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International relations

Germany caught in dilemma over Huawei 5G rollout

China-friendly solution would fix country's glacial internet but inflame US

A move by Germany to ban Huawei would tempt Beijing to retaliate against German companies in China. (Nikkei montage/Reuters)

HAMBURG, Germany -- Berlin finds itself caught between Beijing and Washington as it considers whether to exclude China's Huawei Technologies from building badly needed fifth-generation, or 5G, telecommunications networks in Germany.

Pressure to follow the U.S., Australia, New Zealand, Japan and Taiwan in banning Huawei has been growing since German security agencies unanimously voted in January for a ban. But the influential BDI industry association warned on Feb. 6 that such a move would tempt Beijing to retaliate against German companies in China.

A Cabinet decision widely expected on Wednesday never came, reflecting persistent unease in Chancellor Angela Merkel's government. A spokesman stated that the "decision-making process has not yet been completed," and German daily Handelsblatt reported on Thursday that while an outright ban is off the table, security requirements are being modified that could amount to a de facto ban.

Now, time is running out, with Germany's auction for 5G frequencies scheduled for mid-March.

The administration of U.S. President Donald Trump has been urging allies to avoid equipment from Huawei, being particularly explicit with countries that host U.S. military bases, like Germany.

Huawei is not the only issue that is testing Berlin's patience with Washington. In January, the U.S. ambassador to Germany Richard Grenell shocked observers by threatening German companies involved in construction of the Russia-led Nord Stream 2 gas pipeline, which is strongly opposed by the U.S.

Indeed, Grenell started off badly with Merkel upon assuming his post in May 2018, bluntly declaring that part of his mission was to strengthen Europe's right wing.

Berlin still remembers that it was the U.S., not China, that used networks provided by U.S. tech conglomerate Cisco to spy on Germany. The government is also aware that U.S. liquid natural gas exporters would be main beneficiaries if Germany backed out of Nord Stream.

U.S. President Donald Trump, China's President Xi Jinping and German Chancellor Angela Merkel turn around for photographers at the start of the first working session at the G20 summit in Hamburg, Germany, July 7, 2017.   © Reuters

Meanwhile, German automakers count on the Chinese market and stand to profit from Beijing's recently relaxed restrictions on foreign-ownership of companies based in China. In October, 2018 BMW became the first foreign automaker to announce a deal to take a majority stake in a China-based joint venture.

"Germany really got itself into a Catch-22, with the only wise solution for now being to withstand U.S. pressure and not ban Huawei," said Jacopo Pepe, associate fellow with the German Council on Foreign Relations, in an interview with the Nikkei Asian Review. "Otherwise, Beijing would get the impression Berlin acts on Washington's command, which would cause long-lasting damage to German-Chinese relations," he added.

But ties with China are already being re-examined. German companies -- long proponents of good relations with the country -- are increasingly concerned about Chinese inroads into the EU, especially as regards buying tech companies. Last month, the BDI published a paper calling for Brussels to address the unfair advantages of China's state-dominated economy.

While the Merkel government dislikes Trump's heavy-handed trade tactics, German officials share many of Washington's concerns about China's growing economic clout.

However, the Merkel administration has been under fire for not improving the country's glacial internet. A 2017 study by the Organization for Economic Cooperation and Development ranked Germany 29th out of 34 industrialized economies for fast internet connections.

Deutsche Telekom, Germany's largest telecom, has been working with Huawei on 5G trials in Berlin since early 2018. The company has warned that a ban on Huawei would delay the rollout of 5G in Europe by at least two years.

Tim Pohlmann, CEO of Berlin-based software company IPlytics, told the Nikkei Asian Review that a launch without Huawei would be much slower, given that Huawei is one of the leaders in 5G technology and owns a large share of essential 5G patents. "Excluding Huawei would also make the rollout costlier, given that Huawei equipment is generally much cheaper than that of their European or South Korean competitors," he said.

"A desirable outcome would be for Berlin to make Huawei prove that its equipment contains no backdoors that could facilitate espionage by China," he added.

This would be in line with a recent proposal by Deutsche Telekom, which calls for government-supervised certification for all critical infrastructure components, source code reviews, and a "no spy" pledge signed by equipment vendors. Importantly, the proposal has won the support of peers Vodafone and Telefonica.

Also being discussed, according to German media, are changes to Germany's telecommunications law to make operators and providers prove they are not controlled by a foreign state.

China requires its companies to cooperate with intelligence services. But Merkel emphasized in a February speech in Tokyo that there must be assurances that a company does not hand over data to a foreign state.

Pepe argues that Berlin should start by toughening its stance toward Beijing. "[The government] should be ensuring data security and be prepared to walk away from joint projects if negotiations don't go well," he said.

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