September 22, 2020
This is a potentially important story. Welt am Sonntag reports that Angela Merkel is willing to pass a 5G security law that excludes Huawei. Talks are still ongoing with the SPD, which wants to toughen the legislation further, but the bottom line is that Huawei will likely be excluded.
The German government is in the final stages of drafting an IT security law to set security conditions for IT suppliers in critical infrastructure. The law does not explicitly mention Huawei, but sets conditions that Huawei could not conceivably meet.
This is our big caveat when we read the story. We haven't seen the draft legislation, nor have MPs. To get a sense of what this means in practice requires the study of a lot of small print. For example, does the law allow Huawei to enter 5G bidding indirectly through a third company?
Die Welt am Sonntag is also reporting that discussions are still ongoing with the foreign ministry, which seeks an additional political procedure. The SPD group in the Bundestag is firmly opposed to Huawei's participation in 5G network development because of China's human-rights record. The government's version of the new law is based purely on security considerations.
What makes us sceptical about the story is Merkel's reported characterisation of the law as an effort to pacify critics. We are not sure that critics are seeking to be pacified. Nor do we know whether the final draft of the law will achieve that. It is also possible, indeed likely, that the Bundestag will seek to modify parts of the law. There is quite a bit of opposition to Huawei's bid from a group of CDU MPs led by Norbert Roötgen, the head of the Bundestag's foreign affairs committee and one of three candidates in line to succeed Angela Merkel.
Furthermore, we do not normally use Welt am Sonntag as a primary source given the paper's tendency to embellish news. This story, too, contained a lot of fluff, but we think the reporting gave a fair reflection of the state of play at the end of last week. We assume that the source of this story is the interior ministry which, together with the chancellery, is the primary ministry in the legislative drafting process.
What we would like to know is what exactly is meant by a security check. Germany's security services will almost certainly play a role. Bruno Kahl, president of the federal intelligence service, told the Bundestag last year that Huawei could not be fully trusted. But we know that security policy is political, especially in areas like telecommunication networks. While the federal intelligence service can give a nuanced assessment of the risks involved, its job is not to give yes-or-no answers. This is a why a generalised political override makes sense to us. We see some similarities to the competition policy regime, which also makes day-to-day decisions while giving the economy ministry the opportunity for an explicit political override.
The report says implementation is likely to be similar to that of the foreign trade law from earlier this year. This included a new layer of checks on company takeovers, and allowed the government to investigate foreign takeovers on national security grounds. This law was passed in compliance with the EU's screening regulation from 2019. Previously, such investigations only took place when a security threat was already identified ex-ante.
This law, combined with the new IT security legislation, would introduce a much higher level of security screening for foreign companies compared to what existed before. It is also an indication that the free-for-all period of globalisation is over.
Merkel's game plan is to depoliticise the decision on 5G. We would not characterise her as pro-Huawei, but she definitely wants to avoid a political decision to exclude the Chinese company. She could, however, live with a devolved technocratic decision. This is why the political override, as demanded by the SPD and some in the CDU, is such a tricky issue for her.
We also have stories on Huawei's longer-term activities in Europe; on the slump in foreign trade; on Cyprus' attempt to force sanctions on Turkey; on Macron losing another early supporter; on the loss of cross-border retail banking after Brexit; and on the possibility of a second lockdown.