Wednesday, 27 May 2020 10:36

Second US bid to curb Huawei may end up like the first Featured

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Second US bid to curb Huawei may end up like the first Image by Cristian Ibarra from Pixabay

ANALYSIS The first attempt by the US, a year ago, to cripple Chinese telecommunications equipment vendor Huawei Technologies and prevent it from manufacturing its products has been mostly a failure, with the only definitive outcome being the success in banning the company from using the proprietary version of Google's Android mobile operating system.

Now the US has embarked on a second round of strictures which are aimed at achieving what it failed to do with last year's listing of Huawei on the Entity List. American firms cannot sell products made in the US with more than 25% of American content to companies placed on this list without obtaining a licence.

There was a way around it: American companies which wanted to continue selling to Huawei simply supplied the Shenzhen-based firm through their outlets located outside the United States. When it came to Android, Huawei started using the open-source version and adding its own playstore app, admittedly not the best solution, but no block to selling its smartphones in China.

Before one proceeds any further, one should make it clear that if Huawei's purchases were not in the billions, then no American company would jump through a single hoop to supply it with even a single widget. As that old tired saying goes, money makes the mare go.

But Huawei is big business. And apart from that, any company that treats it favourably gets a tick of approval from the Chinese Government, something that cannot be discounted in a world where numerous big American companies cut their costs considerably by manufacturing goods in China. Intel, for example, last year got US$20 billion of its US$72 billion in revenues from China, according to The Economist.

The second attempt to restrict Huawei by the Americans is through the Foreign Direct Product Rule. This specifies that products made using American technology or equipment cannot be sold to companies on a Department of Commerce list, unless a licence is obtained.

This restriction, which also covers non-American companies, is aimed mainly at blocking the supply of semiconductors to Huawei; if the Chinese company cannot obtain sufficient supplies, then it would not be able to make both its smartphones and its 5G base stations.

But then whenever a law is drafted, there are highly-paid lawyers who examine it and find loopholes. Huawei does not order semiconductors directly; it provides the designs to its contractors, who then get their orders filled from the maker, build the equipment and send it directly to the customer. This is one loophole which the Americans will need to plug, though how is uncertain.

As The Economist puts it, one of the big difficulties the Americans face is the fact that the semiconductor business is spread around the globe to such an extent that it will be difficult to police.

The FDPR restriction can be got around by not using American equipment to make semiconductors; Japanese firms Tokyo Electron and Hitachi High-Technologies are just two names that suggest themselves as alternative sources of high-quality machinery.

In fact, there has even been a suggestion the announcement last week by Taiwan Semiconductor Manufacturing Company that it would set up a factory in Arizona was made so it could move its American equipment to the Arizona plant and then use equipment from other countries to make semiconductors in Taiwan. Those could, of course, be supplied to Huawei without any violation of American rules.

The Economist also cites the fact that the chief of Samsung, another major player in the semiconductor industry, toured its new factory in Xian, China recently; Samsung has indicated clearly that it does not intend to ignore China when it comes to this branch of its business. And it could use non-American equipment to avoid any run-ins with Washington.

As a last resort, companies holding patents on tool making could always shift their patents abroad and avoid American restrictions altogether. All these factors put together could, in the end, drive part of the semiconductor industry out of the US, not exactly the outcome that power brokers in the US expect.

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Sam Varghese

Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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