Should a Government Official Blacklist a Foreign Company?

October 11, 2012

A minor sideshow in the story about Huawei, ZTE and the U.S. House intelligence committee report concerns the comments made by chairman Mike Rogers on the 60 Minutes television program:

US companies should not do business with Huawei, the big Chinese telecommunications group, if they want to protect themselves and their country, the chairman of the US House intelligence committee has said.

“I would find another vendor if you care about your intellectual property, if you care about your consumers’ privacy, and if you care about the national security of the United States of America,” Mike Rogers said[.] (Financial Times)

I saw the segment in question prior to reading the report and was rather shocked by it. Even after reading the report, which recommends that Huawei and ZTE should not be allowed to participate in certain kinds of U.S. deals, I thought that Rogers went way too far.

What’s the problem? It’s one thing for the U.S. Congress to issue an opinion about these companies with respect to national security concerns. That has been the big hurdle for Huawei after all in making significant headway into the U.S. market, and that was (I thought) the whole point of the investigation.

But the scope of Rogers’ comments is much broader. He is not merely saying that the House committee recommends that Huawei should not be allowed to participate in certain deals because of national security risks, but rather that in his opinion, private companies should not do business with Huawei.

That’s a breathtaking statement, folks. The U.S. government does, on occasion, tell private companies not to do business with companies from certain countries, like Iran and North Korea. (ZTE is having some problems with this, by the way.) It also, on an ad hoc basis, will reject a specific deal because of national security concerns. The committee report goes even further, recommending that Huawei and ZTE should be barred from certain types of deals. Aside from these narrow exceptions, the U.S. government does not tell private companies who their business partners should be.

According to Rogers, U.S. companies should shun Huawei because of concerns about intellectual property, privacy and national security. He also appealed to their patriotism, which I personally find infantile, but I’ll leave that issue for another time.

Apparently this guy thinks he lives in a dictatorship. Perhaps being the chairman of a committee has gone to his head, and now he has delusions of grandeur. Governments telling companies who they can do business with — you know, that sounds a lot like China in the 1980s.

Let’s take a look at these three issues:

1. National security — Yes, the committee found an unacceptable risk in this area and made some recommendations accordingly. I honestly don’t know whether this binds U.S. companies from entering into certain relationships with Huawei, but I suspect that if anything, it simply is a series of suggestions that may/may not be taken up by other parts of the government in terms of enforcement (e.g., the Committee on Foreign Investment in the U.S. — aka CFIUS).

Even if the report was binding, what about a U.S. company that wished to do business with Huawei in the mobile phone (hardware) sector? Is that also forbidden? Is that really a national security issue?

2. Privacy — U.S. laws on data privacy are extremely liberal, so this has not exactly been a legislative priority in America. Nevertheless, why is it Mike Rogers’ business to warn private companies about how to best provide service for their customers? Talk about Big Government; this guy sure is a crappy Republican.

3. Intellectual property — The inclusion of IP here really pissed me off. I haven’t yet blogged about the IP section of the report (preview: there are problems), but what’s Rogers saying here, that Huawei has infringed upon the IP rights of others in the past? So what? I don’t think I’d be exaggerating if I said that every single one of the major telecom companies in the world today has had its share of IP problems.

Now, I’m sure that Rogers and critics of Huawei would argue that it has displayed some sort of pattern of IP infringement or perhaps shown a blatant disregard for third party IP. I have no idea if that’s true, but isn’t that something that private companies are well equipped to take into account for themselves when considering whether to do business with Huawei?

Surely Rogers isn’t suggesting that U.S. companies shouldn’t do business with any Chinese company that has been on the losing side of an IP case? For that matter, what about non-Chinese infringers? This just doesn’t make any sense.

My problem here is that Rogers isn’t just some private citizen lunatic flapping his lips like, say, Jack Welch. He is a member of he U.S. government, the chair of an important committee, and everyone is looking to him as an authority figure on this. To go off the reservation and talk trash in this manner is extraordinarily irresponsible.

5 thoughts on “Should a Government Official Blacklist a Foreign Company?

  1. Chris

    I’ve read all your posts on the subject and thank you for posting this. I’ve been doing business with both Huawei and ZTE for over 10 years in China and I will submit that the House’s ruling was totally political in nature. The bad news is the impact on American companies that do business with Huawai as the represent a huge customer in most IT segments. I can almost guarantee that existing relationships with American technology companies are being reviewed with the thought in mind of identifying 2nd source suppliers from non-American IT companies. Too bad.

    1. D

      “with the thought in mind of identifying 2nd source suppliers from non-American IT companies”

      Chinese companies will continue using American software/hardware if those products are truly the best in their segments. American companies allegedly give fewer bribes than the Europeans to Chinese tech procurement managers, so the Chinese companies would have been using 100% Euro goods already had not American goods in some areas been far superior.

      1. Chris

        You are indeed correct. IF the products are the best in their segment (typically American software product but not always), Huawei and ZTE will probably continue to maintain an existing relationships. “Bribes” aren’t the issue here at all.

  2. Hua Qiao

    While your logic does appeal to me, i still do not believe it is at all a fair playing field. There is no one that does business in China that would say that China’s market is as open to US companies as the US market is to Chinese companies. Also I think telecommunications firms are a little different than telling US companies don’t do business with a Chinese furniture maker or a cigarette lighter firm. And there was no intimidation factor in Rodger’s message such that US companies would fear the ire of the US government if they continue to do business with these companies. Reverse the situation and you know any statement by a standing committee member to Chinese companies would include such a threat. I have worked in an soe. Happens all the time.

    More troubling to me was the US decision on the Oregon wind farm. I cannot imagine what national security issue there is. If proximity is the issue, then they never should have allowed the facility to be built. If hitch hiker can pass by the base perimeter anyway and the wind farm is outside that boundary, i don’t get it.

    Here is what US companies should really be afraid of: look what happened to Japanese car sales as a result of the Diaoyutai spat. If i am an American company that is looking to China for my sales growth, i could see my sales plummet over some stupid little spat, say selling some outdated F16s to Taiwan or a dali Lama meeting. That is scary. Becoming dependent on a nation whose populace is herded by the propaganda machine is really firghtening.

    China has made efforts in the past both on the consumer side and the supplier side to try to achieve its political ends. Recall the carrefour boycott over the dali lama’s trip to France, the witholding of rare earth shipments to Japan over the Daioyu incident in 2010. Let’s also include the petulant no show of the Chinese banks and the pboc governor at the tokyo IMF/World Bank meetings. To me, this is the really unsettling factor.