BRUSSELS Dec 12 The European Union should take
action against Chinese telecom equipment makers because their
increasing dominance of mobile networks makes them a threat to
security as well as to homegrown companies, an internal EU
report has recommended.
Echoing similar security concerns to those in the United
States and other Western countries, the report argued that
action is needed over equipment sold in the European Union by
Huawei and smaller rival ZTE.
Their combined share of the EU telecoms equipment market has
risen to 25 percent from 2.5 percent in 2006 at the expense of
EU suppliers such as Nokia Siemens Networks,
Alcatel-Lucent and Ericsson.
In 4G/LTE infrastructure for the latest data-hungry tablets
and smartphones, the Chinese firms have won 57 percent of all
contracts awarded so far in the 27-member European Union.
"The growing presence of the Chinese in the telecoms market
is increasingly viewed by all EU participants in this sector,
including industry experts, as a major security risk," said the
report, prepared in May by the European Commission, the EU
The report, seen by Reuters on Wednesday, specifically
mentioned the potential for spyware to be inserted into the
telecom equipment that even operators would be unable to locate.
The arguments over competition and security were closely
entwined, with the report saying that still higher reliance on
Chinese firms if EU firms went out of business would increase
The report was prepared as the Commission gathered evidence
for a possible anti-subsidy case against the firms - something
it has not yet decided to begin. EU sources said the report was
still under discussion by the Commission and member countries.
One option could be for the Commission to start an
investigation into possible trade subsidies, which it suspects
the companies receive from Beijing.
Although such a "trade defence investigation would be a very
unusual step, we believe that from a technical perspective it is
justified under these special circumstances," the report said.
A Commission spokesman declined to comment on the report.
Other potential action could include a challenge against
China at the World Trade Organisation, but the length of such
proceedings could mean remedies came too late to help European
companies, the report said.
A Huawei spokeswoman, Tina Tsai, said the report appeared to
be based on a misperception.
"It is because of this economic crisis that we are seeing
growing protectionism," she said. "If you really focus on one
country and one company, ignoring the real threat of
cyber-security, then definitely I think it is really unfair."
ZTE said its European spokesman was currently in China and
not immediately available for comment.
Dealing with the Chinese companies presents the European
Union with a dilemma on both the business and diplomatic fronts.
Although EU suppliers might benefit from protection against
Chinese competition, they also do business in China and worry
about a potential backlash there if they bring a complaint.
Moreover, Huawei has made large investments in Britain and
Finland. Huawei said on Monday it planned to
double its workforce in Europe, seeking growth outside the
The U.S. House of Representatives' Intelligence Committee
has urged U.S. firms to stop doing business with Huawei and ZTE,
saying they could pose a security threat because of ties to the
Communist party. Australia has blocked Huawei from tendering a
bid to supply its national broadband network and Britain's
parliament has begun an inquiry into Huawei.
China has dismissed any security concerns, with one Chinese
minister accusing the United States of a "Cold War mentality".
Prices of equipment from Huawei and ZTE were on average 18
percent below those of EU producers, the EU report said.
"The situation has already led to serious job losses for one
of the major EU producers," it said, referring to Nokia Siemens,
"and the other two are expected to follow suit shortly." It said
that two, or even all, EU producers could disappear.
"This would significantly increase the degree of EU
dependency on Chinese-produced equipment with a corresponding
increase in security risk," the report said.
Despite the danger of diplomatic fallout, a case over
telecoms might put the European Union in a stronger position in
the discussion over wider Chinese export subsidies.
Security concerns are normally the domain of individual EU
member states, but the Commission handles trade issues for the
whole bloc. The Commission is also working on binding