

As broader sanctions reverberate across the global trade landscape, the adverse effects on the economy and the stifling of the global innovation scene become increasingly evident. At its core, addressing the challenges of technological decoupling demands global cooperation, as the consequences of barriers will impact all stakeholders involved.

Cybersecurity risk: real or perceived?

While Huawei has emerged as a major player in the global tech industry and provider of arguably the world’s most advanced components for 5G network construction, since 2019, the company had been troubled by controversy as the United States accuses the company of being a national security threat.

Given the current economic and political climate, the allegations leveled against Huawei are enmeshed in a multifaceted web of technological advancements, geopolitical dynamics, global trade considerations, and intricate legal frameworks.

Against this backdrop, it is crucial to approach the situation with a discerning mindset, recognizing the real risks and opportunities at hand.

“The term risk is politically constructed”, said Boy Lüthje, Senior Research Fellow at the Frankfurt Institute of Social Research. “When we talk about risk, we have to ask, what is the real risk for the European telecommunication sector? And I would say the biggest risk here, especially in the field of 5G, has been the permanent under-investment by European telecommunications operators, governments and related industrial actors into the expansion of the infrastructure”, Lüthje argued, expressly pointing out that this risk of under-development can only be addressed in cooperation with Chinese suppliers and technology vendors rather than by declaring them “high risk”.

As Brussels urges member states to exclude Chinese vendors from their 5G networks, industrial players voice their concerns. They consider such a geopolitical move unhealty and fear it will jeopardize global cooperation underpinning innovation in the industry.

At a conference organized by the Federation of German Industries, Deutsche Telekom CEO Timotheus Höttges said that he would continue defying the EU unless forced to remove Huawei from their 5G network by Germany’s government. “I believe that it is not a wise recommendation because we should manage the interdependencies of industries,” implying that completely removing Huawei from 5G networks could have far-reaching consequences that may disrupt the existing interdependencies and relationships between different sectors and businesses.

“European companies want to have cooperation with Chinese vendors, but the European Commission doesn’t allow it for geopolitical reasons, that is pretty much the situation now”, said Boy Lüthje in a telephone interview with Pandaily.

“Walls of protection, but prisons too.”

What does the EU’s move on Huawei mean then, for EU, for the company, and the global innovation scene in general? And how might this affect ordinary citizens in their day-to-day life?

For EU, excluding Huawei from its 5G networks will have economic consequences. This is primarily due to the immense importance of 5G networks and Huawei’s position as a leading provider in this field.

5G network – even 6G network – is important because it offers faster data transfer speeds, ultra-low latency, higher network capacity, and the ability to connect a massive number of devices simultaneously. These features have the potential to transform industries like manufacturing, transportation, entertainment, and so on. In fact, its revolutionary potential has already been realised in China, if you think about the rapid growth of China’s EV sector, the full-fledging digital economy, and the development of IoT (Internet of Things) in recent years.

At the moment, Huawei is arguably the most advanced player in the field of 5G technology. In a report released by consulting company GlobalData in 2022, Huawei’s 5G portfolio holds the strongest position in the world, with leading performance in all four criteria categories. It is the company’s fourth time in a row to take the No.1 seat, and the score gap between Huawei and No.2 is up to 2.3 times that of 2021.

Therefore, in practice, the absence of Huawei’s involvement in the development of 5G networks in the EU would mean higher costs and potentially delayed progress of 5G networks across the region. Such a delay can have far-reaching economic implications for various entities. For member states, it could hamper their ability to leverage 5G networks for enhanced public services and infrastructure. Corporations may face challenges in adopting advanced technologies and competing on a global scale. And individual citizens may experience limited access to the benefits provided by 5G technology, ranging from improved internet connectivity to the advancement of smart cities and Internet of Things applications. Such imperativeness is also clear from the UK’s official statement in 2020 about its decision to involve Huawei in its 5G networks, which emphasises the aim of securing future economic competitiveness through a rapid transition to 5G.

From an innovation perspective, the technology decoupling we are observing now will lead to negative consequences not only for specific companies, states or industries, but for the global innovation scene too.

In a telephone interview with Pandaily, Kimani Goddard, PhD Fellow at Maastricht University and non-resident Fellow at the World Trade Institute, Bern, explained this chain of effect under the lens of intellectual property. “You may see a decrease in patenting in certain strategic areas like information technology, and an increased reliance on trade secrets, which obviously leads to less information about new innovations that are taking place. It also leads to overall less innovation because forward advancement in innovation relies on inventors sharing or disclosing their invention and other inventors practicing that invention, and adding to that knowledge. So, if knowledge is not shared, you can’t have that feedback loop that leads to more innovation.”

From a business point of view, further decoupling among leading economies in the world, such as Europe, the US and China, could pose significant problems for supply chains, hindering the efficient flow of goods, services, and information. As a result, industrial players will likely experience restricted access to essential technologies. For instance, companies that heavily rely on technology components or software from other nations might face disruptions in their production and operations.

The consequences would extend beyond business operations. The decoupling of technology could have profound effects on trade and investment. By impeding the smooth exchange of data and digital services, it could hinder international trade in sectors such as e-commerce, obstructing cross-border collaboration in emerging fields like artificial intelligence and biotechnology, limiting scientific advancements and breakthroughs.

“I think we can see from history that tariffs or other kinds of barriers might look like walls of protection, but they can wind up being prisons. That’s true for China too. It’s true for any country”, says John D. Van Fleet, adjunct faculty at the Antai College of Economics & Management, Shanghai Jiao Tong University, and a long-time researcher of China’s socioeconomic development.

Without doubt, as the US-China trade war enters its fifth year, the EU’s protectionist approach will put Huawei in an even harder situation. “It should plan for continued difficulty in dealing with the developed economies”, said Van Fleet, “the kinds of trade tensions and rivalries that we’re seeing don’t seem likely to go away anytime soon.”

But it may slow down, according to Dr. Kimani Goddard, on conditions that various stakeholders are willing to cooperate.

“Over the last 25 years, you have seen technology convergence, cooperation and collaboration among economies on an unprecedented level. And that has led to actually a lot of economic gains around the world, from the least developed country to the most developed country. Most countries around the world have got used to that sort of collaboration, that ease of doing business, that ease of investment and the economic gains that come along with that.” She further contends that while there may not be a solution as of now considering the increasing tensions among states, but dialogue will be opened when countries start experiencing economic contraction, investment reductions and difficulties in trading and investing. “Once economic difficulties get to a point where it’s difficult for countries to operate, economic difficulties often bring partners to the table.”