Viewpoint Article

Written by Simon Lacey | Senior Lecturer in International Trade | University of Adelaide[1]

Recent efforts by the European Commission to deny Chinese telecom equipment vendors access to EU markets lays bare the façade of any distinction between U.S. calls for decoupling and European notions of de-risking. These efforts have also spurred some pushback, not only from the equipment vendors themselves – primarily Huawei – and the Chinese government, but also from European telecom operators and member state regulators.

For operators that use Huawei equipment in their network-product mix, it is they who must bear the initial monetary impact of firstly sourcing a greater proportion of their material needs from a reduced pool of more expensive vendors, but secondly they must also bear the cost of removing existing equipment (alleged to be “high risk”) from their networks.

These costs are estimated in the billions of euros and will put a strain on telecom operators already competing in a market with razor-thin margins. Moreover, these costs are almost certain to be passed on in part or in full to consumers, further exacerbating already high inflation and putting an even bigger drag on efforts to get economies in Europe moving again.

The objections emanating from some member state regulators is that the Commission can advise but not dictate what member states can or even should do in order to protect national security, which is a clear member state competence. National telecoms regulators also believe, quite justifiably so, that they have a better understanding of the technical and other risks faced by their networks, and that the EU Commission’s one-size-fits-all approach here is counterproductive and unnecessary.

The Commission’s approach also leads one to question whether there is any substance to Commission President Ursula von der Leyen’s claims that Europe does not endorse decoupling as advocated by the previous and current U.S. presidential administrations, but instead is seeking a supposedly more nuanced policy of “de-risking”. The approach being pushed by Commissioner Thierry Breton, exhorting member states to move more quickly under the so-called EU Toolbox on 5G Cybersecurity, to reduce and eventually eliminate their exposure to Chinese equipment vendors is, ultimately, just another ban, similar to the one imposed by successive U.S. governments under the mantra of decoupling.

However, various leaders from governments to international organizations to representatives of global business have all rejected both decoupling and de-risking, with the WTO Director General Ngozi Okonjo-Iweala recently stating at the World Economic Forum Summer Davos meeting in Tianjin, China that “decoupling or fragmentation is something that the world simply cannot afford to have”. In a similar vein, at the recently held Nikkei forum in Tokyo, Deputy Singaporean Prime Minister Lawrence Wong strongly criticized de-risking, noting that “it is hard to see how de-risking, at its current ambition and scale, can be strictly confined to just a few strategic areas without affecting broader economic interactions”. Outside of a small number of capitals such as Washington and Brussels, the notion of decoupling or de-risking is perceived as inflammatory and unhelpful.

As Huawei in its response to the EU’s recent calls has noted, these actions go against the tenets of free trade. In fact, they appear on their face to violate the EU’s commitments under various WTO agreements. To be specific, WTO members may not adopt or apply technical regulations (which is what the Toolbox is) with a view to or with the effect of creating unnecessary obstacles to international trade. This means that technical regulations should not be more trade-restrictive than necessary. Moreover, in order to be necessary, any technical regulations also have to be apt to achieve their stated regulatory objectives, which the EU’s Toolbox arguably is not, since it does nothing to enhance cybersecurity. In fact, it is precisely this aspect of the Commission’s approach which is at the heart of push-back from both telecom operators such as Deutsche Telecom and national regulators such as the Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), namely that they disagree on the existence of the purported risk as presented by the Commission and thus on the necessity of the EU’s intrusive and discriminatory regulatory response.

Also worth noting in the context of the bilateral trade relationship between the EU and China is the fact that the EU’s two largest equipment vendors for 5G, Nokia and Ericson, are free to compete in China and are not subject to the kind of sweeping restrictions imposed upon Huawei in Europe. In fact, according to one industry estimate, by the end of the 2023-2024 purchasing period, Nokia and Ericson will have deployed more 5G base stations in China than they will have in the whole of Europe combined. This is an astonishing indication of how open the Chinese market is to foreign equipment vendors despite itself being home to the world’s most technologically advanced and economically competitive company in this space globally, Huawei.

To conclude, it would be helpful if the EU Commission could adopt a more evidence-based and technically sound approach rather than imposing what is essentially a one-size fits all solution to a set of poorly identified and abstractly articulated political risks. Moreover, the Commission should find ways of mitigating any perceived risks in cooperation with those that understand these risks the best, namely telecom operators and national network regulators. In doing so, the Commission should address these risks in ways that are apt to actually mitigate them, rather than having recourse to unhelpful and discriminatory policies that violate international trade rules, fail to achieve their intended objectives and needlessly drive up costs for European companies and consumers.

[1] The views expressed here are those of the author and not attributable to the University of Adelaide.