Huawei, Trump, Bolsonaro and China: what does Brazil have to gain...

21 October 2020

Credit, Reuters

Photo caption,

Huawei is the largest supplier of equipment for telecommunication networks in the world

Amid so many events this year it may even be difficult to understand, but the governments of several countries – including Brazil – are in the midst of discussions and decisions that will revolutionize the way people work, relate and live.

This is the implementation of the fifth generation telecommunications technology (5G). At first glance, 5G is just an update of the 4G systems that already exist in Brazil – the use of radio frequencies granted by the government to mobile operators for the transmission of digital data.

But in practice 5G will be much more than that. The expected speed of connections is in the order of 10 to 20 times greater than that of 4G technology. This leap in efficiency will allow for drastic changes in the way society works.

One example, among hundreds of possibilities, is the development of autonomous cars – guided by robots and without drivers – which is one of the automotive industry’s biggest bets for the future.

The 5G technology would make it possible to interconnect the cars in a network, organizing all vehicle traffic safely and without the need for drivers to make decisions.

Pressure on Brazil

In any scenario, decisions on an auction of this magnitude – which will be the largest ever held in Brazil and one of the largest in the world – would already be controversial and difficult.

But to make matters worse, Brazil will have to decide how to implement 5G amid one of the most heated disputes in the trade war between the United States and China.

President Jair Bolsonaro’s government has been under pressure from the two world superpowers. American President Donald came to speak openly in July that he is campaigning against the Chinese on the issue.

The center of the dispute is a Chinese company, Huawei, which is today a global leader in 5G technology.

The Brazilian telecommunications market is dominated by four giant operators (Vivo, Claro, TIM and Oi) that offer cellular services to Brazilians. But behind these services, there is a network of technological equipment that is provided to operators by only three companies: Swedish Ericsson, Finnish Nokia and Huawei. In Brazil, as in several countries in the world, the 4G network has technology from these three companies.

But in recent years, the United States has launched an offensive against Huawei, which, according to the Americans, poses a national security danger to countries that buy their equipment.

The accusation is based on the following logic: if the whole society is interconnected using equipment from a Chinese company – which would include traffic systems, communication systems or even “smart” household appliances within our homes – we would all be vulnerable to espionage by government of China.

Huawei is a private company, but a security law passed by China in 2017 theoretically allows the Beijing government to require data from private companies if the need is classified as important to Chinese sovereignty.

The Americans want Brazil to adopt a tender that excludes operators from using Huawei equipment – something that has already been adopted in other countries around the world, such as the United Kingdom, Japan and Australia.

China denies all accusations and says that the only interest of the USA is to undermine the Chinese technological growth, which has been facing the Americans.

Both sides of the dispute suggest that Brazil could be subject to sanctions on the one hand or benefits on the other, depending on how the country decides to position itself.

Bolsonaro and Paulo Guedes received US security adviser Robert O'Brien

Credit, Reuters

Photo caption,

Bolsonaro and Paulo Guedes received US security adviser Robert O’Brien this week

Brazil intends to carry out the bidding for 5G in May next year. And President Jair Bolsonaro declared this week that he will be the one to decide on the Huawei issue and “full stop”.

But what does Brazil have to gain or lose if it yields to American pressure?

Win

So far, the main incentive to ban Huawei is alignment with the U.S.

It is also understood that along with this alignment, some type of financial gain could come in the bilateral relationship.

On Tuesday, Brazilian authorities received a delegation from the American government in Brasília to sign a letter of intent in which EximBank, the United States Export and Import Bank, signals that it may invest more than R $ 5 billion in several areas – “especially in telecommunications,” according to a US government statement.

Two other things drew attention at the event. First, the presence of the US National Security Advisor, Robert O’Brein, in Brasilia, in an event that should only be, in theory, between authorities in the economic and financial sector.

Another point was the speech by the Minister of Economy, Paulo Guedes, at the signing ceremony of the agreements. After stressing that Brazil trades both with the USA and with China, the minister made direct mention of his concern for security: “So we know who our geopolitical partners are and, at the same time, we trade with everyone. Our approach to the Americans has always been, is being, based not only on economic results, but also on security “.

At another event in Brasilia this week, White House economic advisor Larry Kudlow said that Washington “encourages Brazil to watch China closely for all types of technology, telephony and 5G”.

Huawei president in Brazil in meeting with Bolsonaro

Credit, Presidency of the Republic

Photo caption,

Huawei executives met Bolsonaro last year

Americans do not make any explicit suggestions about financial support for Brazil if Brasilia chooses to ban Huawei from its 5G network.

But in February of this year, US Vice President Mike Pence suggested that the Huawei issue could bring economic damage to those who oppose Washington.

At that time, the United Kingdom had announced that it would continue to work with Huawei on the adoption of 5G. Pence said the White House was “deeply disappointed” by the British decision, and recalled that the United States and the United Kingdom were in the process of starting negotiations for a free trade agreement, now that the British have left the European Union.

Asked whether Huawei’s question would end these negotiations, Pence replied, “We’ll see.”

In July, the UK ended up reversing its decision, which pleased the Americans. Not only will Huawei be banned from the 5G network, but the country has promised to remove all equipment from the Chinese giant from its telecommunications network by 2027.

There is also a big unknown about the future of the US-China trade war that will only begin to resolve itself after November. So far the fight against Huawei has been a flag of President Donald Trump. But analysts are unclear about how Joe Biden would position himself against Huawei if he wins the November election, as the Democrat has not signaled his position on the issue.

Another potential gain for Brazil, if it agrees with the American position, would be in relation to national security – if the concerns raised by the intelligence agencies are resolved.

The US is not the only country to ban Huawei equipment. The concern about Chinese equipment first emerged in 2018 in a report by “Five Eyes” – an alliance between intelligence agencies in Australia, Canada, the United Kingdom, New Zealand and the USA.

Since then, several countries have followed the recommendations not to work with Huawei. This is the case of Australia, New Zealand, United Kingdom, Japan, United States, Italy, France, Czech Republic, Poland, Estonia, Romania, Denmark, Latvia and Greece. Germany and India would also be considering following the same path. And Sweden (Ericsson’s country, Huawei’s direct rival) announced this week that it will also ban the Chinese company from its 5G network.

This week, a new report by a British Parliament committee suggested that there is a “clear sign of collusion” between Huawei and the “Chinese Communist Party apparatus”. Huawei criticized the British report’s findings.

To lose

But taking action against Huawei – even pleasing Washington – will also bring damage to Brazil.

The most evident of these is the economic loss. Brazil is already late in the auction of its 5G network. The delay was caused by a technical problem – some of the frequencies that will be put up for auction are the same as for satellite dishes, which generated an impasse between television and telephone companies.

Banning Huawei from the network – or withdrawing it completely, as the British intend to do – would cost time and money. There are no estimates for the Brazilian case, but in the United Kingdom a study indicates that a ban on Huawei could delay the implementation of 5G by up to three years, at a cost of more than 18 billion pounds (more than R $ 130 billion).

This week, the president of Huawei in Brazil, Sun Baochang, told the Folha de S. Paulo newspaper that operators would have to pay more to replace their equipment if Brazil chooses to ban the Chinese company, and that these costs would be passed on to consumers.

This delay would also slow down the competitiveness of the Brazilian economy, since industries and companies would lag behind the other countries that already had 5G. Brazil is the fifth largest telecommunications market in the world, and official data show that there are 231 million cell phones in the country – or 94 cell phones for every 100 Brazilians.

There is also a risk that Brazil will displease – and even receive retaliation – from China with the decision.

The Chinese embassy in Brasilia issued a statement this week condemning the statements made by US officials visiting Brazil.

“Recently, a small number of American politicians, disregarding the facts and forging a series of lies, have been launching defamatory attacks against Huawei’s 5G. It has used state power to prevent the legitimate operations of Chinese high-tech companies, abusing the pretext of national security “, says the note.

The Chinese embassy also highlighted the importance of economic relations.

“China has been Brazil’s largest trading partner for 11 years in a row. It is the largest source of trade surplus and one of the main investors in Brazil. (…) We are sure that our relations will not be diverted from the healthy and stable development due to any external interference. “

China is now the main source of Brazil’s trade surplus in the world, with a surplus of US $ 3.2 billion until July. With the United States, on the other hand, Brazil accumulates a trade deficit of US $ 3.1 billion until July.

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