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The Nikkei View

Incompatible legal systems at heart of China's telecom shutout

Both American and Chinese players must offer greater transparency

The U.S. continues to squeeze Huawei Technologies and other Chinese companies out of telecommunications networks over concerns of their ties to Beijing.   © Reuters

The U.S. Department of Commerce on Nov. 26 proposed a new regulation that would bar imports that pose a risk to U.S. telecommunications networks. The move was likely designed with Chinese companies such as Huawei Technologies in mind.

Washington believes Huawei is closely linked to the Chinese Communist Party and its military. While China needs to address these concerns, the U.S. must also strike a balance between business and national security and avoid excessive regulations.

The U.S. has already restricted American companies from exporting parts and technology to Huawei, and banned the government from purchasing Huawei products. It also prohibited companies receiving government subsidies from using Huawei and ZTE products on Nov. 22. Washington is now moving to further squeeze Chinese companies.

Under the newly proposed rule, the commerce secretary will instruct U.S. companies to halt transactions deemed to pose a risk to American security. Companies that do not comply will be fined. The rule will go into effect following a 30-day public comment period.

The U.S. is increasing pressure on Huawei in part over concerns that Chinese players could take the lead in fifth-generation networks. The U.S.-China trade war plays a role as well.

But Washington's biggest grievance is the Chinese government's relationship with companies there. Chinese nationals and corporations are required to assist Beijing in gathering information under a law that took effect in 2017. Huawei denies any government intervention. Still, it is understandable that the U.S.and other nations would keep a distance from such companies, which are bound by a legal system so unlike their own. China's government and companies must face this reality.

The same concerns apply to ByteDance, which operates the TikTok video-sharing app. The Chinese company has been accused by the U.S. of censoring content to appease Beijing.

On the other hand, the U.S. must also explain the justifications behind its regulations to the extent that security reasons allow. Ambiguous standards would lead to arbitrary enforcement. Since limiting the use of competitive Chinese products impacts business activities both for American and foreign companies, it is critical that Washington better telegraph its intentions.

With the U.S. and Europe struggling to agree on Huawei-related issues, transparency will be an important element in bringing the governments together.

Indeed, the new U.S. regulation has placed allies and companies in those jurisdictions in a difficult position. For example, Japan's major mobile carriers all moved to eliminate Huawei products from the country's networks at Tokyo's urging. But such ad hoc responses could create future conflicts. The public and private sectors must have a detailed discussion of their principles and ensure clarity.

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