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Concerns Raised Over Impact of U.S. Telecom Proposal on Mainland Chinese Firms

At a 15 April meeting of the World Trade Organisation Council for Trade in Goods in Geneva, the WTO representative from mainland China criticised a rule under consideration by the U.S. Federal Communications Commission that could especially affect mainland Chinese telecommunications firms Huawei and ZTE. The proposed FCC ruling would prohibit the use of over US$8.5 billion in annual funds from the FCC’s Universal Service Fund for the purchase of equipment or services from any supplier that “poses a national security threat to the integrity of U.S. communications networks or the communications supply chain.”

The USF was created in the 1990s to help provide telecom services to underserved or underprivileged areas where such coverage would otherwise be scarce. Press reports indicate that in some of these same areas smaller cell phone providers have purchased equipment from the two mainland Chinese firms. While the FCC rule would also potentially affect one Russian company (Kaspersky, which markets software rather than telecom equipment), it would mainly impact Huawei and ZTE. These two firms are among the few firms worldwide that are producing 5G equipment to implement the fifth generation of wireless technology. The proposed rule would apply to future USF-subsidised spending, including to upgrade current equipment.

When preliminary consideration of the rule was announced on 26 March 2018, FCC Chairman Ajit Pai declared that “hidden 'back doors' to our networks in routers, switches -- and virtually any other type of telecommunications equipment -- can provide an avenue for hostile governments to inject viruses, launch denial-of-service attacks, steal data, and more.” He added that while the FCC cannot safeguard the integrity of the U.S. communications supply chain all by itself, “we must and will play our part in a government- and industry-wide effort to protect the security of our networks.”

Upon formally announcing the proposed rule for comment on 17 April 2018, the FCC stated that “as the steward of the USF, the FCC has a responsibility to ensure that the money in the fund—which comes from fees paid by American consumers and businesses on their phone bills—is not spent on equipment or services from suppliers that raise national security concerns.” During the comment period in 2018, U.S. industry representatives expressed a variety of views about the appropriateness of the proposed action and the FCC has not yet adopted a final rule.

The WTO representative from mainland China noted these mixed industry comments in his own argument at the Geneva meeting. The WTO representative from the United States, meanwhile, responded that the rule was still pending while arguing that the proposal “deals exclusively with matters of national security” and is thus exempt from WTO jurisdiction.

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