China dobs on Australia to World Trade Organisation

China dobs on Australia to World Trade Organisation

Let’s play a little game.

Imagine you are getting a new lock fitted to your front door.

You have two choices.

The traditional deadlock.

Nothing fancy. The sort of lock that’s been around in various forms for decades. Sturdy, reliable and basic.

Or the latest technology front-door lock.

One with a finger-scanning pad. Something that sends a ‘lock breech’ alert to your smartphone.

Possibly the safest lock you could put on your front door.

In fact, this lock is a market leader. Nobody in the world today has better technology.

But that whiz-bang lock comes with a catch.

The latest and greatest high-tech gadget is made by a company that’s repeatedly proven it can’t be trusted.

Sure, they say it’s different this time. They’ve learned from the error of their ways. No more ex-criminals installing the locks.

Can you put the past behind you?

Or would you choose the other lock?

The sturdy, basic, slightly outdated deadlock. The one produced by a company you trust.

Whose lock do you pick to keep you safe while you sleep at night?

Australia chose the sturdy deadlock

Now, I want you to imagine Australia is the front door.

And think of the coming-soon 5G network as the lock.

China currently has the greatest 5G network 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 — and then building — our new 5G infrastructure.

Instead, Telstra has partnered with Swedish-owned Ericsson to build our 5G network.

Basically, we’ve picked the trusty, reliable deadlock over the fancy, high-tech one.

The battle to keep Huawei and other Chinese telcos out of the 5G market is growing.

Australia was one of the first countries to ban Huawei’s involvement in the NBN back in 2012. Then we banned them from building our 5G network in 2018.

Japan and New Zealand quickly followed our lead. So have Taiwan and the US.

In fact, the US is now pressuring other countries to follow suit and ditch any Chinese telco involvement in communications infrastructure. 

According to The Australian last month, a US ambassador wrote to Germany’s economic minister, warning that if Germany allowed Huawei or any other Chinese vendors to participate in 5G projects, it would lose ‘cooperation’ privileges when it comes to intelligence among its allies.

However, Germany has come out swinging, saying it has no intention of ending its arrangements.

Same goes with the UK.

The UK has been using Huawei’s technology for the past 15 years. However, it is now increasing the pressure on the tech giant to prove there’s no tech loopholes.

The Chinese telcos are hitting back, complaining Australia isn’t playing fair…

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 last week, 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[1], adding that it’s ‘obviously discriminative’ and breaks the world trade rules.[2]

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, says 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 intrests.[3]

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.

But the noise at the WTO isn’t about giving China the chance to be part of our 5G network.

Oh no. That ship has sailed.

Now that China has been booted out of our key infrastructure, it’s all about payback.

And they’ve already fired a warning shot.

Billions of dollars lost

Australia is firmly wedged between our biggest customer and our most powerful ally.

And that hasn’t gone unnoticed in the Middle Kingdom.

On the 5G ban, Chinese newspaper Global Times said last Friday that Australia is ‘under US command’.

Come Monday, a person from China’s Ministry of Foreign Affairs said that any country ‘adopting discriminatory practices’ towards global companies would ‘only hurt its own international co-operation’.[4]

China hasn’t gone as far as dumping us as a preferred supplier yet. But it is sending a very powerful message: Boot Chinese corporations out of Australian business, and Australia may find itself without Chinese business.

What does that mean?

Not only are our iron ore, coal and agricultural exports to China vulnerable, but others sectors to the Aussie economy are at risk.

There’s the $3.8 billion Chinese-related tourism sector…

…the $2.9 billion in wool we ship to China…

…and the $16 billion in education we’ve sold to the Chinese.

Or what about the $2.9 billion in gold the Chinese buy from us each year?

The point is, our economy is not only reliant on rocks shipped to China. We have created entire sectors around what the Chinese are willing to buy from us.

Current bilateral trade between the two of us stands at $183 billion each year.

More to the point, we don’t provide anything unique to China. Many other countries have similar exports.

Basically, China can go shopping elsewhere, but Aussies aren’t about to find a new customer with the same purchasing power.  

Threatening global trade relations in this way could have a severe impact on Australians.

Given Australia’s reluctance to allow China’s 5G tech into our projects, it won’t be long until we feel the wrath of Chinese retaliation. 

Should Australia protect its national security first? Most definitely.

But that protection comes at a cost. Knowing the days of sending cheap things to China are limited is one thing… Preparing for it is another.

Any reduction in two-way trade between us and China could have serious implications for the Aussie economy.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia