11 ms·

U.S. companies banned from selling components to ZTE

157 points by smaili 9y ago

marcoperaza 9y ago
Concerns about digital sovereignty will be one of the primary forces shaping the tech industry for years to come. Governments are realizing that they can’t depend on companies controlled by potential adversaries. They must expect that other governments will turn their companies into arms of their security apparatus. This action is ostensibly about sanctions on North Korea, but it’s clearly part of a bigger battle where both the US and China are trying to reduce their technological reliance on, and vulnerability to, the other. If the US and China got into a war, does anyone doubt that the US would seriously consider ordering Apple and Google to deliver “updates” turning devices in China into spying tools? Or demand that FB hand over the private messages of all foreign users? And does anyone doubt that China would consider doing the same with Huawei or ZTE phones and networking equipment?
- icebraining 9y ago
  I'd be surprised if both weren't already doing it.
- jacquesm 9y ago
  > Concerns about digital sovereignty will be one of the primary forces shaping the tech industry for years to come. They have been for the last 35 years or so. > This action is ostensibly about sanctions on North Korea, but it’s clearly part of a bigger battle where both the US and China are trying to reduce their technological reliance on, and vulnerability to, the other. No, it has the exact opposite effect. It reduces China's reliance on the United States. Normally the United States would welcome such dependencies. By playing this card early it loses its power at a moment in time when it doesn't matter much giving the Chinese ample time to source their bits and pieces elsewhere or even to set up domestic production. > Governments are realizing that they can’t depend on companies controlled by potential adversaries. Again, you have it backwards. The United States is giving up control over a company, it's not that the United States is forbidding it's own companies to import hardware from China, it is forbidding US companies from exporting components. > If the US and China got into a war, does anyone doubt that the US would seriously consider ordering Apple and Google to deliver “updates” turning devices in China into bricks or spying tools? Or demand that FB hand over the private messages of all foreign users? I don't think anybody would be dumb enough to assume that. > And does anyone doubt that China would consider doing the same with Huawei or ZTE phones and networking equipment? Neither, but it doesn't have anything to do with the matter at hand. The US and China are - for now - not in a war. Though given the degree of uncertainty and randomness in the present day configuration you can't rule it out either.
  - marcoperaza 9y ago
    An actual hot war is just the extreme case of conflict. Things need not rise to that level for these concerns to matter. And yes, these concerns are not new but they are becoming more salient. As for the effect of this particular action, it is not so simple. You are assuming that the US’s only interest is having chips to hang over China’s head in a moment of crisis.[1] But we also have more strategic interests, like undermining the global market for potentially backdoored phones ultimately controlled by China’s security apparatus. A full analysis would have to answer questions such as: What are ZTE’s prospects for finding equivalent components from other sources? Will they need to redesign their devices? How will that affect ZTE’s prices? And how will this all translate to changes in marketshare in various countries? In one year? Two? Ten? [1] And this isn’t even a great chip to use in such a crisis. Damage to China’s interests here will be gradual and over a longer period. In real crises, more immediate interests would overwhelm this kind of thing.
    - jacquesm 9y ago
      > But we also have an interest in undermining the global market for potentially backdoored phones ultimately controlled by China’s security apparatus. And again: this will achieve the exact opposite. Without US chips at the heart of those phones the chances of backdoored phones increase tremendously.
  - ksk 9y ago
    >doesn't matter much giving the Chinese ample time to source their bits and pieces elsewhere or even to set up domestic production. China has been trying to beg/buy/borrow/steal cutting edge semiconductor tech for ages. They're still having to import all their important chips from US/Japan/Korea/EU. IIRC they're at 100+micrometers, (leading tech from the year 2000) Far from the < 20 that intel/tsmc/etc are at.
    - jacquesm 9y ago
      Why do you think China is so keep on keeping the world informed that Taiwan is a 'ROC'? A couple more moves like these and you might see that part dropped in return for something more forceful. Keep in mind that trade wars and sanctions are the prelude to shooting wars and that after NATO let the Russians roll all over Ukraine there is substantial doubt about whether or not the West would intervene if China made a move on Taiwan.
jacquesm 9y ago
This totally plays into the hands of the Chinese. The USA will be more and more seen as an unreliably business partner where single individuals have too much influence over international commerce and globally significant arrangements. So China will be 'open for business' and other countries will see this as a good reason to shop for alternatives, and in the meantime internal politics in China will silence the voices advocating moderation and de-escalation.
- plehoux 9y ago
  Europe/Japan are as worried as USA about IP theft and totally unfair access to the Chinese market. India and South-East Asia countries have no love affair with China. Africa is more and more disillusioned with China `investments`.
  - jacquesm 9y ago
    The Chinese are doing exactly what the United States, Europe and Japan have been doing for the last 50 years or so, they are flooding the world with their products while at the same time protecting their home market. Japan did this far worse than China is doing it at the moment. I'm all for leveling the playing field, but I'd hope it would be done with some intelligence rather than these knee jerk responses that actually achieve the opposite effect. Nobody forced United States and EU companies to relocate their manufacturing to the other side of the planet. If we want to be less reliant on the Chinese then it starts with no longer buying the cheapest crap possible. IP games are the last resort of failed companies, maybe it will also be the last resort of countries that have lost all their other abilities.
    - NicoJuicy 9y ago
      When Belgium left their colony Congo, a lot went to shit ( corruption) I'm not saying it was ever good, but at a later stage, a lot improved. I believe mostly because of world wide media and things that leaked ( stealing resources,...), Which put a lot of pressure on the government
hollerith 9y ago
I'm no expert, but I would've guessed that denying ZTE access to US consumers would've been a more effective punishment than denying it access to US component suppliers. ADDED. Maybe the former would've gone against WTO rules or GATT rules.
- sigmar 9y ago
  Nah, this is the worst possible outcome for ZTE. They are going to be severely crippled in the international market without being able to use SoCs from Qualcomm (particularly since they haven't invested in creating their own chips like Huawei and Samsung have)
  - ksk 9y ago
    >(particularly since they haven't invested in creating their own chips like Huawei and Samsung have) They can't really 'invest' in creating their own chips. Currently, all the countries that have semiconductor technology have put them on their export control and won't hand it over to china at any cost. IIRC China overbid for the tech (Was it Micron?) and the government blocked them.
    - inferiorhuman 9y ago
      Isn't Huawei Chinese though?
      - ksk 9y ago
        https://www.datenna.com/editorial/china-imports-more-integrated-circuits-than-crude-oil/ https://www.datenna.com/editorial/china-imports-more-integra...
        inferiorhuman 9y ago
        The best I could come up with is that Huawei (PRC) uses TSMC (RoC) for production, which is to say China could easily invest in domestic production.
tudorconstantin 9y ago
What stops ZTE from creating a proxy company through which to buy the components? Or another one to also build their phones and products.
- metalliqaz 9y ago
  That's basically impossible to do at scale. When the US restricts commerce with an entity like ZTE, they require the US companies to make an effort to understand where the components are going to end up. In most cases, ignorance is not an excuse. So if a new company suddenly starts ordering the same parts at huge quantities in order to supply ZTE, then they will be immediately discovered and also subject to the restrictions. ZTE can probably use a range of existing suppliers to acquire parts but they probably would not escape harm because there are layers of middle-men getting added to the equation, and that's expensive.
- yonkshi 9y ago
  They could use proxy companies, but ZTE risk getting even further punishment from the US Gov if they were caught again, possibly exiting US entirely. Doesn't matter how many proxies they use, it takes one tear down to see if they used any US based components. Although, I wonder, had they used a proxy company when they were doing business with N.Korea and Iran, it probably would've been much harder to prosecute in the US. Perhaps their upper management didn't care enough at the time.
  - jacquesm 9y ago
    Or perhaps they felt that as a foreign entity the US laws did not apply to them? There are lots of commercial transaction that may or may not violate US laws, typically those companies that engage in them are not aware of the reach of the long arm of Uncle Sam (not saying that's the case here, ZTE absolutely knew they were violating the embargo but still, you have to wonder to what extent they felt that being in China was protection enough). The more layers you use to obfuscate a thing like this the clearer it is that you know that you are doing something you should not be doing.
- skybrian 9y ago
yonkshi 9y ago
As someone who's not very familiar this area of US government, was this more of an autonomous prosecution kind of like "you broke the law you pay"? Or was this more motivated by the recent trade skirmish with China, being used as a pawn so to speak?
- rayiner 9y ago
  This action is a penalty for violation of the terms of a guilty plea reached in 2017: https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-.... The underlying investigation dates back several years before that, to a 2012 Reuters article which reported the sanctions violations.
itakedrugs 9y ago
Hopefully the Chinese won't ban their companies from selling to US companies because we'll be screwed... specially because US companies design things to break fast.
- Lionsion 9y ago
  > Hopefully the Chinese won't ban their companies from selling to US companies because we'll be screwed... specially because US companies design things to break fast. They'd have to think of a different rational, as this action is apparently because ZTE violated sanctions against Iran an North Korea and further violated the penalties it agreed to when it was found guilty. Also, any Chinese action that would direct the supply chains of American companies away from China would likely be welcomed by this administration.
vanattab 9y ago
Oh I was wondering why T-Mobile discontinued the ZTE smartwatch so quickly after releasing it but I think I understand now. Shame it looked like it had semi decent specs.

157 points by smaili 9y ago

Concerns about digital sovereignty will be one of the primary forces shaping the tech industry for years to come. Governments are realizing that they can’t depend on companies controlled by potential adversaries. They must expect that other governments will turn their companies into arms of their security apparatus. This action is ostensibly about sanctions on North Korea, but it’s clearly part of a bigger battle where both the US and China are trying to reduce their technological reliance on, and vulnerability to, the other. If the US and China got into a war, does anyone doubt that the US would seriously consider ordering Apple and Google to deliver “updates” turning devices in China into spying tools? Or demand that FB hand over the private messages of all foreign users? And does anyone doubt that China would consider doing the same with Huawei or ZTE phones and networking equipment?

icebraining 9y ago
I'd be surprised if both weren't already doing it.
jacquesm 9y ago
> Concerns about digital sovereignty will be one of the primary forces shaping the tech industry for years to come. They have been for the last 35 years or so. > This action is ostensibly about sanctions on North Korea, but it’s clearly part of a bigger battle where both the US and China are trying to reduce their technological reliance on, and vulnerability to, the other. No, it has the exact opposite effect. It reduces China's reliance on the United States. Normally the United States would welcome such dependencies. By playing this card early it loses its power at a moment in time when it doesn't matter much giving the Chinese ample time to source their bits and pieces elsewhere or even to set up domestic production. > Governments are realizing that they can’t depend on companies controlled by potential adversaries. Again, you have it backwards. The United States is giving up control over a company, it's not that the United States is forbidding it's own companies to import hardware from China, it is forbidding US companies from exporting components. > If the US and China got into a war, does anyone doubt that the US would seriously consider ordering Apple and Google to deliver “updates” turning devices in China into bricks or spying tools? Or demand that FB hand over the private messages of all foreign users? I don't think anybody would be dumb enough to assume that. > And does anyone doubt that China would consider doing the same with Huawei or ZTE phones and networking equipment? Neither, but it doesn't have anything to do with the matter at hand. The US and China are - for now - not in a war. Though given the degree of uncertainty and randomness in the present day configuration you can't rule it out either.
- marcoperaza 9y ago
  An actual hot war is just the extreme case of conflict. Things need not rise to that level for these concerns to matter. And yes, these concerns are not new but they are becoming more salient. As for the effect of this particular action, it is not so simple. You are assuming that the US’s only interest is having chips to hang over China’s head in a moment of crisis.[1] But we also have more strategic interests, like undermining the global market for potentially backdoored phones ultimately controlled by China’s security apparatus. A full analysis would have to answer questions such as: What are ZTE’s prospects for finding equivalent components from other sources? Will they need to redesign their devices? How will that affect ZTE’s prices? And how will this all translate to changes in marketshare in various countries? In one year? Two? Ten? [1] And this isn’t even a great chip to use in such a crisis. Damage to China’s interests here will be gradual and over a longer period. In real crises, more immediate interests would overwhelm this kind of thing.
  - jacquesm 9y ago
    > But we also have an interest in undermining the global market for potentially backdoored phones ultimately controlled by China’s security apparatus. And again: this will achieve the exact opposite. Without US chips at the heart of those phones the chances of backdoored phones increase tremendously.
- ksk 9y ago
  >doesn't matter much giving the Chinese ample time to source their bits and pieces elsewhere or even to set up domestic production. China has been trying to beg/buy/borrow/steal cutting edge semiconductor tech for ages. They're still having to import all their important chips from US/Japan/Korea/EU. IIRC they're at 100+micrometers, (leading tech from the year 2000) Far from the < 20 that intel/tsmc/etc are at.
  - jacquesm 9y ago
    Why do you think China is so keep on keeping the world informed that Taiwan is a 'ROC'? A couple more moves like these and you might see that part dropped in return for something more forceful. Keep in mind that trade wars and sanctions are the prelude to shooting wars and that after NATO let the Russians roll all over Ukraine there is substantial doubt about whether or not the West would intervene if China made a move on Taiwan.

jacquesm 9y ago

This totally plays into the hands of the Chinese. The USA will be more and more seen as an unreliably business partner where single individuals have too much influence over international commerce and globally significant arrangements. So China will be 'open for business' and other countries will see this as a good reason to shop for alternatives, and in the meantime internal politics in China will silence the voices advocating moderation and de-escalation.

plehoux 9y ago
Europe/Japan are as worried as USA about IP theft and totally unfair access to the Chinese market. India and South-East Asia countries have no love affair with China. Africa is more and more disillusioned with China `investments`.
- jacquesm 9y ago
  The Chinese are doing exactly what the United States, Europe and Japan have been doing for the last 50 years or so, they are flooding the world with their products while at the same time protecting their home market. Japan did this far worse than China is doing it at the moment. I'm all for leveling the playing field, but I'd hope it would be done with some intelligence rather than these knee jerk responses that actually achieve the opposite effect. Nobody forced United States and EU companies to relocate their manufacturing to the other side of the planet. If we want to be less reliant on the Chinese then it starts with no longer buying the cheapest crap possible. IP games are the last resort of failed companies, maybe it will also be the last resort of countries that have lost all their other abilities.
  - NicoJuicy 9y ago
    When Belgium left their colony Congo, a lot went to shit ( corruption) I'm not saying it was ever good, but at a later stage, a lot improved. I believe mostly because of world wide media and things that leaked ( stealing resources,...), Which put a lot of pressure on the government

hollerith 9y ago

I'm no expert, but I would've guessed that denying ZTE access to US consumers would've been a more effective punishment than denying it access to US component suppliers. ADDED. Maybe the former would've gone against WTO rules or GATT rules.

sigmar 9y ago
Nah, this is the worst possible outcome for ZTE. They are going to be severely crippled in the international market without being able to use SoCs from Qualcomm (particularly since they haven't invested in creating their own chips like Huawei and Samsung have)
- ksk 9y ago
  >(particularly since they haven't invested in creating their own chips like Huawei and Samsung have) They can't really 'invest' in creating their own chips. Currently, all the countries that have semiconductor technology have put them on their export control and won't hand it over to china at any cost. IIRC China overbid for the tech (Was it Micron?) and the government blocked them.
  - inferiorhuman 9y ago
    Isn't Huawei Chinese though?
    - ksk 9y ago
      https://www.datenna.com/editorial/china-imports-more-integrated-circuits-than-crude-oil/ https://www.datenna.com/editorial/china-imports-more-integra...
      - inferiorhuman 9y ago
        The best I could come up with is that Huawei (PRC) uses TSMC (RoC) for production, which is to say China could easily invest in domestic production.

tudorconstantin 9y ago

What stops ZTE from creating a proxy company through which to buy the components? Or another one to also build their phones and products.

metalliqaz 9y ago
That's basically impossible to do at scale. When the US restricts commerce with an entity like ZTE, they require the US companies to make an effort to understand where the components are going to end up. In most cases, ignorance is not an excuse. So if a new company suddenly starts ordering the same parts at huge quantities in order to supply ZTE, then they will be immediately discovered and also subject to the restrictions. ZTE can probably use a range of existing suppliers to acquire parts but they probably would not escape harm because there are layers of middle-men getting added to the equation, and that's expensive.
yonkshi 9y ago
They could use proxy companies, but ZTE risk getting even further punishment from the US Gov if they were caught again, possibly exiting US entirely. Doesn't matter how many proxies they use, it takes one tear down to see if they used any US based components. Although, I wonder, had they used a proxy company when they were doing business with N.Korea and Iran, it probably would've been much harder to prosecute in the US. Perhaps their upper management didn't care enough at the time.
- jacquesm 9y ago
  Or perhaps they felt that as a foreign entity the US laws did not apply to them? There are lots of commercial transaction that may or may not violate US laws, typically those companies that engage in them are not aware of the reach of the long arm of Uncle Sam (not saying that's the case here, ZTE absolutely knew they were violating the embargo but still, you have to wonder to what extent they felt that being in China was protection enough). The more layers you use to obfuscate a thing like this the clearer it is that you know that you are doing something you should not be doing.
skybrian 9y ago

yonkshi 9y ago

As someone who's not very familiar this area of US government, was this more of an autonomous prosecution kind of like "you broke the law you pay"? Or was this more motivated by the recent trade skirmish with China, being used as a pawn so to speak?

rayiner 9y ago
This action is a penalty for violation of the terms of a guilty plea reached in 2017: https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-.... The underlying investigation dates back several years before that, to a 2012 Reuters article which reported the sanctions violations.

itakedrugs 9y ago

Hopefully the Chinese won't ban their companies from selling to US companies because we'll be screwed... specially because US companies design things to break fast.

Lionsion 9y ago
> Hopefully the Chinese won't ban their companies from selling to US companies because we'll be screwed... specially because US companies design things to break fast. They'd have to think of a different rational, as this action is apparently because ZTE violated sanctions against Iran an North Korea and further violated the penalties it agreed to when it was found guilty. Also, any Chinese action that would direct the supply chains of American companies away from China would likely be welcomed by this administration.

vanattab 9y ago

Oh I was wondering why T-Mobile discontinued the ZTE smartwatch so quickly after releasing it but I think I understand now. Shame it looked like it had semi decent specs.