A new U.S. law designed to keep Chinese telecommunications companies out of American networks is threatening to delay, disrupt, or kill vital U.S. military, diplomatic, and aid programs, particularly in Africa and Asia, where Chinese telecoms are the only game in town.
The law, which went into effect in August, is intended to purge Chinese telecommunications technology from the communications systems of U.S. agencies and contractors, a task that is particularly challenging in countries that rely almost entirely on Chinese tech. Supporters hope the legislation will gradually wean American agencies and businesses off of Chinese technology and open the market for U.S. and allied countries to compete with China.
But critics say it may have the opposite effect, undermining foreign assistance programs and hamstringing U.S. agencies and companies vying with China and other rivals for influence—providing a boost for China as it seeks to promote its major infrastructure and trade mission, known as the Belt and Road Initiative.
“The administration’s interpretation of the law unequivocally throws a wrench into the works. Without real changes or numerous waivers it is going to have a major impact, with ripple effects across U.S. foreign assistance,” said Noam Unger, the vice president for development policy, advocacy, and learning at InterAction, an alliance of U.S.-based international relief organizations. “If you are trying to compete with China, hobbling yourself in terms of your foreign assistance is not advisable.”
The dispute over Chinese telecom comes as the Trump Administration is pursuing an increasingly confrontational approach to Beijing, which the White House has blamed for unleashing the coronavirus on the world. The White House is preparing a large arms sale worth billions of dollars to Taiwan, the New York Times reported, and the Commerce Department announced the administration would ban all U.S. transactions with the Chinese social media apps, WeChat and TikTok.
The law grants the heads of U.S. agencies the authority to issue a one-time, temporary waiver, and it empowers the director of national intelligence to issue renewable waivers on national security grounds. The current head of national intelligence, John Ratcliffe, recently granted waivers to the U.S. Agency for International Development (USAID) and the Defense Department, conceding in both cases that U.S. national security would be best served by a reprieve. But those waivers are set to expire at the end of the month, and Ratcliffe is weighing whether to extend them.
When USAID appealed for a waiver this summer, it warned that the law would “cripple our ability to operate overseas” in the more than 100 nations where it operates. It claimed that nearly $1 billion in funding for U.S. relief, health, and development programs was at risk, including $15.1 million in assistance to victims of the massive Lebanon port explosion, $13 million to promote democracy and governance in Indonesia, and a $300 million program to treat people with HIV/AIDs in Uganda.
“While well intentioned, the law and the rule will put programs at risk of interruption, significant delay, or cessation,” according to a USAID white paper obtained by Foreign Policy. The requirements, the agency contended, could “hinder USAID’s ability to respond to humanitarian assistance and global emergencies.”
It is unclear whether the waivers have secured funding for those programs USAID claimed were under threat.
In response to questions about the law, Pooja Jhunjhunwala, the acting spokesperson for USAID, reiterated that “while we support the intent of the law to counter potentially non-secure telecommunications and video-surveillance services or equipment, and are fully committed to abiding by the statute and subsequent rules. we have encountered challenges in implementation and identified potential unintended consequences that could affect our foreign-assistance programs and overseas operations.”
“In light of these potential impacts,” she added in a statement emailed to FP, “we informed Congressional Committees of jurisdiction of our analyses and are working closely with the National Security Council, the U.S. Department of State, and the Office of the Director of National Intelligence (ODNI) to promote compliance and prevent adverse impacts.”
The legislation is aimed at insulating vital U.S. communications from Chinese tracking or surveillance. But the Defense Department and USAID have argued that the law would actually undermine their ability to operate in many parts of the world and threaten U.S. national security interests. USAID relies on banned Chinese telecoms for at least two-thirds of its global operations, especially in Africa, where strategic partners such as Egypt, Kenya, Sudan, and Tanzania would be particularly hard-hit.
“Ceasing those and other programs could harm the U.S.’s reputation as a reliable provider of assistance, leaving a vacuum for adversaries to fill and boosting the propaganda line of the People’s Republic of China’s (PRC) Belt and Road Initiative,” the USAID paper stated.
The new law, spearheaded by Republican Sens. Tom Cotton and Marco Rubio and Reps. Michael Conway and Liz Cheney, was passed two years ago as part of the defense authorization bill. It barred U.S. government agencies from buying or using telecommunications or services from five Chinese firms, including Huawei Technologies Company and ZTE Corporation, that are linked to the ruling Chinese Communist Party, citing concerns that they have been used for spying on Americans. It also bars U.S. agencies from contracting with any entity that uses “any equipment, system, or service” from those Chinese firms.
But those companies have already become deeply entrenched in the global economy, providing telecom services to critical U.S. allies from Egypt to Ethiopia to Turkey, not to mention many in Europe. U.S.-based federal contractors, relief agencies, and lawmakers have pressed Congress and the Trump administration to scale back the prohibitions, clarify a complex array of rules and regulations, and grant government agencies and contractors more time to figure out how to comply with the law, if that is even possible.
U.S. officials, industry groups, and relief organizations say the law is excessively sweeping, confusing to interpret, and will cost billions of dollars annually to implement at home and abroad. Complicating matters are new federal rules and regulations that include additional requirements.
The law, plus the new regulations, are “creating significant uncertainty and regulatory hurdles for American businesses across multiple sectors,” wrote Christopher Roberti, the U.S. Chamber of Commerce’s senior vice president for cyber, intelligence, and security, and Matthew Eggers, its vice president for cybersecurity policy, in a Sept. 14 letter to the top procurement official at the White House Office of Management and Budget, Michael Wooten. Roberti and Eggers proposed suspending implementation of the law until Aug. 13, 2021.
The law is likely to hit U.S. federal contractors hardest. A review by the Federal Communications Commission found that it could cost contractors up to $1.8 billion to remove and replace Huawei and ZTE equipment in U.S. networks at home and abroad. And the FCC estimated that the overall cost of compliance for companies in the United States and overseas could reach $12 billion the first year and $2.4 billion each year thereafter.
Roberti and Egger warned that the figure would likely be higher.
“Industry groups need more time to review and comply with the rule. It can take businesses several months to work with their suppliers to rip and replace equipment or services—and at great cost,” they wrote. “American business could soon face unrealistic compliance burdens, undermining their ability to successfully compete against foreign companies and/or pushing them to choose between doing business abroad and doing business with the U.S. government.”
The problem is that huge chunks of the developing world have turned to Chinese telecoms, especially Huawei and ZTE, to build out their new telecommunications networks. During the coronavirus pandemic, the two Chinese companies have expanded their penetration of international markets, accounting for nearly half of all international sales equipment in the first quarter of 2020. As of last summer, Huawei was the world’s largest producer of telecom equipment, with 28.1 percent of the global market and operations in more than 170 countries.
“There are still locations in the U.S. and in many countries where no alternatives exist to the use of prohibited products and services,” said David Berteau, the president and CEO of the Professional Services Council, an industry advocate. “For example, Egypt plays a crucial role in U.S. national security and foreign policy, especially with regard to the Mideast peace process and the Suez Canal,” he said, noting that Egypt signed big contracts with both Huawei and ZTE in 2019 and 2020.
“The current infrastructure of fifth generation (5G) networks provided by these same companies throughout Africa will likely create a whole swath of the continent, and much of Asia, where U.S. agencies and their implementing partners will be, by statute, unable to certify compliance” with the new law, he added.
This story has been updated to include an official response from USAID.
