Huawei, ZTE to come Under the Sweeping Purview of the Commerce Department Secretary Wilbur Ross

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The U.S. Commerce Department is reportedly considering a proposal that would mandate a formal approval from the Commerce Secretary Wilbur Ross for all sensitive transactions that involve the import of foreign technology with an associated national security risk. According to the Financial Times, this plan is primarily intended to thwart the third-party infiltration risk that purportedly stems from Chinese-sourced equipment.

Although this outlined approach does not specifically mention ZTE (SHE:000063) or Huawei, the implications for these two tech giants are evident. As per reported details, Mr. Ross will be empowered to halt or revise any transaction that pertains to an exchange of sensitive hardware, software or data services between an American entity and one linked to a “foreign adversary”. Interestingly, the determination of who or what constitutes a foreign adversary will remain at the sole discretion of the Commerce Secretary.

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“These actions will safeguard the information and communications technology supply chain [and] demonstrate our commitment to securing the digital economy, while also delivering on President Trump’s commitment to our digital infrastructure,” said Wilbur Ross

For its part, the Commerce Department has elaborated that the Commerce Secretary will adopt a “case-by-case, fact-specific approach to determine which transactions must be prohibited, or which can be mitigated.”

Technical experts, American companies and other stakeholders now have 30 days to submit their take on the proposed changes to the Commerce Department which has yet to devise the implementation protocols for this plan.

Regardless of the apparent alacrity within the official quarters to implement this plan, several stakeholders have expressed reservations regarding the scale and magnitude of powers being vested in a single person.

The Financial Times quoted Kevin Wolf, a partner at the law firm Akin Gump, as saying: “This is kind of a new CFIUS, but one that is not about an investment in a US company, but any kind of technology transaction. This is creating a whole new bureaucracy and a whole new regulatory structure.”

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For more than a year now, Chinese tech companies have faced intense scrutiny in Washington amid widespread fears of Beijing’s stealth espionage though these entities (read our coverage here). In May, President Trump invoked the International Emergency Economic Powers Act which gives him the authority to regulate commerce in response to a threat to the United States. Additionally, through an executive order, Trump barred the use of federal grants for the purchase of telecommunications equipment from five Chinese entities that also included Huawei.

In an interesting development, the Commerce Department has been, of late, a focal point of intensive lobbying efforts by a number of American telecommunication firms in order to prevent a blanket ban on Huawei. In the same vein, several rural broadband providers have warned about extended delays and a rise in 5G deployment cost if Huawei equipment is barred. It seems that Mr. Ross has heeded those warnings by proposing to evaluate transactions on case-by-case basis.