WASHINGTON/NEW YORK -- The U.S. will impose a ban next month on federal procurement from businesses that use products made by Huawei Technologies and four other Chinese tech companies deemed security threats, a move that affects more than 800 Japanese enterprises.
U.S. agencies will be barred from signing or renewing contracts with companies that use products or services from Huawei, peer ZTE, camera makers Hangzhou Hikvision Digital Technology and Zhejiang Dahua Technology or radio manufacturer Hytera Communications. Washington cites the risk of sensitive information leaking to Beijing.
The regulations take effect Aug. 13, after which companies that bid on federal contracts must certify that they do not use banned products. Washington estimates the cost of full compliance at more than $80 billion. Details of the measure, based on defense legislation signed in 2018, were issued Tuesday.
The change essentially forces companies to choose between doing business with Washington -- which spent roughly $580 billion on procurement in fiscal 2019 -- or with major suppliers, accelerating the decoupling of the American and Chinese economies as tensions continue to mount.
The affected Japanese companies include U.S. subsidiaries that have direct federal contracts as well as Japan-based enterprises that deal with American forces stationed in the Asian country. U.S. government procurement from Japanese businesses totaled $1.5 billion in fiscal 2019.
Nippon Telegraph & Telephone, which employs some equipment from the five banned companies outside Japan, says it will replace all such products before the U.S. rule takes effect and does not intend to use them going forward.
An arm of subsidiary NTT Data works with government systems, and "we want to make sure there are no problems with the contracts," a company representative said.
SoftBank Group is switching out Huawei and ZTE telecommunications equipment from parts of its fourth-generation wireless networks. But the company carries 5G-compatible smartphones from ZTE and says it "has no plans at this time" to change that.
General contractor Kajima uses some old Huawei gear, which will be replaced with permissible products late this year as part of an upgrade. Though Washington is pushing for companies to comply with the rule quickly, the change is not expected to affect Kajima's orders.
How Washington defines "use" of problematic products is unclear, which could lead to companies spending more than necessary if they interpret the rule more strictly than the government does. The ban may be expanded in a year to cover affiliates, subsidiaries and parents of contractors.
"It's not clear how far [businesses] need to go to make sure they aren't using products from the five companies," said Ryo Okubo, co-head of the New York office of Japanese law firm Nagashima Ohno & Tsunematsu, adding that "Japanese companies will need to stay on alert."