Christopher Findlay. Can cooperation prevent the descent of a digital Iron Curtain? (East Asia Forum, 27 October 2019)Nov 1, 2019
Fifth-generation mobile network technology (5G) offers higher speeds and greater capacity. This is critical for cutting-edge technologies such as autonomous vehicles and applications of virtual reality. The development of 5G is also expected to drive innovation towards many things not yet imagined. It is likely to be truly transformative.
Chinese technology firm Huawei has significant market shares in the components required for 5G telecommunications networks. Huawei is an industry leader because of its research and development spending. It offers competitive pricing, leading technology and global standards.
Western policymakers are worried about Huawei’s governance and reliability but most pressingly, Huawei is considered a cyber intrusion risk.
Banning Huawei is not the best solution. A more efficient solution would be to identify the real risks involved and to design good regulatory and business responses in an internationally cooperative manner.
Three risks are evident in the application of 5G. First, in a 5G world more data will be moving about, so it will be more difficult to identify malicious data and opportunities for cyber intrusions will grow — the impact of which will be much greater than it would be with 4G alone. Second, there are risks associated with data flows that involve private information or information of commercial value. Third, there are matters specific to defence. Military systems rely on networks, so there is concern about actions that might impede military operations or distort information.
The United States has responded by banning sales of US technology to Huawei, with some exemptions. It is also developing regulations for an executive order to secure the ICT supply chain, which are expected to impede Huawei sales to US networks. The United States has asked others to follow its path. Australia has effectively banned Huawei from participation in 5G. Others are considering different options, given the costs of alternatives to Huawei.
In response, President Xi Jinping has referred to a new ‘long march’, elements of which have include a white paper, China’s Position on the China–US Economic and Trade Consultations, a new list of unreliable entities and new regulations on procurement for information infrastructure.
The situation will be difficult to resolve in the context of the ‘punch and counter punch’ environment in which China and the United States are now conducting their relationship. The more likely consequence is a new global digital divide, a lower degree of integration across the Pacific in these key sectors and slower growth for all.
But another world is conceivable — one differentiated by a path of cooperation.
China’s concerns in the cyber world are like those of others. China’s Cybersecurity Law, for example, looks a lot like other such laws across the globe, with reference to personal information protection, the notion of critical information infrastructure, the security responsibilities of network operators and the security certification of equipment.
Given an apparent alignment of purpose, there is a conceivable solution where the United States engages with its trading partners, including China, to build a new regime that supports common interests.
The design of this regime would be based on the principles of good public policy and it would proceed by addressing a series of questions.
First, what are the security risks associated with actions taken by international providers of services and infrastructure? And from where do they originate? Second, what are the options for dealing with these risks?
In some cases, the answer will not be a policy intervention but new processes or new technology, which the market can provide. Where policy is the answer, then the most efficient option would be chosen, ideally one that is not trade-distorting. This is a risk-based approach to the design of a solution, which the European Union is applying before deciding on its position. Australia and the United States also refer to these principles in their policy documents, but with respect to their implementation rather than to their default positions.
International cooperation is fundamental for an efficient solution. This includes work on the alignment of regulations in this area, the definition of such concepts as personal data and critical information infrastructure, the design of IP protection systems in this sector and institution of principles governing the application of artificial intelligence. The principles driving these processes might also be documented in trade agreements.
Article 19.15 of the United States–Mexico–Canada Agreement provides a model for how to proceed. APEC’s Cross-Border Privacy Rules System applies to data flows across a larger number of countries and more can be encouraged to sign on. Most members of the G20 have signed onto the Osaka Track framework within which there is scope to discuss standard rules relating to cross-border data flows.
In this recent history there is the core of a solution to a big risk for the trading system. But in our immediate environment, adoption of such measures by key players looks difficult. In the meantime, those of a like mind can imagine a new global regime based on good public policy and can cooperate on the design of its elements.
Christopher Findlay is Honorary Professor of Economics at the Crawford School of Public Policy, the College of Asia and the Pacific, The Australian National University.
A longer version of this article appears in the most recent edition of East Asia Forum Quarterly, ‘Japan’s leadership moment‘, Vol. 11, No. 3.