[EAI Issue Briefing] Europe's Pragmatic Response to the Entry of Chinese Telecommunications Company Huawei

Editor's Note

An issue brief by EAI Senior Fellow and Director Lee Sook-jong (Professor, Sungkyunkwan University), analyzing the entry of Chinese telecommunications company Huawei and Europe's response, has been published. The US-China competition, born from China's rise, is having a profound impact not only on Asia but also on Europe. Europe, which had been relatively indifferent to China's rise due to internal issues stemming from the Euro crisis, has come to recognize the need for a realistic engagement strategy with China. In this commentary, the author focuses on the Huawei situation, which has emerged as a symbol of the dilemma faced by many countries caught between the US and China, and analyzes Europe's response by examining the conflict between market logic and security. The author concludes that European countries have chosen a stance of selective and limited acceptance based on pragmatism regarding the entry of Chinese telecommunications companies into the European telecommunications market, and argues that Asian countries facing similar dilemmas should pay attention to Europe's rational approach of responding pragmatically to China's expanding influence. Finally, the author asserts that Europe and Asia should leverage each other to continue exchanges and cooperation with China in the economic and technological fields, while exercising particular caution to ensure that national security and democratic norms are not compromised.

Introduction

China's rise has begun to exert a significant influence not only on Asia but also on Europe. Although the total amount of China's direct investment in Europe peaked in 2016 and has since declined, it has led to sustainable and strategic investments. Europe, which had been relatively indifferent to China's rise due to internal issues related to the Euro crisis, has finally begun to formulate countermeasures as China's influence has grown. Recognizing the error of the convergence theory, which assumed that China's developed system would be similar to Europe's, the need for a realistic engagement strategy with China has emerged (Godement and Vasselier 2017). The European Union (EU) re-established its strategy towards China around 2015-2016, when Chinese investment expanded into Europe, coinciding with the announcement of President Xi Jinping's Belt and Road Initiative (BRI) in November 2014. In particular, the weakening of cooperation between the US and Europe for the liberal international order following the launch of the Trump administration in the US deepened Europe's predicament. Unable to either reject or fully accept China's penetration into the region, Europe found itself in a difficult position. This stance differs from that of the US, which is openly competing with China, and is closer to the dilemma faced by Asian countries that must somehow get along with China. In this context, Huawei, a major Chinese telecommunications giant, has become a symbol of the dilemma faced by many countries forced to choose between the US and China. Can the European Union, with its stronger regionalism than East Asia, find a third way in the technological competition that has become a major axis of US-China competition? Amidst various responses to the Huawei issue emerging globally in the context of US-China competition, European countries appear to have opted for a selective and limited acceptance based on pragmatism.

Huawei Responses in Major European Countries

In Europe, the complex interests of individual countries at the sub-regional level make a unified response to China difficult. Particularly, compared to wealthier Western European countries, Central and Eastern European countries, which are desperately in need of funds for infrastructure development and economic growth, find Chinese investment and aid crucial, leading to divergent regional policies. China manages these Central and Eastern European countries through a dialogue channel called '16+1'. Hungary, for instance, maintains close relations with China not only economically but also politically. Conversely, for Western European countries, the entry of Chinese telecommunications companies into the European market raises more concerns than expectations. While the deployment of 5G networks is essential for the development of new industries and 5G mobile communication technology, Europe's technological capabilities fall short. Even Ericsson and Nokia, once dominant players in the global telecommunications market, are struggling against Huawei's technological prowess and price competitiveness. While Huawei's market entry, with its superior competitiveness, is natural from a market logic perspective, concerns are growing in Europe that China will encroach upon the new technology market. Furthermore, the participation of major Chinese telecommunications companies in the European market is a security issue that extends beyond economics and technology. Although Chinese telecommunications companies are expanding their market share with advanced technology, they may not be free from the directives of the Chinese government. In such a scenario, Chinese companies could become a means for leaking sensitive information and conducting espionage for the Chinese government, potentially exposing critical industries within European countries to the risk of cyber terrorism. This is a major concern for both Europe and the United States, and the Trump administration has strongly urged the European Union and major European countries to block Huawei over the past year.

Under pressure from the US to block Huawei, major European countries began making a series of decisions last year after considerable debate. In France, which had security concerns about Chinese companies entering its domestic telecommunications market, a law, colloquially known as the 'Huawei Law,' was passed in July 2019, granting the Prime Minister's office the authority to impose security regulations on companies participating in the 5G market ("Telecoms.com July/26/2019). Based on this law, the Emmanuel Macron administration issued an executive order strengthening security regulations without outright banning Huawei or other specific companies. While in principle, Huawei was not excluded, the companies selected for the construction of France's 5G mobile network over the next five years, announced at the end of January, were Europe's Ericsson and Nokia ("Telecompaper January/31/2020). Similarly, in the United Kingdom, allowing Chinese companies into the domestic telecommunications market was a highly sensitive issue, considering security concerns and relations with the United States. During Prime Minister Theresa May's tenure, the cabinet was divided over whether to accept Huawei. However, after prolonged deliberation, the Boris Johnson administration announced the conclusion of the 'UK Telecoms Supply Chain Review Report' on January 28th, allowing Huawei's limited participation in the UK telecommunications market. Without naming specific companies, it stipulated that 'high-risk vendors' would be excluded from critical national infrastructure, core network functions, and areas near nuclear facilities and military bases, while setting a cap of 35% market share for any single supplier in non-sensitive areas (The Government of the United Kingdom January/28/2020). This effectively granted conditional approval for Huawei's entry into the UK market, with the National Cyber Security Centre expected to provide specific guidelines to telecom operators. This contrasts with the decisions of Australia and New Zealand, members of the US-led intelligence-sharing alliance 'Five Eyes,' to completely ban Huawei's entry into their domestic markets. The UK's conditional acceptance of Huawei has dealt a blow to US efforts to build an anti-Huawei coalition ("New York Times January/28/2020). The UK's decision suggests that the decoupling that the US desires in the tech war between the US and China is realistically very difficult.

Germany, the largest power within the European Union, also faces a dilemma. After discussions, the coalition government under Angela Merkel decided in October 2019 to allow Huawei's participation in its domestic 5G market. However, this decision is reportedly exacerbating the controversy rather than resolving it. Chancellor Merkel has advocated for acceptance, arguing that banning Huawei would delay the deployment of 5G networks and increase costs. This stance is underpinned by fears of Chinese trade retaliation, such as restrictions on German car imports. Economic officials and industries heavily reliant on exports to China share the Chancellor's view. However, opposition is growing from the Foreign, Defense, and Interior Ministries, which view the Huawei issue from a security perspective, and arguments for banning Huawei's market participation are gaining traction in political circles concerned about technological dependency. They argue that selective regulation cannot block security threats because the transition between hardware and software in 5G technology is possible (Düben 2020). The German government is expected to make a final decision in February.

The day after the UK decided to effectively accept Huawei, on January 29, 2020, the European Union also released a 'toolbox' of responses similar to 'acceptance.' This guideline is a follow-up to the 'EU Coordinated Risk Assessment of the Cybersecurity of 5G Networks' published in October 2019, following the European Commission's recommendation in March 2019 to enhance the cybersecurity level of 5G networks across the EU. It is expected to serve as an important directive for EU member states regarding the issue of accepting major Chinese telecommunications technology companies. The 2019 5G risk assessment report projected new risk factors associated with 5G networks, focusing on the complexity arising from the innovation of 5G technology itself and the issue of domestic telecommunications markets becoming dependent on a single supplier. Furthermore, the report emphasized that 5G technology could increase the frequency of cyberattacks due to the expanded number of potential entry points, and that the characteristics of the technology make communication equipment and functions more vulnerable. It also warned of the increased risk of attacks from potential actors controlled by foreign countries when mobile network operators depend on telecommunications technology suppliers. The report also pointed out the importance of assessing the risk profile of suppliers and protecting the integrity and sovereignty of the network, considering issues such as exploitation or vulnerability due to dependence on a specific supplier (European Commission October/9/2019).

The 2020 January toolbox guidelines, in line with the 2019 5G risk assessment report, recommend that EU member states take the following measures: First, enhance security requirements such as strict access control for wireless network operators, strengthened rules for security operations and monitoring, and restrictions on outsourcing certain functions. Second, mitigate risks by assessing supplier risks and excluding high-risk suppliers from core network functions, network management, and access functions defined at the pan-EU level. Third, diversify suppliers to avoid dependence on a single provider. The European Commission also calls for the establishment of a sustainable 5G supply chain through various policy initiatives and financial support, and for strengthening the EU's capabilities in the 5G and post-5G era through institutional improvements such as standardizing security regulations within the region and introducing certification systems (European Commission 2020).

The decision by European countries to 'partially accept' major Chinese telecommunications companies stems from the recognition that the rapid deployment of 5G telecommunications infrastructure is indispensable for the development of advanced industries such as autonomous vehicles, big data-based service industries, artificial intelligence, and robotics. However, it is noteworthy that they are also mindful of the security risks arising from this and are not lowering their guard. European countries, facing pressure to choose between the US and China, have found a compromise by accepting external companies with market competitiveness while classifying telecommunications giants, which are susceptible to intervention by foreign governments, as high-risk suppliers to block intrusions into sensitive security areas. Through a series of 'partial acceptance' decisions regarding Huawei, European countries can pursue technological independence in 5G telecommunications by diversifying operators and simultaneously promote the strengthening of domestic technological capabilities. From Huawei's perspective, these decisions by European countries are positive as they allow for market participation in Europe, avoiding a complete ban demanded by the US. However, they also present the challenge of adapting to Europe's unique regulations and norms through risk management to achieve broader market participation. Asian countries facing the same dilemma as Europe regarding the Huawei issue would do well to refer to the practical and rational guidelines published by Europe.

Conclusion

The European Union began responding to China's expanding influence as early as 2013 by establishing bilateral consultation bodies through the 'EU-China 2020 Strategic Agenda for Cooperation.' The 'EU Strategic Outlook on China 2019,' published in 2019, went a step further by presenting a vision for a multifaceted strategy towards China. In this document, the EU defines China multidimensionally: as a 'partner for cooperation and negotiation' on global issues like climate change and the WTO; as an 'economic competitor' in areas of technological leadership and market access; and as a 'systemic rival' promoting alternative governance models in relation to future state systems, thereby devising a balanced strategy for the EU's interests (European Commission 2019). The controversy surrounding Huawei's participation in the European telecommunications market reflects the shadow of China as a market competitor threatening the European technological market with its technological prowess, and as a systemic rival posing a threat to security. Therefore, the EU's recent restrained response to the market participation of major Chinese telecommunications companies appears to be part of an effort to moderate China's growing influence by leveraging advanced laws and regulations.

Asia, facing a similar dilemma as the European Union regarding the growing influence of China in technology, trade, and investment, should pay attention to Europe's pragmatic and rational response to China's expanding influence. In particular, it is worth noting the EU's efforts to enhance the transparency of Chinese investment through institutional strengthening, such as its competition law, rules on state aid and public procurement, and foreign direct investment screening mechanisms (Blockmans and Hu 2019). Europe and Asia should leverage each other to continue exchanges and cooperation with China in the economic and technological fields, while exercising particular caution to ensure that national security and democratic norms are not compromised. ■

■ Author: Lee Sook-jong_ Senior Fellow and Director at EAI, Professor at Sungkyunkwan University. She holds a Ph.D. in Sociology from Harvard University. She has served as a researcher at the Sejong Institute, a visiting fellow at the Brookings Institution, a lecturer at Johns Hopkins University, President of the Association for Contemporary Japanese Studies, a policy advisor to the Ministry of Foreign Affairs, and Director of EAI. Her recent publications include Transforming Global Governance with Middle Power Diplomacy: South Korea’s Role in the 21st Century (ed.), Public Diplomacy and Soft Power in East Asia (co-ed.), The Second Act of Globalization: Korean-Style Globalization and New Designs (co-ed.), and Conditions for Presidential Success in 2017 (co-ed.).

■ Managed and Edited by: Yoon Jun-il, EAI Research Fellow

Inquiries: 02 2277 1683 (ext. 203) I junilyoon@eai.or.kr

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