Australia Starts a Cold War

Australia Starts a Cold War

It all began seven years and four prime ministers ago.

Then Prime Minister Julia Gillard said China’s telecommunications company Huawei wasn’t allowed to be part of our NBN infrastructure, under the guise of national security.

Then last year, we got up China’s nose a little more.

We booted China out of building a subsea cable network from the Solomon Islands to Sydney, effectively preventing any Chinese company from landing a subsea internet cable directly to Australian shores.

To top it all off, this year we said that Huawei — once again — was not welcome to be part of Australia’s 5G network.

This was a signal to China.

While we’re happy to sell things to China (like houses and rocks), we don’t want China to build our infrastructure.

In essence, we’ve told the Chinese that we don’t trust them.

We’ve picked a fight with our biggest trading partner without even realising it.

And in turn, it’s given us a whole bunch of new problems to deal with…

Friendship is over

Australia and China have had a chummy relationship for nearly two decades.

You see, we’ve happily spent that time shipping our red rocks through the South China Sea into China’s ports.

And in return, we’ve gladly taken a small portion of their people here to study and work.

Some of these students are from wealthy families. Some are from the new middle class, with parents who sacrificed everything for their kids to get an education in the West.

On top of that, we gladly accept the 1.4 million Chinese tourists and the $10 billion they spend in our economy each year.

And both countries have benefited for some time.

But things are about to change.

Turns out, we may have accidently started a new cold war…

Global leader for the wrong reasons…

Swapping rocks for yuan has directly linked Australia’s economic fortunes to China.

We sell them our houses and stakes in our agricultural and commodities companies.

Two-way trade has contributed some $183 billion to the Aussie economy.

Basically, we are happy to take China’s yuan, no matter how undervalued it is.

What it appears we won’t do is allow Chinese companies to contribute to our infrastructure.

In 2012, Chinese telco Huawei set up its first-ever international office in Australia. The base was created so Huawei could win a chunk of our NBN business.

However, acting on the advice of our intelligence agencies, then Prime Minister Julia Gillard refused. Gillard told the media that Huawei will be banned from involvement in ‘critical infrastructure’.

That’s in spite of the fact that Huawei could probably have built it cheaper than any other competitor.

That was seven years ago.

Being kicked out of the NBN didn’t end our relationship with China. However, our ties to the Middle Kingdom began to unravel in the middle of last year.

Just as China was bidding to be part of Australia’s 5G network, the Aussie government stepped in once more, insisting that Huawei can’t be part of the new infrastructure.

The Australian government went ahead with the ban, in spite of Huawei having the greatest 5G technology in the world.

Quite frankly, no other provider even comes close to what Huawei is offering, from a 5G technology point of view.

Even though we know this, Chinese-backed firms Huawei and ZTE Corporation have both been booted out from bidding on — and then building — our new 5G infrastructure.

Turns out, we were a global leader.

Towards the end of 2018, Japan, New Zealand, and the US have all banned Huawei from being involved in government infrastructure.

And this pressure is beginning to show in Chinese communications.

A Chinese diplomat recently made an informal complaint to the World Trade Organisation (WTO) in April. As I explained at the time, it’s unlikely to be held up.

The problem is, the informal complaint about Australia being anti-international trade may have accidently kick-started a New Cold War.

You can’t do that

Turns out, the world’s leader in 5G technology isn’t going to take the ban lying down.

At a World Trade Organisation (WTO) meeting in Geneva (April this year), Chinese officials brought up Australia’s 5G ban.

Huawei’s Deputy Chairman Ken Hu has asked global governments to set up independent standards to decide who can and can’t be trusted.

Backing this up was a complaint from Chinese officials that refers to Australia’s 5G ban as ‘discriminatory market access prohibition on 5G equipment,’ adding that it’s ‘obviously discriminative’ and breaks the world trade rules.

Furthermore, one Chinese representative said:

Country-specific and discriminatory restriction measures can not address the concerns on cybersecurity, nor make anyone safe, but only disrupt the global industrial chain, and make the country itself isolated from the application of better technology.’

Does this mean China’s very public whinge will see the WTO overturn Australia’s ban on Huawei bidding for our business?

Probably not, said former Australian trade negotiator Dmitry Grozoubinski.

According to him, the WTO rules are loose enough that anything deemed a national security threat automatically means it’s unlikely to be challenged by the WTO. Grozoubinski told ABC news:

‘[The WTO] has a very broad national security exception that basically says that none of the rules in the agreement apply if the receiving country interprets them to be contrary to their national security interests.

Essentially, Grozoubinski says this broad definition isn’t used often, but the WTO specifically allows this type of ‘anti-trade’ sentiment to pass.

However, a Chinese complaint to the WTO isn’t so much about getting Australian business back, but about saving face.

Chances are the formal complaints, and the suggestion to discuss cybersecurity threats, is more about adding credibility to Huawei’s current European contracts…

China dobs again

Nonetheless, China isn’t taking the ban laying down.

Yesterday The Age revealed some of the minutes from a WTO meeting in July earlier this year, saying our restrictions were affecting current 4G networks:

China’s delegate told the meeting Australia had failed to provide justifications for the decision, issued “disappointing” responses to Chinese questions, and violated rules by “targeting specific Chinese vendors and depriving Chinese equipment of access” to the Australian market.

“Worse still, in 2019 the scope of Australia’s restrictive measures had expanded beyond 5G,” the delegate said, according to the minutes. “The government of Australia had introduced additional unreasonable requirements for … equipment suppliers from China on maintaining and operating the existing 4G network.

Adding that the ban we have in place is fairly reasonable:

While the Australian government has maintained the ban on equipment vendors “likely to be subject to extrajudicial directions from a foreign government” is not directed at any one country, it is widely recognised the national security measure was aimed at China’s companies.1

Given Australia’s reluctance to allow China’s 5G tech into our projects, how long until we feel the wrath of Chinese retaliation?

Should Australia protect its national security first? Most definitely.

The problem for us, however, is the economic cost of putting Australian security first.

China hasn’t made a formal compliant to the WTO.

Yet certain delegates are making noise about the ban.

Since the ban came into place, Telstra has awarded the 5G contract to a Swiss-based firm.

Nonetheless, the consequences of booting Chinese firms out of Aussie technology could have ramifications for us.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

1 ‘https://www.theage.com.au/politics/federal/unreasonable-china-claims-australia-has-expanded-5g-restrictions-20191216-p53k9j.html’