Australia leaves Huawei standing at the altar


Whatever the merits of the case, the abrupt decision of the newly installed Abbott government to swat down the ambitions of the Chinese telecommunications giant, Huawei, to participate in the rollout of the Australian national broadband network was a stunning example of diplomatic ineptitude.  Though the previous Labor government had initially turned down Huawei’s bid for NBN contracts, during the national campaign leaders of the Coalition had promised that an Abbott administration would review and possibly overturn Prime Minister Julia Gillard’s negative determination.    

In the days after the election, newly appointed Abbott cabinet ministers had further stoked the assumption that a change was in the offing.  Thus, Trade Minister Andrew Robb, in Shanghai, highly praised Huawei as a “well-respected company in Australia…with a big future.”  Their growth rate is “phenomenal,” he stated; and they “produce very good leading products.”  Incoming Communications Minister Malcolm Turnbull went further and opined that even if there was the possibility that they could be an “accessory to espionage…you then have to ask yourself does the equipment that they would propose to sell have that capacity.” (Admittedly a somewhat dimwitted statement for a communications minister:  of course they have the capacity; the relevant point is will they act on it)   Robb and Trumbull received strong support in their campaign to review—and change—Huawei’s status by the new Foreign Minister, Julie Bishop.  All three ministers drew a connection between the Huawei decision and PM Abbott’s ambitious goal to complete a free trade agreement with Beijing within a year.

Then, abruptly and without warning, Attorney General George Brandis announced that the determination of the Gillard government to ban Huawei from NBN contracts would be upheld by the new government; and he pointed directly to opposition from Australia’s security agencies (in odd, convoluted phrasing): “Since the election the new government has had further briefings from the national security agencies  No decision has been made by the new government to change existing policy”   The “no decision has been made” produced great confusion, and the matter was only settled with a letter confirming the ban from PM Abbott to the leader of the opposition Labor Party.  In retrospect, the “decider” in this instance was the Australian Security Intelligence Organization, the country’s equivalent of the US National Security Agency.  And in going along with ASIO’s veto, the Abbott government, as had the Gillard government, chose to privilege its security relationship with the US over its economic ties with mainland China

Adding insult to injury, both Huawei, which had mounted a vigorous, expensive lobbying campaign, and the Chinese government, were blindsided by the reversal—though their first responses were mild and careful.   Huawei stated that it was “mystified” and “disappointed” by the decision, and a Foreign Ministry official noted: “We always oppose countries using national security as a reason or an excuse to interfere in the economy and normal trade cooperation.”  Speculation is rampant that Beijing might call off or delay FTA negotiations, but there was no immediate action on that front.

So what are we to make of all of this?  The answers abound with irony and contradiction, particularly when viewed in light of the outpouring of Edward Snowden revelations about the NSA and other US intelligence agencies.  The commentary that follows benefitted greatly from an exhaustive analysis in the Australian Financial Review, as well as a series of reports in the news media (particularly the New York Times and the British Guardian newspaper) based on the Snowden leaks.

First, ASIO’s veto (backed by  the Australian Signals Directorate, the internet spy agency) appears to stem from fears that Huawei, possibly coerced by Beijing, would in the future introduce “backdoors and so-called ”malware” into the backbone of the internet (routers and switches), or at other points in the porous telecoms supply chain (chips, hubs, servers, software) where it provides equipment.   In this, ASIO seems to have been guided by the much publicized conclusions of the US House Intelligence Committee, to wit: “The Chinese government has the means, opportunity, and motive to use telecommunications companies for malicious purposes.”  On that basis, the committee recommended that Huawei be banned from US contracts as a top security risk.

The problem now is that the Snowden leaks demonstrate that the NSA has actually accomplished all of the espionage tasks cited as possible for Huawei and the Chinese government.  Thus, according to NYT and Guardian reports, the agency has collaborated with or forced US telecoms companies to build entry points into their products for spyware; cracked encryption codes that protect global commerce, banking and consumer records, trade secrets and medical record; and deliberately moved to weaken international encryption standards to render network penetration easier.  These revelations do not lessen the gravity of documented Chinese cybersecurity incursions.  But they do serve to bolster Beijing’s argument that it is also a victim—as well as aggressor.

Interestingly, to date, no investigation in Australia, the US, or any of the 140-odd countries in which the company operates has found direct evidence of Huawei malfeasance in the cybersecurity area (see below).  The US House Intelligence committee report is widely derided as strong on assertion and weak on evidence; more importantly, the Obama White House conducted a 18-month investigation of Huawei that turned up no “smoking gun.”   This is not to say that such evidenced does not exist and is not made public for security protection reasons.  But it is telling that the AFR report reveals that the basis for the ASIO rationale and decision regarding Huawei is summed up in the statement of one Australian intelligence official:  “The only reason we can make an assessment like this is because we know (what) we are up to with our own firms.”   And David Irvine, ASIO head, is reported to have stated that: “We are base-lining their capabilities and operation off what we know we can to—and not on what they are actually doing.”  Ironically, the AFR report notes that one of the Snowden files alleges that in the US, the NSA has a “corporate partner” that “gives it access to international cables, routers and switches.”  Fairly or not, according to AFR, many observers posit the US telecoms giant, Cisco, as this partner.

Moving beyond individual companies, there are also oddities and questions stemming from international diplomatic and security ties.  Australia is a member of the so-called Five Eyes—with the US, Canada, Great Britain, and New Zealand.  Under longstanding security arrangements, these countries have agreed to certain rules regarding spying among themselves; and their security agencies have close ties, even dividing up geographic surveillance.  Still, with regards to Huawei, they are clearly at odds.    Snowden’s revelations demonstrate that the British intelligence agency, GCHQ, and the NSA  have often collaborated in specific cyber operations.  Yet the Brits have welcomed Huawei, and the government has given its blessing to jointly operated cybersecurity facility with the company (much to the irritation of the US, according to the AFR report).  Similarly, New Zealand has allowed Huawei contracts in some of the backbone sectors.  The point is that, though sharing much of the same secret information, the security agencies of the five countries have come to dramatically different conclusions about the Huawei security risk.

The weakest section of the AFR report is that titled “The evidence.”  Largely, the section goes over old or irrelevant material relating to founder’s prior ties to PLA and alleged public subsidies given to the company.   Two new incidents of supposed malfeasance are cited, both from second and third-hand sources.   One suggested that CIA had uncovered a disguised malicious program code embedded in Huawei devices; in another, the CIA stated that a Huawei engineer working in Yemen was in reality a PLA officer.  As noted above, the authors also cite the widely discredited US House committee report.  All in all, this is pretty thin gruel in light of the fact that the company has been operating for over a decade in 140 countries and has large contracts in eight of the nine countries that are rolling out new broadband networks—all without incident thus far.

A final irony is that Australia awarded large NBN contracts to French-based Alcatel-Lucent.  Alcatel in turn owns 50 percent of the Chinese –based Shanghai Bell, from which it will undoubtedly source much of the equipment for the Australian project.  Not to pick on Alcatel, the truth is that all of the major “backbone” suppliers, including Ericsson and Cisco, source parts, components and whole systems from Chinese factories.   

So in the end, the question remains: just how much more secure is Australia or any other country after excluding Huawei?  

This article is published in East Asia Forum in a shorter version. Claude Barfield is a resident scholar at the American Enterprise Institute.
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