Some say the U.S. is acting hypocritically given its own spying

According to a Friday account published in The Wall Street Journal, South Korea's government begrudgingly caved to U.S. pressure and successfully lobbied one of its largest cellular carriers to reject a bid for sensitive communications equipment from China's Huawei Technology Comp., Ltd. (SHE:002502)

I. China, North Korea, and South Korea -- a Worrisome Web

Huawei -- a company founded by a former officer in China's People's Liberation Army (PLA) -- reportedly had the leading bid, offering a very competitive rate to sell carrier towers, routing, and switching equipment to South Korea.

South Korea's government was reportedly considering the deal before the U.S. ratcheted up the political pressure, pointing out that Huawei equipment could be used to perform espionage on the U.S. and South Korean military forces, as well as the government of South Korea.

North Korea
North Korea last-year threatened to attack its Southern neighbor. [Image Source: CNN]

The U.S. currently maintains 28,500 troops in South Korea and 15 active military bases [source].  The large American presence has been maintained ever since the end of the Korean War in July 1953.

The equipment in question was to be purchased by UG Corp. (KRX:032640), a sister company of LG Electronics, Inc. (KRX:066570)(KRX:066575).  It would have connected some U.S. military bases and Korean government sites.   UG Corp. is South Korea's third largest cellular carrier.

Ren Zhengfei
Ren Zhengfei, founder and CEO of Huawei, is a former PLA officer. [Image Source: CFP]

U.S. Department of State spokeswoman Jennifer Psaki claimed to Reuters that the U.S. did not force South Korea to reject Huawei, although she confirms U.S. officials did raise concerns with their South Korean counterparts.  She comments:

While the United States has expressed concerns in the past, these decisions were made by the Republic of Korea and the Republic of Korea alone.

Likewise a UG Corp. spokesperson claimed it made the choice on its own free will, stating:

U.S. Forces in Korea is one of our valuable customers, and we will do our best to satisfy our customers

Huawei sign
An employee walks towards a Huawei office in Wuhan, China. [Image Source: Reuters]

But a source of The Wall Street Journal indicates that South Korea's government might have been much more forceful in ordering UG Corp. to reject the bid.  They comment:

To address these security concerns, South Korea decided to make changes to the project so that sensitive South Korean government communications won't pass through Huawei equipment.

The U.S. government has been known to block sales of Huawei and other Chinese telecommunications equipment makers since at least 2010.  In 2010 Sprint Corp. (S) rejected bids by Huawei and its local rival ZTE Corp. (SHE:000063).  The U.S. late last year convinced Australian telecoms to stay away from Huawei and ZTE equipment, as well.

II. Hypocrisy?

The market interference has raised criticism from some.

Chinese firms complain that they're being unfairly attacked.  They argue there's no evidence they compromise their business partners' data for the Chinese government.  They also attack the other side of the debate, pointing out that many U.S., Canadian, and European telecommunications equipment makers manufacturer parts or even entire products in China and could be equally vulnerable, were the risk real.

And late last year the world obtained evidence that the U.S. National Security Agency (NSA) was intercepting electronics shipments and planting bugs in them, including tiny wireless transmitters and malicious firmware.  Those revelations led the U.S. to face similar criticism as Huawei has faced.

In December Brazil's national government shot down a bid by The Boeing Comp.'s (BA) for a $4.5B USD jet fighter contract, saying the American company was a security risk.  The F/A-18 Super Hornet was formerly the front runner for the contract according to Reuters.  Now the update to Brazil's jet fleet will go to Swedish Saab AB (STO:SAAB-B) which will provide the South American nation 36 new Gripen NG fighters by 2020.

The NSA spying is expected to cost the IT space $21.5-35B USD (according to the Information Technology and Innovation Foundation (ITIF)) over the next three years, due to damaged trust in the international community.
Cottonmouth receiver
The U.S. has been revealed to actively spy on its allies and enemies via sabotaging electronic equipment. [Image Source: NSA via Der Spiegel]

A former NSA director -- Michael Hayden -- last summer accused Huawei of actively spying for the Chinese government.  Officially, though, no evidence of such claims has been produced.

Following a 2012 Congressional discussion about banning Chinese OEMs due to security concerns, a White House report found no instances of active spying in the wild by Chinese equipment makers.  However, it said such spying could occur in the future.  Currently Huawei, ZTE, and others are not banned from the U.S. market, but they have been minimized in it, thanks to the government pressure.

Sources: The Wall Street Journal, Reuters

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