Johnson Walks Huawei Tightrope as U.K. Sets Up Clash With Trump

NEW YORK (Capital Markets in Africa) – It’s the kind of balancing act Britain may have to get used to as the country forges its way in the world after leaving the European Union.

Three days before Brexit becomes reality after years of infighting, the government in London is trying to reconcile an increasingly truculent U.S. with the demands of the domestic market in the debate over whether Huawei Technologies Co. should be involved in upgrading telecom networks. The U.S. has campaigned for a ban on the Chinese giant citing security concerns.

On Tuesday, Prime Minister Boris Johnson’s government is set to allow the company to build fifth-generation wireless networks. Huawei is certain to be banned from core parts of the network after Digital and Culture Secretary Nicky Morgan earlier this month vowed to keep the company out of “critical national infrastructure.” The U.K. could also impose stricter rules to limit telecom companies’ reliance on any one vendor to curb Huawei’s market influence.

While the decision will end months of political wrangling, it remains fraught with peril for Johnson as he prepares to end 47 years of EU membership for the U.K. A key pillar of his vision for a future outside the world’s richest single market is a trade deal with the U.S. and the Huawei license risks setting up a clash with President Donald Trump.

Johnson discussed Huawei in a phone call with Trump on Friday, though his remarks on Monday suggested he wasn’t swayed by the push for a total ban. The prime minister said the U.K. could have the best of both worlds: retaining access to the best technology while protecting the data of consumers. British security services deem the risks manageable.

“We are going to come up with a solution that enables us to achieve both those objectives and that’s the way forward,” Johnson said. “There’s no reason why we shouldn’t have technological progress here in the U.K. but also protect our security interests and protect our key partnerships with other security powers around the world.”

Data Sovereignty
Under the decision, due to be announced after a meeting of the National Security Council, British phone carriers like BT Group Plc are likely to be permitted to buy antennas for 5G networks from the Shenzhen-based vendor.

That would also appease the Chinese side. The equipment that Huawei would be allowed to supply is the most lucrative part of the 5G roll-out. It would also mean the U.K. can avoid delaying the advent of ultra-fast internet that Johnson pledged in last month’s general election.

Huawei has been a key supplier to the U.K. and many other European phone networks for over a decade. The decision by Johnson will be closely watched particularly in Germany and Scandinavia where governments are also weighing the pros and cons of giving the green light to the company.

In fact, many European nations and Canada are leaning in the same direction as the U.K. The EU will publish its own guidelines on Wednesday which gives leeway to member states to restrict or ban Huawei without forcing them to do so. According to a draft of the document seen by Bloomberg, countries should consider banning suppliers based in countries with insufficient “democratic checks and balances” from core 5G components.

What that indicates is that despite intense U.S. lobbying, China has been effective in exercising its own leverage. It is the EU’s second-biggest trading partner and had threatened countries with retaliation if a ban is imposed.

For the U.K. timing of its announcement is particularly sensitive because U.S. Secretary of State Michael Pompeo is due to visit later this week. On Sunday, he re-tweeted an op-ed on Huawei by Tom Tugendhat, an influential Conservative backbench Member of Parliament who opposes the Chinese company’s involvement in British networks.

“The U.K. has a momentous decision ahead on 5G,” Pompeo tweeted. “British MP Tom Tugendhat gets it right: ‘The truth is that only nations able to protect their data will be sovereign.’”

Brexit Dividend
The U.K. is due to leave the EU on Friday and securing a trade deal with the U.S. has been hailed by Johnson as one of the great prizes of Brexit. But there’s friction on several fronts between the two long-time allies. They’ve also clashed over British plans for a digital tax on U.S. technology giants and the U.S. refusal to extradite the wife of an American diplomat over her involvement in a fatal car crash in the U.K.

As well as trade, there’s also the issue of sharing intelligence. American officials have said they may be wary of doing so with countries that use Huawei’s equipment because the kit may be used to facilitate Chinese espionage. They argue 5G technology, which will enable automated cities, vehicles and factories, creates new vulnerabilities and the safest route is to ban the Chinese supplier completely.

Huawei has always denied it poses a security risk. Yet within the “Five Eyes” intelligence-sharing partnership, the U.S., Australia and New Zealand have effectively banned Huawei, while Canada has yet to make a decision.

Tugendhat, the British lawmaker, led domestic calls for the U.K. to shun Huawei after posing an “urgent question” to Digital Minister Matt Warman on Monday. “Any decision that is made will nest a dragon into our critical national infrastructure or not,” Tugendhat told the House of Commons. “This is a decision that we will live with for the next 10, 15 or 20 years.”

He was backed by other members of Johnson’s Conservatives. Former party leader Iain Duncan Smith, a prominent Brexit supporter, said the U.K. was in a cyberwar with China and urging ministers to “reject Huawei immediately.”

No Alternative
Huawei has roughly a third of the U.K. telecom equipment market. Across Europe, its key competitors are Ericsson AB and Nokia Oyj. Johnson suggested earlier this month that the U.S. had failed to indicate a credible alternative supplier that would allow Britain to access “the best possible technology.”

Warman on Monday was keen to show that the government wants to reduce Britain’s reliance on the Chinese company. “There are alternatives to Huawei, and we would, of course, seek to use them as much as possible,” he told parliament.

Under Johnson’s predecessor, Theresa May, the National Security Council had concluded Huawei could be allowed to operate in parts of the nation’s network. The finding was leaked in April, and an inquiry into the breach ended in the sacking of a cabinet minister.

That, along with a 2019 Conservative leadership contest after May resigned, last month’s election and the endless pressure of Brexit negotiations, delayed the final decision. The consequences may yet still play out.

Source: Bloomberg Business News