UK-US bond tested by Britain’s Huawei 5G decision

By Arjun Kharpal for CNBC

For decades, some within Britain and the US have celebrated a “special relationship” — historically, politically, economically and culturally. That bond looks set to be challenged after the U.K.’s decision to allow Chinese telecommunications giant Huawei to take part in its next-generation mobile networks.

Known as 5G, those networks promise super-fast data speeds but also provide the technology to underpin critical infrastructure in the future.

Washington has maintained that Huawei represents a national security threat because its networking gear could be used by the Chinese government for espionage. The Trump administration has also raised concerns about the link between Huawei and the Chinese Communist Party. Huawei has denied that its equipment could be compromised and says it has no links with Beijing.

The U.S. piled pressure on the U.K. to block Huawei. Secretary of State Mike Pompeo said Britain had a “momentous decision ahead on 5G.” But Britain chose to allow Huawei to participate in parts of 5G networks called the Radio Access Network. This is essentially the part of the network that hooks up your devices with the actual 5G signal. Huawei can participate in the RAN, but no more than 35% of a single vendor’s equipment in this part of the network can come from the Chinese vendor.

Britain’s decision has “disappointed” the Trump administration and now U.S. lawmakers are warning about deteriorating relations between the U.K. and U.S.

“Here’s the sad truth: our special relationship is less special now that the U.K. has embraced the surveillance state commies at Huawei,” Sen. Ben Sasse, R-Neb., who is a member of the Senate Select Committee on Intelligence, said in a statement on Tuesday.

“The Chinese Communist Party has infected Five Eyes with Huawei, right at a time when the U.S. and U.K. must be unified in order to meet the global security challenges of China’s resurgence.”

Five Eyes refers to an intelligence-sharing alliance involving Australia, Canada, New Zealand, the United Kingdom and the United States. British Foreign Secretary Dominic Raab suggested that intelligence sharing was not at risk.

Intelligence-sharing at risk?
“This decision is deeply disappointing for American supporters of the ‘Special Relationship’. I fear London has freed itself from Brussels only to cede sovereignty to Beijing,” Sen. Tom Cotton, R-Ark., tweeted, referring to Britain’s exit from the European Union.

“The short-term savings aren’t worth the long-term costs. In light of this decision, the U.S. Director of National Intelligence should conduct a thorough review of U.S.-UK intelligence-sharing,” he added.

Earlier this year, Cotton introduced a bill that would stop the U.S. from sharing intelligence with countries that use Huawei equipment for their 5G networks.

But analysts said this was unlikely to happen.

“It is highly unlikely that the U.S. will follow through with threats to cut off or curtail intelligence sharing over the U.K. decision,” Paul Triolo, practice head for geotechnology at Eurasia Group, told CNBC.

“The U.K. has tried to carefully balance the economic and security concerns around Huawei and 5G by raising the bar substantially on vendor and carrier security posture, while restricting high-risk vendors from key portions of the network. It is more likely the U.S. will work with the U.K. government to ensure high security standards are met. Blowing up the Five Eyes intelligence sharing partnership over this is just not on the cards.”

Trade deal complications?
The decision comes as as Britain heads toward Brexit on Friday when it will officially leave the European Union.

The U.K. is working toward striking a trade deal with the EU and the U.S. U.K. Finance Minister Sajid Javid said earlier this month that striking an agreement with the U.S. is “a huge priority for us,” and that the two nations have “already started working closely together (toward that goal).”

But experts said, with Brexit around the corner, that the Huawei deal could complicate trade negotiations.

“I think the tone coming out of Washington is one of unhappiness — but hasn’t totally condemned it, leaving a middle road potentially to do some kind of deal down the road,” said Neil Campling, head of technology, media and telecoms research at Mirabaud Securities.

“However, from Saturday (aka post Brexit) the U.K.’s bargaining position on trade deals with any potential partners is weakened, and so the U.S. may well be waiting to tactically and aggressively ramp up the heat at a later time. Nothing is certain at this juncture,” he told CNBC.

At the same time, Britain has to think about its relationship with China, one of its key partners. In December, Wu Ken, China’s ambassador to Germany, threatened Europe’s largest economy with “consequences” if it blocked Huawei. This could have been in Britain’s mind too.

Campling said there was “never a perfect solution” to Britain’s Huawei decision given the competing interests. And Lew Lukens, former deputy chief of mission of the U.S. Embassy in London, said British Prime Minister Boris Johnson is trying to balance the competing sides.

“I think Boris Johnson is laying down a marker in some ways saying, ‘I’m not going to do what Donald Trump says, we are going to forge our own path and balance these competing interest,’” Lukens told CNBC. “I think he’s confident they can keep the U.S. on the same side and these other markets on the same side.”

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