White House drafts order that would ban Huawei from U.S.

Reporting from Washington —  The White House is preparing a sweeping executive order that could bar Chinese companies from selling equipment for use in future U.S. telecommunications networks, claiming Beijing could exploit the technology to carry out cyber intrusions and espionage.

The main target of the draft order, expected to be released in days, is Huawei, the world’s largest telecommunications equipment manufacturer. The order would not affect U.S. consumer electronics companies whose products incorporate components from China.

Huawei’s attempts to penetrate the U.S. market have alarmed intelligence agencies for years.

The order is certain to further inflame tensions with Beijing as the Trump administration seeks to conclude a trade deal with China. U.S. officials insist the proposed executive order is unrelated to the trade negotiations.

But in hopes of limiting the fallout, the White House canceled plans to hold a ceremony where Trump would sign the directive in public. Huawei has repeatedly denied any role in China’s sophisticated digital espionage.

Despite U.S. denials of a tie-in to the trade talks, the Chinese may view the targeting of Huawei, based in Shenzhen, China, as a pressure tactic to gain concessions. It could stiffen Beijing’s resolve to resist what it sees as American efforts to contain China’s growing economic and political clout.

The United States and several allies have moved on multiple fronts against Huawei over the last year. The campaign has included criminal prosecutions and high-level pressure on other governments to ban Huawei systems and equipment, which are widely used in Europe and Africa.

The direct impact of the proposed executive order is largely symbolic, since major U.S. telecommunications carriers have largely shunned Huawei routers, switches and other hardware under pressure from intelligence agencies.

Smaller carriers that bought and installed Huawei equipment, in part because of its low cost, would not be required to remove it, according to industry officials.

But excluding China from fifth generation, or 5G, networks is of critical importance, U.S. officials argue. Those networks will carry far more data, extending wireless communications into self-driving cars and other areas of everyday life, making compromise of data potentially even more damaging.

In a new effort to allay U.S. concerns, Huawei’s founder, Ren Zhengfei, said the company would rebuff any Chinese government requests to disclose confidential information about its foreign customers and their communication networks.

“We would definitely say no to such a request,” he told reporters last month in Shenzhen.

The planned executive order does not mention China or Huawei, according to current and former officials who have read it.

It orders an investigation, likely to be carried out by U.S. intelligence agencies and the Department of Homeland Security, into the risk from telecommunications equipment from countries considered U.S. adversaries. A number of Chinese and Russian firms are likely to be examined.

But once the investigation is complete, a process likely to take several months, it is virtually certain to recommend barring Huawei from the U.S. on national security grounds, according to officials and industry lobbyists who have seen the directive.

Under Chinese law, the government can compel Chinese companies to hand over data and the Communist Party has exercised greater authoritarian control over spheres of business and society in recent years.

The CIA and the National Security Agency, which focuses on digital espionage, have studied Huawei’s operations for over a decade. But current and former U.S. officials say the spy agencies have no “smoking gun” showing conclusively that Huawei executives have helped Chinese security services penetrate America’s wireless networks.

Some attempts to penetrate overseas telecommunications networks that employ Huawei equipment have been traced to China, according to current and former U.S. officials familiar with the intelligence. But Huawei’s involvement is unclear.

The officials cite other reasons why Huawei should be excluded from the U.S. telecom backbone, including alleged links between company executives and the Chinese Communist Party, allegations that Huawei has sought to evade international sanctions on Iran and North Korea, and recent allegations that a Chinese intelligence operative was on the company’s payroll in Poland.

“Should there be a cost associated with the fact that they’ve done all these sorts of things?” asked a senior U.S. official, who spoke about the company in return for anonymity. “The answer is that now there is starting to be a cost. Their past is starting to catch up with them.”

In December, Canada arrested Huawei’s chief financial officer, Meng Wanzhou, daughter of company founder Ren, at the request of the U.S. Justice Department on charges that she helped Huawei evade sanctions on Iran.

U.S. authorities have started extradition proceedings against Meng, who is also deputy chairwoman of the board at Huawei. She has denied any wrongdoing; a hearing is set for March 6.

The FBI and Justice Department are also reportedly investigating whether Huawei stole trade secrets from U.S. companies.

Last summer, the U.S. barred the use of equipment from Huawei and other Chinese companies in Pentagon and other government telecommunications networks, and prohibited the sale of Huawei cellular phones on military bases.

This week, on a trip to Europe, Secretary of State Michael R. Pompeo urged officials in Hungary and Poland, NATO members that bought heavily from Huawei, to cut off purchases, warning that the Pentagon would have to scale back military cooperation unless they complied.

“We’ve made clear that if they make a certain set of decisions, that it will be more difficult for the … Department of Defense to work alongside of them — that is, we’ll never put our equipment in a place which would present risk to our technology from having Chinese technology co-located alongside of it,” Pompeo told reporters Tuesday.

Trump is also considering taking a potentially more damaging action against Huawei — blocking U.S. companies from selling or exporting critical components to it, just as the administration did last April with ZTE, China’s second-largest telecom company after Huawei.

The move against ZTE, for sales that violated sanctions on North Korea and Iran, paralyzed the company since it relied heavily on San Diego-based Qualcomm for semiconductor chips.

After Chinese President Xi Jinping appealed directly to Trump, the Commerce Department lifted the ban on ZTE in July after the company agreed to pay a $1-billion fine and overhaul its leadership.

But a similar move against Huawei would be far more explosive, industry analysts say. It would disrupt the company’s supply chain, which is heavily dependent on U.S. components.

It also would threaten the smooth operation of China’s domestic wireless networks, which are heavily dependent on Huawei, analysts said.

Chinese telecom sales to the United States are tiny. Huawei has effectively been blacklisted by Washington for several years and made little market headway beyond limited sales in rural markets.

A House intelligence report in 2012 warned that deploying Huawei equipment could make U.S. infrastructure vulnerable to spying and cyberattacks from Beijing. The executive order would signal that Washington views the risks as far more serious.

“It could inhibit Huawei’s upcoming 5G competitiveness,” said Derek Scissors, a China expert at the American Enterprise Institute, a conservative-leaning think tank in Washington.

U.S. industry lobbyists say Trump may back down against Huawei, just as he did with ZTE, to get a trade deal with China before new tariffs are due to kick in on March 2. But some telecom executives are publicly supporting stiffer action against Huawei.

At a House Energy and Commerce Committee hearing Wednesday on the proposed merger of Sprint and T- Mobile, the chief executive of T-Mobile, John Legere, reassured lawmakers that Chinese telecom equipment would not be used in the merged company’s networks.

“There is no Huawei or ZTE equipment in the network of T-Mobile,” he said. “There will not be any. ... In fact, we’ve had a litigious relationship with them, and we are, frankly, very supportive of the United States government’s increased action.”

The Trump administration is looking at tougher export controls to thwart China’s access to tech supply chains, and some administration officials and lawmakers are pushing more broadly to decouple the U.S. economy from China’s.

Huawei is less dependent on U.S. suppliers than ZTE, but people familiar with Huawei’s business say it bought about $12 billion in chips and other products from Qualcomm and other American companies last year.

A ZTE-like ban would clearly hurt and could slow China’s push to roll out 5G at home and abroad.

But analysts say it also could propel Beijing to seek supplies from other countries and develop its own supply chain. Some industry analysts question the strategy if it hurts U.S. suppliers and pushes China to speed up its own manufacturing capabilities.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven T. Mnuchin are scheduled to meet with senior trade officials in Beijing on Thursday, but analysts are not optimistic of a breakthrough.

The Chinese side has shown little indication it will give up state-led economic practices that discriminate against U.S. firms.

Without a deal, the Trump administration has said it would raise tariffs from 10% to 25% on $200 billion of Chinese imported goods. On Tuesday, Trump indicated he could put off raising tariffs beyond the March 1 deadline if progress has been made.

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