Commerce Department Proposes Case-by-Case Approvals for Telecom Equipment Sales

| Dec 29, 2019 | Firm News, Telecommunications Law

commerce

Late last month, the Department of Commerce made good on its promise to propose regulations for telecom equipment sales. The impetus of the proposed regulations is an order signed by the President on May 15. In that order, the President alleged that foreign companies were exploiting telecom equipment for espionage and other cybercrimes. While there were no specific companies named in this order, it is widely assumed that the companies the President is targeting are Huawei and ZTE Corp., China’s number 1 and number 2 telecom manufacturers. While the companies have denied and involvement with spying by the Chinese government but a 2012 House Intelligence Committee report labeled them both as enablers of Chinese spying, and recommended that they be excluded from selling telecoms equipment to US companies.

Since that 2012 report, all major US wireless carriers and Internet providers have avoided all Chinese-made equipment. But in the eyes of the Trump administration that did not take care of the problem. In 2018, President Trump signed a bill that barred the US government and its contractors from using equipment made by Chinese suppliers.

The May 15, 2019 order was based on the 1977 International Emergency Economic Powers Act which typically is used for freezing assets or imposing embargoes on hostile foreign governments.  The order instructed the Commerce Department to draft regulations concerning the sale of telecom equipment. The regulations previously in place were not enough to assuage the Administration who view the companies as dangers to national security. In May of 2019 US companies were required to obtain government approval for sales to Huawei. Despite this, US companies continue to sell to Huawei through loopholes, such as supplying the Chinese company with processor chips not made in the US.

In November 2019 the FCC acted. The FCC cut funding through the Universal Fund for equipment from Huawei and ZTE over the same security concerns. The FCC has also called for companies that get government subsidies to take out any existing infrastructure made with equipment produced by Huawei or ZTE.

The actual regulations proposed by the Commerce Secretary include a case-by-case analysis and approval system for each and every purchase of telecommunications equipment. The Commerce Department promises to use a “fact specific” approach that takes into account assessments by both the Secretary of Homeland Security and Director of National Intelligence. What this means remains to be seen, as the rules have not yet been implemented. However, this does appear to be the next step in preventing equipment from companies deemed to be dangerous to national security from gathering data on American companies and citizens.