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One rare area of agreement between the Trump and Biden administrations is their posture toward manufacturers of surveillance cameras and telecom gear based in China. Buyers who are researching surveillance cameras or cellular base stations should be aware of certain companies, such as Hikvision and Huawei, which have come under fire in the United States. The federal government cracking down on these firms due to fears that Hikvision surveillance cameras and Huawei telecom gear could be used by the Chinese government to spy on the United States. These restrictions are impacting buyers, particularly government buyers and government contractors, and procurement professionals should consider increasing risks when making purchasing decisions.

Hikvision Risk Overview

Hikvision Digital Technology Company Ltd. is one of the world’s largest manufacturers of surveillance cameras. Surveillance cameras are often used to secure sensitive sites such as government facilities and military installations. Modern surveillance cameras transmit information over the internet, so the United States government is worried that sensitive footage and intelligence might make its way back to China.

The United States government has also stated that Hikvision has helped the Chinese government engage in a campaign of repression against Muslim minority groups such as Uyghurs and Kazakhs in China’s Xinjiang territory. As a result, the US government has placed restrictions on this company.

Markets Affected: Closed-Circuit Television Systems, Surveillance Cameras

Huawei Risk Overview

Huawei Technologies Co. Ltd. is one of the largest technology companies in China and is the world’s biggest manufacturer of telecom equipment. However, the company does not have much of a presence in the United States, where it is mostly used by rural carriers; the Rural Wireless Association said in December 2018 that 25% of its members use Huawei equipment. Huawei’s market share in the United States will likely decline further in the coming years as the federal government takes further action.

Huawei faces controversy over its alleged links to the Chinese government, which the company hotly disputes; Huawei has even filed libel lawsuits against people making these statements. The US government worries that Huawei telecom equipment might send sensitive national security information back to China. The US government has also accused Huawei of violating US trade sanctions on Iran.

Markets Affected: Phone & Video Conference Equipment, Network Switches, Network Routers, PBX Phone Systems, Smoke Detectors

Other Companies

Three other major telecom companies face restrictions in the United States. Buyers should keep a close eye on the following companies and markets to mitigate risk:

Timeline

  • August 2018: President Trump signs the National Defense Authorization Act for 2019, which bans government use of Huawei, ZTE, Hikvision, Dahua and Hytera products.
  • May 2019: The US Department of Commerce adds Huawei to the Entity List, prohibiting the company from buying components from US companies.
  • August 2019: The ban on US government buyers using Huawei, ZTE, Hikvision, Dahua and Hytera products signed in August 2018 takes effect.
  • October 2019: The US Department of Commerce adds Hikvision and Dahua to the Entity List, barring them from buying components from US companies.
  • June 2020: The Federal Communications Commission (FCC) designates Huawei and ZTE as threats to national security. As a result, US telecom companies cannot use FCC money to purchase Huawei and ZTE equipment.
  • August 2020: The ban on US government contractors using equipment from Hikvision, Dahua, ZTE, Huawei and Hytera signed in August 2018 takes effect.
  • November 2020: President Trump signs an executive order prohibiting US citizens from investing in Hikvision, Huawei and 30 other companies.
  • March 2021: The FCC designates Hytera, Hikvision and Dahua as threats to national security.
  • June 2021: President Biden signs another executive order banning US citizens from 59 companies (including Hikvision and Huawei)
  • July 13, 2021: FCC votes to fund a $1.9 billion program to “rip and replace” Huawei and ZTE gear from US telecoms.

Regulatory Uncertainty Remains

Buyers should also consider the risks involved with doing business with firms in China’s Xinjiang territory. On July 13, the US Secretary of State warned that companies with even indirect trade and investment ties to Xinjiang could be violating the law. On July 15, the US Senate passed a bill banning imports from China’s Xinjiang territory. Further regulations may be enacted as the situation evolves.

Additionally, the Chinese government is cracking down on some of China’s largest technology companies, including the e-commerce giant Alibaba and the ride-hailing platform Didi. Buyers that are sourcing from firms in China should assess whether their partners face similar political risks which could affect their businesses.

Key Takeaways

  • Government buyers and government contractors should immediately determine whether they are in compliance with federal regulations regarding these affected companies.
    • Have they purchased products directly from these firms?
    • Have they purchased products from affected firms indirectly from a third-party distributor or contractor?
  • Other buyers should assess the risks of continuing to operate with products from these companies.
    • Could the FCC decertify these products, forcing even private companies to remove them?
    • The FCC regulates telecom equipment and modern surveillance cameras that connect to the internet need to be certified by the FCC. The FCC has the power to force people to remove surveillance cameras that have caused interference with radio waves.
  • Buyers that are currently using equipment from these firms should assess the cost of removing and replacing this equipment and explore alternative suppliers.
  • Buyers who are seeking these products should avoid products from affected companies to mitigate reputational damage.

 

By: Lucas Hahn

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