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Sourcing restrictions: prudent or punitive?

china cyber

Responding to an Aug. 20 article in FCW on how NASA is enforcing rules governing the acquisition of China-sourced IT gear and software in a new government-wide procurement vehicle, a reader commented:

This is just calling for tit [for] tat protectionism all the way around. Let's hope Beijing is not as petty.

Adam Mazmanian responds:

The provision referred to in the original article requires four agencies – NASA, Commerce, Justice and the National Science Foundation – to obtain special approval when acquiring technology systems that are sourced to companies with ties to the Chinese government. Industry groups have opposed the measure, contained in the continuing resolution currently funding the government, in part because as the reader suggests, it invites retaliation. An April letter from the U.S. Chamber of Commerce and other trade groups to Congressional leaders opposing the measure noted that, "The Chinese government may choose to retaliate against U.S. based IT vendors by enacting a similar policy for screening IT system purchases in China."

So far, it's hard to point to substantive action on the part of China that can be linked to the U.S. policy. "I think the pieces are moving," said Jon Lindsay a research scientist at the University of San Diego who specializes in cybersecurity. "U.S. companies are going to get a ton more scrutiny from China."

The law is just one small piece affecting China's posture toward U.S. information technology firms. The naming of Huawei and ZTE as cyber-espionage security risks by the House Intelligence Committee in 2012 has diminished the ability of those companies to land U.S. contracts, even in the private sector. A report in February from Mandient traced U.S. cyberattacks to a Chinese army espionage unit. More damning are recent revelations about spying programs run by the National Security Agency with the cooperation of U.S. technology firms. Additionally, Edward Snowden, the former NSA contractor who was the source of the disclosures, made accusations, reported by the Hong Kong press, that the U.S. maintained the capability to spy on China through back doors in American-made network equipment.

State-run media in China has since reported that IBM, Oracle and EMC are under investigation over possible security concerns. Daniel Castro, senior analyst with the Information Technology and Innovation Foundation, said recent moves by Chinese officials to examine U.S. technology firms were more in response to revelations about NSA spying than about law governing U.S. acquisitions. He noted that there are longstanding restrictions in place that apply to government procurement of technology for military and security use.

Lindsay understands the concerns of American technology companies when it comes to inviting retaliation. American companies have been able to maintain market share against Chinese competitors by producing better products. But now, "the Chinese have strong political reasons to get active and involved and start retaliating against the U.S.," he said.

Posted by Adam Mazmanian on Aug 29, 2013 at 7:11 AM


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