“Keep your friends close, but your enemies closer.”
I’ve written before on the threat from Chinese firms. Earlier this month, I laid out the case for why ZTE deserved the economic death penalty. Last month, I opined on the need for a people warfare strategy against China and how it bullies U.S. firms that want to do business in China.
One remedy I called for was reciprocity: Let’s make Chinese firms doing business in the United States follow the same rules that China imposes on us.
“If you want to invest in China, produce in China, sell in China, you will need a Chinese partner that will share ownership of your company. You will need to contribute technology, patents, licenses to that joint venture, which you will share. And you will do R&D together in which the Chinese company will gain a stake.”
It has never been a fair fight. I’m still against letting ZTE off the hook, but I’m not the president. You take the world as you find it, not as you wish it was. There are a lot of economic factors playing into the decision to lift the sanctions against ZTE. Congress is set to oppose the president.
Before taking a knee-jerk response, let’s see what the deal might actually get for the United States. It’s less about the money (a proposed $1.3 billion fine which Congress will waste in the first 30 seconds), and more about the access and oversight of a major national security threat to our nation.
In October 2012, the U.S. House of Representatives Permanent Select Committee on Intelligence released the “Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE.” It seems this provided the model for President Trump to use in corralling ZTE and its renegade behavior.
Five recommendations were made:
“Recommendation 1: The United States should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies.”
This was evident when the Pentagon finally announced a ban on the sale of Huawei and ZTE mobile phones on U.S. military bases. The cascading effect of this will be extremely difficult for ZTE to overcome with the American consumer.
“Recommendation 2: Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services. U.S. network providers and systems developers are strongly encouraged to seek other vendors for their projects. Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.”
Mission accomplished. In 2008, the Treasury Department, through its Committee on Foreign Investment, blocked the sale of 3com, an American company that makes anti-hacking computer software for the military, to Huawei on national security grounds.
In 2010, Sprint said security was the official reason it would not consider bids from Huawei and ZTE for the $7 billion upgrade of its network. Even though the report was issued in 2012, the issues from the blocked 2008 3com sale were well known.
In 2011, the U.S. Commerce Department announced Huawei “Will not be taking part in the building of America’s interoperable wireless emergency network for first responders due to U.S. government national security concerns.”
“Recommendation 3: Committees of jurisdiction within the U.S. Congress and enforcement agencies within the Executive Branch should investigate the unfair trade practices of the Chinese telecommunications sector, paying particular attention to China’s continued financial support for key companies.”
This is an ongoing effort. In April of this year, the Wall Street Journal reported that Huawei is also under investigation by the Justice Department for violating export sanctions to — you guessed it — Iran. This is another opportunity to reign in China’s telecommunications unfair trade practices.
“Recommendation 4: Chinese companies should quickly become more open and transparent, including listing on a western stock exchange with advanced transparency requirements, offering more consistent review by independent third-party evaluators of their financial information and cyber-security processes, complying with U.S. legal standards of information and evidentiary production, and obeying all intellectual-property laws and standards. Huawei, in particular, must become more transparent and responsive to U.S. legal obligations.”
President Trump has proposed replacing ZTE’s current management team, and hiring American compliance officers. While not enough, it is closer to this recommendation than anything that has been accomplished before. ZTE should be made to list on one of the U.S. stock exchanges and feel the weight of American bureaucracy. That’ll teach them.
“Recommendation 5: Committees of jurisdiction in the U.S. Congress should consider potential legislation to better address the risk posed by telecommunications companies with nation-state ties or otherwise not clearly trusted to build critical infrastructure. Such legislation could include increasing information sharing among private sector entities, and an expanded role for the (CFIUS) process to include purchasing agreements.”
Mission accomplished again. In November 2017, before ZTE was slapped with sanctions, legislation was introduced by a bipartisan group of House and Senate lawmakers. These identical bills would “broaden the authority of the (CFIUS), an interagency committee that reviews foreign investments in U.S. companies, to determine whether such investments pose a risk to national security. The proposed bill, called the Foreign Investment Risk Review Modernization Act (“FIRRMA”), would broaden CFIUS’s jurisdiction to include review of certain joint ventures and minority investments, and represents the most significant effort to revise the CFIUS process since the passage of the Foreign Investment and National Security Act of 2007.”
The only mistake President Trump made was in not going far enough. Require the same level of ownership in Chinese companies doing business in the U.S. as China dictates to American businesses. Make Huawei and ZTE register to be on the U.S. stock exchange. Let the SEC and IRS bring their regulatory magnifying glasses.
Let’s take the art of the deal and turn it into an offer China can’t refuse. That would make Don Corleone smile.
Morgan Wright is an expert on cybersecurity strategy, cyberterrorism, identity theft and privacy. Previously Morgan was a senior advisor in the U.S. State Department Antiterrorism Assistance Program and senior law enforcement advisor for the 2012 Republican National Convention. Follow him on Twitter @morganwright_us.