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06/30/2022

IN PRAISE OF NATO FOR CONFRONTING CHINA

Key articles:
Politico: Interview with NATO Secretary General Jens Stoltenberg
Pre-summit press conference with NATO Secretary General Jens Stoltenberg
Reuters: ‘Systemic challenge’ or worse? NATO members wrangle over how to treat China

Former Under Secretary of State, Krach Institute for Tech Diplomacy at Purdue Chairman Keith Krach Lauds NATO for Confronting China

SAN FRANCISCO – Former U.S. Under Secretary of State, Krach Institute for Tech Diplomacy at Purdue Chairman and Global Tech Security Commission Co-Chair Keith Krach lauded the North Atlantic Treaty Organization (NATO) for addressing the geopolitical threats posed by China in its new Strategic Concept for the first time.

“The free world is recognizing the fact that Beijing poses a threat to our global security and our moral values,” Krach said. “From the Chinese government’s investments in key technologies to control critical infrastructure to its increasing military ambitions when it comes to Taiwan, it’s essential for allied democracies to confront these threats head-on.

“This year’s summit marks an important milestone in NATO’s ability to adapt to new security challenges. While NATO’s original mission was to counter Russian threats to the West, we must recognize that the greatest strategic challenges today come from what I call the ‘totalitarian twins’: Vladimir Putin and Xi Jinping,” Krach said.

“Furthermore, the historic applications by Finland and Sweden to join NATO will strengthen both their own security and that of NATO as a whole. The growth of our alliance underscores why democratic values will ultimately prevail despite the strategic challenges posed by China and other malign actors.”

“I urge all NATO allies to build upon the Clean Network Alliance of Democracies that I led while serving as America’s top economic diplomat to commit to only using trusted vendors for 5G and 6G networks that aren’t tools of the Chinese Communist Party. This united front is how we will take the necessary steps to ensure that emerging technologies are used to advance, not restrict, our cherished freedoms.

“Our adversaries are playing a game of four-dimensional military, economic, diplomatic and cultural chess, and the crossroads and the main battlefield is technology. That’s why it’s so important for NATO to continue to lead on artificial intelligence, autonomous weapons systems, big data, biotechnology, quantum technologies and other emerging areas – more than ever, the countries with the best technologies are the ones that win.”

Background: As the nation’s top economic diplomat from 2019 to 2021, Krach built the Clean Network Alliance to defeat the Chinese Communist Party’s efforts to control 5G communications; and was the highest-ranking State Department official to visit Taiwan in 41 years. Krach is nominated for the Nobel Peace Prize in 2022 for deploying his “Trust Doctrine” to defend against technological authoritarianism, safeguard global economic security, preserve democracy in Taiwan, and protect human rights to advance freedom and lasting peace. Before serving as Under Secretary of State, Krach was the CEO of DocuSign and Ariba. Krach now serves as chairman of the Krach Institute for Tech Diplomacy at Purdue, which integrates technology and foreign policy expertise to ensure that trusted technology is used to advance freedom.

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06/28/2022

APPLAUDS G7 INITIATIVE TO COUNTER CHINA

Below is a statement from Keith Krach reacting to the U.S./ G7 summit infrastructure plan to counter China’s Belt & Road initiative. Key articles:

Krach Institute for Tech Diplomacy at Purdue Chairman Keith Krach Applauds G-7 Initiative to Counter China

SAN FRANCISCO – As leaders of the Group of Seven democracies met in Germany, former U.S. Under Secretary of State, Krach Institute for Tech Diplomacy at Purdue Chairman and Global Tech Security Commission Co-chair Keith Krach hailed their initiative to raise $600 billion over five years for infrastructure projects in developing countries, including trusted digital networks.

“The world’s democracies have been awakening to the fact that the Chinese Communist Party’s initiatives in developing countries are little more than Trojan horses to insinuate Chinese technologies into the world’s telecommunications infrastructure, and to export their ‘dictator-in-a-box’ governance model,” Krach said. “An all-hands-on-deck approach is the only way to stop China’s tech totalitarianism in its tracks, and protect users in developing nations from dangerous breaches of personal and sensitive data.

“Recently, China exfiltrated data from the African Union headquarters, which was built with Chinese money and equipment, and was later found to be delivering sensitive business, military, and political information to servers in Shenzhen.

“There are so many risks, and that’s why I led the creation of the Clean Network Alliance during my time at the State Department. Since we created this initiative in 2020, it has attracted 60 ‘Clean Countries’ representing two-thirds of the world’s GDP, more than 200 Clean Telcos, and dozens of industry-leading Clean Companies in a global alliance of like-minded partners committed to only using trusted vendors in their 5G infrastructure. 

“This G-7 initiative also builds on the Blue Dot Network that my team and I developed to promote commonly accepted principles and standards on market-driven, transparent, and financially sustainable infrastructure development in the Indo-Pacific region and around the world, as well as the Three Seas Investment Fund to catalyze transportation, energy and digital infrastructure in Eastern European countries in accordance with our democratic values.

When you confront a bully, they back down – especially if you have your friends by your side. That’s why it’s so important for the G-7 nations to come together on a positive vision for global development that’s founded on trust principles rather than the CCP’s techno-authoritarian power principle model.

Krach, who co-founded and chairs the Krach Institute for Tech Diplomacy at Purdue University and co-chairs the Global Tech Security Commission, built the Clean Network to defeat the Chinese Communist Party’s efforts to control 5G communications. 

Background: As the nation’s top economic diplomat from 2019 to 2021, Krach built the Clean Network Alliance to defeat the Chinese Communist Party’s efforts to control 5G communications; and was the highest-ranking State Department official to visit Taiwan in 41 years. Krach is nominated for the Nobel Peace Prize in 2022 for deploying his “Trust Doctrine” to defend against technological authoritarianism, safeguard global economic security, preserve democracy in Taiwan, and protect human rights to advance freedom and lasting peace. Before serving as Under Secretary of State, Krach was the CEO of DocuSign and Ariba. Krach now serves as chairman of the Krach Institute for Tech Diplomacy at Purdue, which integrates technology and foreign policy expertise to ensure that trusted technology is used to advance freedom.

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https://foreignpolicy.com/2021/10/04/belt-and-road-initiative-bri-build-back-better-us-china-competition-west/

The Biden admistration moved the month before, trotting out a new initiative with G-7 countries to promote infrastructure development that could provide an alternative to the Belt and Road Initiative. Surprisingly, it was the last administration who got the ball rolling. For all the “America First” rhetoric, it was the last  administration that overhauled the way U.S. development finance works—it turned the straitjacketed Overseas Private Investment Corporation, which channels private investment into overseas ventures, into a beefed-up U.S. International Development Finance Corporation, doubling its war chest to $60 billion. 

It launched the “Blue Dot Network,” which aimed to establish blue-chip standards for infrastructure projects that would lure private investors into the fray and then get a lot more countries to join. It did much the same with the “Clean Network” initiative, meant to parry Chinese hegemony in advanced 5G mobile technology, which not only threatened to drive a wedge between the United States and the rest of the world but also presented a clear security risk.

Much like the EU’s latest blueprint, the last administration deliberately underscored the difference between development finance that comes from the West and what comes from the rest.

“The trust principles behind the Blue Dot Network and the Clean Network—transparency, accountability, sustainability, respect for rule of law, property, national sovereignty, human rights, the environment—the free world honors, and the [Chinese Communist Party (CCP)] does not honor,” said Keith Krach, former undersecretary of state. “They had been using those principles against us to their economic advantage. We took those principles and, in one big jiujitsu move, used them against the CCP and, in essence, weaponized those very principles that protect our freedoms.”

After nearly a decade of China being the loudest game in town, the Trump administration’s efforts presented a potential alternative for countries that needed investment but weren’t ready to sell their souls to Beijing.

“The Blue Dot Network and the Clean Network were, as one participating finance minister told me, a ‘unifying and equitable alternative to the one belt, one-way toll road to Beijing,’” Krach said.

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06/10/2022

SUMMIT OF THE AMERICAS

Former Under Secretary of State, Krach Institute for Tech Diplomacy at Purdue Chairman Keith Krach Reacts to Summit of the Americas

SAN FRANCISCO – As the Biden administration concludes hosting the Summit of the Americas in Los Angeles this week, former Under Secretary of State Keith Krach, who co-founded and chairs the Krach Institute for Tech Diplomacy at Purdue University, emphasized the need for the United States to demonstrate leadership in countering China’s attempts to exert its influence over the Western Hemisphere through anti-competitive trade practices, particularly in emerging technologies.

“We must do everything in our power to prevent China’s efforts to expand its authoritarian influence as we seek to protect democracy in the Western Hemisphere and around the world,” Krach said. “China is increasingly leveraging its economic clout to attempt to dominate vital sectors like energy, infrastructure and space in the Western Hemisphere. We must recognize that the Chinese Communist Party’s investments come with strings attached – and sometimes those strings are pulling at self-determination, fair markets and democracy itself.”

“It is of utmost importance that our allies in the Americas are reliant upon trusted telecommunications networks and not tools of the Chinese Communist Party,” Krach said. “Relying on Huawei makes South American countries vulnerable to Chinese cyber threats, and it makes the entire world vulnerable to an authoritarian nation’s attempts to control the world’s communications networks.”

The Clean Network Alliance of Democracies that I championed while serving as America’s top economic diplomat offers a path forward for international alliances to agree on 5G and 6G networks we can all trust. While Brazil, Ecuador and the Dominican Republic joined the Clean Network, we should encourage other partner nations in the region to join us in using technology that advances freedom.”

“The Chinese government is also in a league of its own in its environmental abuses. It is one of the top perpetrators of illegal fishing, including at World Heritage sites like the Galápagos Islands. We must demand environmental reform and transparency from China as well.”

Background: As the nation’s top economic diplomat from 2019 to 2021, Krach spearheaded the largest onshoring in U.S. history to secure the semiconductor supply chain; built the Clean Network Alliance to defeat the Chinese Communist Party’s (CCP) plan to control 5G communications; and was the highest-ranking State Department official to visit Taiwan in 41 years. Krach was nominated for the 2022 Nobel Peace Prize for his work securing 5G, advocacy for Taiwan, and actions opposing China’s genocide against the Uyghurs in Xinjiang. Before serving as Under Secretary of State, Krach was the CEO of DocuSign and Ariba.

Krach, who has been working with the Biden administration to maintain continuity in U.S.-China policy, previously championed the Economic Prosperity Network while serving as Under Secretary of State.

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05/26/2022

SECRETARY OF STATE BLINKEN’S CHINA POLICY ANNOUNCEMENT

Former Under Secretary of State, Krach Institute for Tech Diplomacy at Purdue Chairman Keith Krach Reacts to Secretary of State Blinken’s China Policy Announcement

‘It is up to the United States to lead and build trust-based public/private coalitions that promote democracy, free and fair trade, and digital standards that emphasize openness, transparency, and fair competition.’

WASHINGTON – After Secretary of State Antony Blinken outlined the Biden administration’s approach to relations with China during a major policy speech this morning at George Washington University, former Under Secretary of State Keith Krach, who co-founded and chairs the Krach Institute for Tech Diplomacy at Purdue University, made the following comments:

“China’s attempt to portray itself as a misunderstood and well-intentioned global partner has failed. Companies doing business with China have endured parasitic joint ventures, blatant thievery of intellectual property, a world-wide bullying spree, and the coerced collection of proprietary information that has been exploited for China’s commercial advantage. It is up to the United States to lead and build trust-based public/private coalitions that promote democracy, free and fair trade, and digital standards that emphasize openness, transparency, and fair competition.”

Krach also hailed the administration’s posture toward defending Taiwan from Chinese aggression, noting that Russia’s invasion of Ukraine has raised the stakes in the South Pacific. He noted that 300 companies pulled out billions of dollars in investments from Russia, but that China’s economy is far larger and more integrated into global supply chains and markets.

“The magnitude for China is over 10 times greater,” Krach said. “And so if there is a China-Taiwan conflict now that is absolutely devastating for industry and perhaps catastrophic for the high tech business. Corporate boards increasingly understand doing business with, in, or for China represents tremendous risk.  That’s why many respected board members in corporate America are demanding a China contingency plan from their CEOs. They know this is not a drill.”

Background: As the nation’s top economic diplomat from 2019 to 2021, Krach spearheaded the largest onshoring in U.S. history to secure the semiconductor supply chain; built the Clean Network Alliance to defeat the Chinese Communist Party’s (CCP) plan to control 5G communications; and was the highest-ranking State Department official to visit Taiwan in 41 years. Krach was nominated for the 2022 Nobel Peace Prize for his work securing 5G, advocacy for Taiwan, and actions opposing China’s genocide against the Uyghurs in Xinjiang. 

In a recent briefing between Krach and Biden “Asia Chief” Kurt Campbell on “Building Alliances with the ‘Trust Principle,’” Campbell pointed out, “One of the rarest things in government is continuity of programs because when a new government comes in, they think I’ve got a better idea and I am going to do it differently. Almost all the work that Keith did at the State Department including trusted networks, the Blue Dot initiative have been followed on in [the Biden] Administration and, in many respects, that’s the highest tribute.”

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05/23/2022

PRESIDENT BIDEN’S INDO-PACIFIC ECONOMIC FRAMEWORK

Krach Institute for Tech Diplomacy at Purdue Comments on President’s Indo-Pacific Economic Framework

The President’s framework is a much-welcomed strategy to counter China’s techno-authoritarianism and economic aggression’

WASHINGTON – In response to the President’s unveiling of the Administration’s Indo-Pacific Economic Framework, the Krach Institute for Tech Diplomacy at Purdue expressed support for a framework for regional and global digital trust standards but said it was regrettable that Taiwan was not included in the Administration’s first major Asian economic policy document.

During a trade mission to Japan today, President Biden announced an Indo-Pacific Economic Framework that includes policies to promote standards on cross-border data flows and data localization; fair and resilient trade; supply chain resilience; infrastructure, clean energy and decarbonization; and tax and anti-corruption provisions.

“China’s attempt to portray itself as a misunderstood and well-intentioned global partner has failed. Companies doing business with China have endured parasitic joint ventures, blatant thievery of intellectual property, a world-wide bullying spree, and the coerced collection of proprietary information that has been exploited for China’s commercial advantage. It is up to the United States to lead and build trust-based public/private coalitions that promote democracy, free and fair trade, and digital standards that emphasize openness, transparency, and fair competition,” said Keith Krach, chairman of the Institute for Tech Diplomacy at Purdue University, former CEO of Ariba and DocuSign, and 2022 Nobel Peace Prize nominee.

“The President’s framework is a much-welcomed strategy to counter China’s techno-authoritarianism and economic aggression. Corporate boards increasingly understand doing business with, in, or for China represents tremendous risk.  That’s why many respected board members in corporate America are demanding a China contingency plan from their CEOs. They know this is not a drill.”

As the nation’s top economic diplomat from 2019 to 2021, Krach spearheaded the largest onshoring in U.S. history to secure the semiconductor supply chain; built the Clean Network Alliance to defeat the Chinese Communist Party’s (CCP) plan to control 5G communications; and was the highest-ranking State Department official to visit Taiwan in 41 years. Krach was nominated for the 2022 Nobel Peace Prize for his work securing 5G, advocacy for Taiwan, and actions opposing China’s genocide against the Uyghurs in Xinjiang.

In a recent briefing between Krach and Biden “Asia Chief” Kurt Campbell on “Building Alliances with the ‘Trust Principle,’” Campbell pointed out: “One of the rarest things in government is continuity of programs because when a new government comes in, they think I’ve got a better idea and I am going to do it differently. Almost all the work that Keith did at the State Department including trusted networks, the Blue Dot initiative have been followed on in [the Biden] Administration and, in many respects, that’s the highest tribute.”

Krach added: “The goal was to deliver a repeatable, duplicatable and enduring model for all areas of techno economic competition. It consisted of harnessing our biggest areas of competitive advantage by rallying our allies, leveraging the innovation of the private sector, and amplifying democratic values based on trust.”

“The President’s announcement is a step in the right direction for fair trade, resilient supply chains, digital trust standards, and promoting a rules-based international order,” said Bonnie Glick, Director of the Krach Institute for Tech Diplomacy at Purdue and former Deputy Administrator and Chief Operating Officer of the U.S. Agency for International Development. “However, I was surprised that Taiwan was left out of the President’s Asian trade framework. As the eighth-largest economy in Asia and one of the world’s leading semiconductor manufacturing sites, and as home to nearly 24 million freedom-loving people, Taiwan needs to be central to the conversation. My hope is that a more robust U.S.-Taiwan bilateral relationship will emerge that addresses an ironclad commitment from Washington to economic and strategic relations between the United States and Taiwan.”

In a recent report, Krach Institute for Tech Diplomacy at Purdue Senior Visiting Fellow Kaush Arha outlined the way forward for a free and open Indo-Pacific through economic security through trusted connectivity. Arha offers a broad framework for free world nations to bolster their individual and collective economic security by following the precepts of Trusted Connectivity. 

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ABOUT THE KRACH INSTITUTE FOR TECH DIPLOMACY AT PURDUE

The Krach Institute for Tech Diplomacy at Purdue is a bipartisan, technology-focused, international policy institute specializing in “tech-statecraft,” combining high-tech expertise and tech sector experience with foreign policy and national security sectors to ensure that advanced technologies are used to advance freedom. For more information, go to techdiplomacy.org and follow the Krach Institute for Tech Diplomacy at Purdue on Twitter, LinkedIn, and YouTube. Follow Keith Krach and Bonnie Glick on Twitter at @KeithJKrach and @Bonnie_Glick.

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01/15/2021

PRESS CONFERENCE: Under Secretary Keith Krach Remarks on U.S.-Eswatini Clean Network Declaration 

As prepared

Introduction

Thank you so much, everyone. This is an exciting day.

It’s a day when we welcome a great likeminded partner—the nation of Eswatini—into the growing Clean Network.

Before I begin, I want to say on behalf of the entire U.S. Government how saddened we were to hear of the passing of Prime Minister Ambrose Dlamini from Covid-19. This pandemic has taken a terrible toll on your country, just like it has on ours. And you have our deepest sympathies and condolences.

Despite these very challenging circumstances, Eswatini has shown exceptional leadership in choosing to become the first African nation to join the Clean Network. This signals your foresight as a nation. You understand that 5G is the wave of the future. It will be how our citizens, our businesses, and our governments interact with each other. And that’s why our networks must be secure and trusted.

Today, Eswatini becomes the 60th nation to join the Clean Network Alliance of Democracies, which now includes 60 Clean Countries, representing nearly 2/3rds of the world’s GDP, over 200 Clean Telcos and dozens of the world’s leading Clean Companies.

You’re in exceptionally good company. Clean Network members include:

  • 27 of 30 NATO Allies;
  • 26 of 27 EU Members;
  • 31 of 37 OECD nations; and
  • 11 of 12 Three Seas nations are all part of the Clean Network.

We’ve expanded the Clean Network to include Clean Cloud, Clean Apps, Clean Store, Clean Cable, Clean Things, Clean Currency, Clean Drones. It means much more than just Clean Technology. We have a great start on Clean Infrastructure with Clean Financing with the Blue Dot Network, Clean Energy with Clean Minerals with Energy Resource Governance Initiative (ERGI). It also includes Clean Supply Chains with Clean Labor Practices.

It’s no wonder the Wall Street Journal wrote that the Clean Network is an undisputed success and will be perhaps the most enduring foreign-policy legacy of the last four years.

There are many ways Eswatini will benefit from becoming part of the Clean Network.

One is through increased opportunity for foreign direct investment. When Clean Companies look to invest in African markets, they will naturally look for partners that share their commitment to trusted 5G infrastructure. They will not jeopardize their future by relying on high-risk 5G networks.

We are pleased that U.S. firms such as Coca-Cola and Kellogg’s have already chosen to build regional hubs in Eswatini. More will likely follow given today’s good news.

Eswatini’s status as a Clean Country will also protect your national security, safeguard your citizens’ personal data, and fortify your companies’ intellectual property against cybercrime.

This joint declaration on 5G security is another example of the strong bilateral relationship that already exists between the United States and Eswatini.

The United States has invested more than $529 million in Eswatini over the last 20 years, including more than $490 million in health assistance which has helped Eswatini become one of the first nations to reach epidemic control for HIV/AIDS.

We are Eswatini’s partner in the battle against COVID-19, providing more than $1.1 million to assist your initial response.

The United States also has a number of financing tools to help Eswatini as it joins the Clean Network.

The Development Finance Corporation, or DFC, which provides overseas financing, stands ready to explore opportunities.

I spoke recently at the Export-Import Bank’s board meeting, where we approved that ExIm can now finance 5G deals, even when they involve a trusted supplier from outside of the U.S., such as Ericsson, Nokia, or Samsung.

Financing from the DFC or ExIm can help close the cost gap between underpriced vendors like Huawei and ZTE, and high-quality trusted vendors.

Let me highlight one more way in which the United States and Eswatini see eye to eye. And this one is personal for me.

Eswatini has recognized Taiwan ever since you first became an independent nation in 1968.

Doing so is honorable, and it helps to counter the malign influence of the Chinese Communist Party on the African continent.

Despite increasing pressure from the PRC, King Mswati III regularly pledges his commitment to Taiwan, in keeping with the legacy of his father, King Sobhuza II.

In my time as Under Secretary, I have made it a personal mission of mine to advance diplomatic relations with Taiwan. Last September, I was proud to be the highest ranking State Department official to visit the island in over three decades and now the Taiwanese people have dubbed me the “Taiwan’s number one friend.”

For all of these reasons, I know that the United States and Eswatini are partners in promoting shared values—and that’s why I am so glad to have you in the Clean Network. We hope other nations in Africa will follow your lead.

Ultimately, the Clean Network boils down to one simple word —TRUST. It’s the most powerful word in any language. You buy from people you trust, you partner with people you trust.

The United States and all of our Clean Network partners trust each other. That’s why we can confidently build our economic futures together.

I look forward to seeing Eswatini’s bright future continue to develop over the coming years.

Thank you and God bless you.

Read more

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01/14/2021

PRESS CONFERENCE: Under Secretary Keith Krach Remarks on U.S.-Georgia 5G MOU

As prepared

Thank you, Minister Turnava, for taking the time for this during Georgia’s holiday season. I know today is the Georgian Orthodox New Year and I wish you and your families a happy and healthy new year.

I’d also like to congratulate you on your recent reappointment as Minister of Economy and Sustainable Development. The United States looks forward to continuing our work with you and your team.

I even understand we have Harvard Business School in common, and you attended multiple Harvard executive education programs! It is always wonderful to meet fellow alums around the world.

We’re here for something historic today: Georgia will join the Clean Network Alliance of Democracies, which now includes 60 Clean Countries, representing nearly 2/3rds of the world’s GDP, over 200 Clean Telcos and dozens of the world’s leading Clean Companies.

You’re in exceptionally good company. Clean Network members include:

  • 27 of 30 NATO Allies;
  • 26 of 27 EU Members;
  • 31 of 37 OECD nations; and
  • 11 of 12 Three Seas nations are all part of the Clean Network.

We’ve expanded the Clean Network to include Clean Cloud, Clean Apps, Clean Store, Clean Cable, Clean Things, Clean Currency, Clean Drones. It means much more than just Clean Technology. We have a great start on Clean Infrastructure with Clean Financing with the Blue Dot Network, Clean Energy with Clean Minerals with Energy Resource Governance Initiative (ERGI). It also includes Clean Supply Chains with Clean Labor Practices.

It’s no wonder the Wall Street Journal wrote that the Clean Network is an undisputed success and will be perhaps the most enduring foreign-policy legacy of the last four years.

On behalf of all the members of the Clean Network, we welcome the great nation of Georgia. The United States is particularly thrilled to have you in this alliance.

Georgia has long been a steadfast partner of the United States on security and defense issues.

The United States deeply appreciates Georgia’s commitment to the Resolute Support Mission in Afghanistan, and we stand firmly with Georgia as your nation works to strengthen its partnership with NATO and resists Russia’s malign activities.

Georgia has an inspiring history of resisting authoritarian oppression, regardless of the source.

While Russia remains a considerable threat, as it continues to occupy twenty percent of Georgian territory, the Chinese Communist Party is also dangerous. I call them the “totalitarian twins.”

China has demonstrated its boundless willingness to bully and exploit every nation it does business with—whether through debt trap diplomacy, corruption that undermines the rule of law, or the widespread theft of intellectual property and personal data.

This behavior runs counter to what Georgia is trying hard to achieve as a secure, prosperous, democratic country working to strengthen its judiciary, and improve the protection of intellectual property and personal data of its people.

Today’s 5G MOU and joining the Clean Network demonstrates commitment to sharing the same principles regarding the need to secure our technology networks.

You’re in good company. In the last three months, I have traveled to 25 countries across Europe, the Middle East, and Latin America to promote the Clean Network. And I have found overwhelming support everywhere I have gone.

There are many but let me talk about top 5 reasons why Georgia will immediately benefit from joining the Clean Network:

FIRST, it will strengthen the case that Georgia should be welcomed into NATO.

  • NATO is all about solidarity in the face of shared threats, which have traditionally come from Russia. But NATO now recognizes that the Chinese takeover of 5G is a clear and present threat to Transatlantic security.
  • That is why 27 of the 30 NATO Allies have already joined the Clean Network –and it’s likely the remaining three will soon.
  • While on a trip to Europe in the fall, I met with NATO Deputy Secretary General Mircea Geoana, who emphasized the importance of a non-fractured 5G Clean NATO Network, because the Alliance is only as strong as its weakest link.
  • He told me that it is critical—during peacetime and wartime—to ensure that NATO Allies’ civilian 5G infrastructure is secure, and to avoid the situation where some NATO Allies use trusted suppliers and others use “high-risk” suppliers.
  • As Georgia’s aspiration is to join NATO, your commitment to 5G security will likely be a relevant factor.

SECOND, joining the Clean Network demonstrates your solidarity with the European Union, and can speed up your integration into the European fold.

  • The Clean Network includes 26 of the 27 EU member states. European nations see eye to eye with us on the threat posed by a Chinese takeover of 5G—and they understand the importance of unity.
  • That is why I also met with EU Commissioner Thierry Breton while in Europe last fall. We issued a joint statement highlighting the synergies between the Clean Network and the EU 5G Clean Toolbox.
  • The Commissioner was very clear that he expected all EU nations to show vigilance against the threat of authoritarian influence in 5G. And I know the EU will be watching Georgia’s 5G policies closely in the months and years ahead. We must remain as vigilant to the Chinese threat as we are to the Russian one.

THIRD, Georgia’s Clean Network membership could bring a closer relationship with the Three Seas Countries. 11 of the 12 members of the Three Seas Initiative are Clean Network members.

  • I met with Estonian President Kaljulaid, the former Chairwoman of the Three Seas Initiative, and she strongly agreed that the Three Seas needed clean 5G in order to bolster their shared security.
  • As with NATO and the EU, Three Seas leaders know their partnership is only as strong as its weakest link. If one nation has a compromised network, then all the others are compromised as well.
  • The Clean Network is an Alliance of Democracies that provides a security blanket to all its members in the face of China’s stated policy of intimidation and retaliation. It provides power in unity and solidarity against the China bully.
  • The entire Transatlantic alliance—from NATO, to the EU, to the Three Seas—is increasingly Clean, and Georgia’s place is alongside these democracies.

FOURTH, joining the Clean Network will pave the way to greater private sector investment in Georgia, especially the innovation sector.

  • When Clean Companies like Oracle, NEC, Cisco, HP, Fujitsu, Siemens, and others look to invest in markets around the world, they naturally look for partners that share their commitment to trusted 5G infrastructure. They will not jeopardize their future by relying on high-risk 5G networks.
  • Huawei’s well-documented history of intellectual property theft, bribery, and corruption is why companies around the world are joining the Clean Network.
  • In addition, future hard-won victories on meaningful judicial reform, which should include the timely and fair resolution of disputes and the creation of a level playing field, would be undermined by introducing companies like Huawei just as Georgia is poised to attract new sources of investment.

FIFTH and finally, the good news is the United States has a number of financing tools to help Georgia as it joins the Clean Network.

  • I chair the U.S. International Development Finance Corporation, or DFC, which provides overseas financing. We stand ready to explore opportunities.
  • I spoke recently at the Export-Import Bank’s board meeting, where we approved that ExIm can now finance 5G deals, even when they involve a trusted supplier from outside of the U.S., such as Ericsson, Nokia, or Samsung.
  • Financing from the DFC or Ex-Im can help close the cost gap between underpriced vendors like Huawei and ZTE, and high quality trusted vendors. Once that gap is closed, there is no longer any reason to go with the less trusted option.
  • I know the DFC is looking at Georgia for a regional office. We will continue to pursue that option, which would help to drive private sector investment to Georgia and the region.

And one final point. I know sometimes concerns are raised about the safety of 5G networks from a health perspective. I can assure you that 5G networks do not cause or spread disease. Our own Federal Communications Commission follows this issue, and there really is no issue, other than one of education. The pandemic actually highlights the need for a secure, reliable, and resilient telecommunication infrastructure and supply chains. As more of the world’s business moved online during the COVID-19 crisis, protecting our data is more critical than ever.

All these reasons make me so glad that Georgia is joining the Clean Network.

We need to ensure that no totalitarian nation—not Russia, not the PRC—gain access to our 5G networks for malign purposes.

The United States also welcomes Georgia’s commitment to modernizing its other forms of infrastructure, including roads, seaports, and more.

Just like with your 5G infrastructure, we encourage you to seek out trusted partners who can provide reliable services.

The PRC, through its Belt and Road initiative, is using infrastructure investment to coopt and control other countries.

We have noted Georgian government announcements about signing bilateral infrastructure cooperation agreements with China.

The PRC has proven that it is not a reliable partner for large-scale infrastructure projects. Its projects often utilize shoddy construction, destroy the environment, and come with ample corruption and coercion. What’s more, the PRC ships in its own workers, robbing host countries of any job creation, and often leaving a trail of human rights abuse in its wake.

There is an alternative to the One Belt One Road Toll Road to Beijing. It’s called the Blue Dot Network. It was started by the United States, Australia, and Japan, but has since been endorsed by dozens of nations, including all 12 of the Three Seas countries.

The Blue Dot Network certifies quality infrastructure projects as a way to crowd-in private sector investment. I invite Georgia to publicly endorse the Blue Dot Network as well.

It’s a three-for-one deal: You get better infrastructure, stronger security, and also more foreign direct investment.

We see positive signs that Georgia is becoming increasingly wary of the risks posed by Chinese infrastructure investment and the need for Georgia to review prospective investments in critical infrastructure to mitigate the security risk China and other countries of concern can pose.

Any deals with PRC entities should be scrutinized carefully to ensure that you retain sovereignty over critical infrastructure, including Georgia’s seaports and information technology infrastructure.

This is also important because many leading PRC companies, or their parent companies, have been sanctioned by the United States due to their involvement in human rights abuses in Xinjiang or in destabilizing activities in the South China Sea.

As you have learned, Beijing’s extensive use of state-driven protectionist policies and predatory practices distort global markets and damage the environment.

I encourage Georgia to continue to move forward with developing and adopting a foreign investment screening framework rooted in democratic practices.

Implementing stronger controls over Georgia’s strategic assets will also help decrease their vulnerability to Russian interference.

Minister Turnava, I thank you for your time and all your hard work to strengthen the U.S.-Georgia economic partnership.

Congratulations to Georgia on becoming part of the Clean Network through the finalization of this MOU.

I encourage you to publicly announce Georgia’s support for the Clean Network principles.

I am very happy to be talking to one of the top Georgian journalists in Washington in a few hours.

Joining the Clean Network sends a signal to trusted companies and international investors that your nation is safe and open for business. And it sends a signal to NATO and the EU that Georgia is on the same page about the security threat landscape. I want to make sure everyone gets that message.

Together, we can advance our shared goals for national security, as well as economic growth born of clean, fair, trusted, and transparent market activity.

I wish you the best this holiday season. I look forward to continuing our close work together.

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01/14/2021

PRESS CONFERENCE: Under Secretary Keith Krach’s Remarks to the Press on Communist Chinese Military Companies

As prepared

Thanks for joining me today. I’d like to update you on the latest developments related to the Executive Order on financing Communist Chinese military companies, and a couple of other newsworthy items.

Clean Network

As the Wall Street Journal recently mentioned, the Clean Network is an undisputed success and the most enduring foreign-policy legacy of the last 4 years. The Clean Network now includes 60 countries representing nearly 2/3rds of the world’s GDP (that’s including China). We’re also up to 200 telcos and dozens of the world’s industry leading companies, including Oracle, Cisco, HP, NEC, Fujitsu, Reliance Jio, and others.

And tomorrow, I’ll be welcoming Eswatini—the first African member of the Clean Network.

In just a few months, the Clean Network has become a truly global movement to secure 5G from Huawei and the Chinese Communist Party’s surveillance state. The tide has turned and is gaining momentum at a rapid clip.

We’ve expanded the Clean Network to include Clean Cloud, Clean Apps, Clean Store, Clean Cable, Clean Things, Clean Currency, Clean Drones. It means much more than just Clean Technology. We have a great start on Clean Infrastructure with Clean Financing with the Blue Dot Network, Clean Energy with Clean Minerals with Energy Resource Governance Initiative (ERGI). It also includes Clean Supply Chains with Clean Labor Practices.

Taiwan

There is also our progress with Taiwan. In September, I was honored to become the highest-ranking State Department official to visit Taiwan since 1979. Since then, we have made years’ worth of diplomatic advances in just a few months.

On November 20, following on a commitment made during my trip, we hosted the inaugural U.S.-Taiwan Economic Prosperity Partnership Dialogue here in Washington. It resulted in the signing of a five-year memorandum of understanding regarding economic security and cooperation.

And on December 14, we signed a Science and Technology Agreement expressing the U.S. and Taiwan’s shared commitment to values like trust, transparency, innovation, the rule of law, intellectual property protection, research integrity, and respect for human rights.

These are moral and strategic victories in addition to diplomatic victories. Taiwan is a great partner, a great friend and a magnificent role model of democracy for the region. It’s a beachhead for democracy in the Indo-Pacific—and a living symbol that the CCP’s authoritarianism can be resisted and overcome.

I am humbled by The Taiwanese people now dubbing me “Taiwan’s number one friend.”

Malign Chinese Companies in U.S. Capital Markets

And that leads me to our marquee topic today: the Chinese Communist Party’s incursion into U.S. financial markets.

As you know, on July 1, 2020, I sent a letter to all U.S. financial institutions stating that they have a duty to establish governance principles when it comes to investing in entities that directly or indirectly facilitate human rights abuses. The boards of these institutions have a moral duty, and perhaps even a fiduciary duty to divest from companies that contribute to human rights violations. Pension funds, university endowments, indexes, mutual funds, insurance companies, venture capital firms, institutional investors, and particularly emerging index funds, at a minimum, should disclose to their constituents the Chinese companies they invest in.Chinese companies’ financial practices are opaque for a reason. Chinese companies on U.S. stock exchanges do not comply with Sarbanes-Oxley transparency provisions, which puts all investors at risk.

I am confident that our business community will reject any involvement or association with the oppression in Xinjiang—first, because it is the right thing to do, and second, because of the significant legal and business risks involved.

On August 18, I also sent a letter to the governing boards of American universities, alerting them to the threats the Chinese Communist Party poses to academic freedom, to human rights, and to university endowments. I said, ”the boards of your institution’s endowment funds have a moral obligation, and perhaps even a fiduciary duty, to ensure that your institution has clean investments and clean endowment funds. I urge you to divest from companies that are on the Entity List or that contribute to human rights violations. I also ask that you strongly consider publicly disclosing to your campus communities immediately all People’s Republic of China (PRC) companies that your endowment funds are invested in, especially the PRC companies in emerging markets index funds. Studies have shown that the majority of the U.S. university endowment fund portfolios own PRC stocks listed on American exchanges either directly or indirectly through emerging markets index funds. I would also like to call your attention to the recommendations issued by the President’s Working Group on Financial Markets, which examine the risks to U.S. investors posed by Chinese companies listed on U.S. securities exchanges.”

Most Americans have no idea that their own money—held in pension funds, 401Ks, and brokerage accounts—is financing Chinese companies that support the People’s Republic of China’s (PRC’s) military, security, and intelligence apparatus, as well as human rights abuses on an epic scale, such as those in Xinjiang. You all know about Executive Order 13959Addressing the Threat from Securities Investments that Finance Communist Military Companies—released on November 12, 2020. It prohibits purchases by U.S. persons in publicly traded securities, or any securities that are derivative thereof, of companies listed by the Department of Defense or Treasury, regardless of the percentage ownership. Treasury’s guidance states that divestment must be completed by November 11, 2021.

Ample warning has been given to public and private equity compliance officers and risk managers to understand and disclose to their constituents the material risk  associated with investments identified in the  Executive Order.  CEOs and their boards now have a  legal duty to  implement and be in full  compliance with  the  Executive Order.  They also may have a fiduciary  duty  to take decisive action to minimize any negative effect on their  clients’ holdings due to the imminent divestment of CCMCs.  Best practices in material risk mitigation, disclosure, and transparency are essential to proper corporate governance.

The  Defense Department had publicly listed 44 parent-level corporations as CCMCs, including China Mobile, China Telecom, and China Unicom. Today, the Defense Department publicly listed an additional nine parent-level corporations as CCMCs, plus nearly 140 subsidiaries from the first 35 as CCMCs in their own right. CCMCs  conduct business through a network of subsidiaries sometimes running into the dozens  designed to  conceal money flows to the PRC military, intelligence, and security services.

U.S. investors—including banks, pension funds, foundations, insurance companies, and university endowments—have for years unknowingly funded these 44 CCMCs as a result of their opaque network of at least 1,109 subsidiaries, many dozens of which are tracked by MSCI, FTSE, and other indexes in thousands of financial firms’ products.

The  Treasury Department has noted  that the Executive Order applies to  the  ownership of any CCMC shares, as well as any of their 50 percent or greater majority-owned subsidiaries, or any other controlled entity,  that are publicly listed by the Treasury or Defense Departments.

The Executive Order prohibits Exchange Traded Funds, mutual funds, and index funds like those managed by BlackRock, Vanguard, and others from investing in CCMCs.

This State Department Fact Sheet shows hundreds of CCMC and subsidiary stocks, which may be eligible for listing under E.O. 13959 and that continue to be listed on some major index funds.

Why is this important?

PRC stocks directly affect the pension assets of American workers and retirees There are more than 5,000 public pension systems in the United States, according to the United States Census Bureau. $10.7 trillion invested in the private pension plans is covered by the Employee Retirement Income Security Act (ERISA).

The Thrift Savings Plan’s governing board study revealed that a majority of pension funds use the MSCI emerging market index as their investment guide, including:

  • The 401k’s of all 10 largest publicly traded U.S. companies;
  • All 10 of the top federal contractors;
  • All 20 of the largest state pension plans;
  • All six of the largest target-date mutual-fund providers with holdings of $1.9 trillion as of June 2019;
  • The Pension Benefit Guaranty Corporation (PBGC), with $131 billion in pension insurance reserves;
  • Numerous Insurance Funds;
  • Numerous University and College Endowment Funds.

While we welcomed the recent decisions by MSCI, FTSE Russell, and S&P Dow Jones to remove certain entity listed PRC companies from their Indices, the truth is that these removals represented—at best—a good start.

They have taken action on only a sampling of the worst offenders on the Defense Department’s list of parent-level “Communist Chinese military companies,” but those companies are the tip of an iceberg of more than 1,000 subsidiary companies—dozens of which are still tracked by MSCI, FTSE, and other indices.

As long as these subsidiaries retain access to America’s capital markets, the PRC’s military will continue to be financed on the backs of American workers. 

All American indices, financial institutions, and investors have a legal duty to comply with the new Executive Order by divesting any Chinese companies implicated in these malign activities. It is an essential matter of national security to ensure that the American people are not used as fundraising tools of an authoritarian state hostile to U.S. interests. American investors are being forced to support companies that produce technologies for the surveillance of Chinese civilians, and the repression of Uyghurs and other Muslim minority groups in Xinjiang. This ends now.

There is important work to be done on continuity of policy in aligning the Defense Department list of CCMCs with the Commerce Department Entity List, and the Military End User list.

The U.S. Government maintains several lists of foreign companies of concern. Companies on these lists pose a risk to U.S. national security and/or foreign policy interests. Inclusion on the Commerce Department’s Entity List means that a foreign company cannot receive U.S. exports of certain dual-use items without a license. Inclusion on the Defense Department’s list of Communist Chinese military companies means that U.S. persons cannot invest in their securities or any securities that are derivative thereof. These lists have different legislative and regulatory origins designed for different purposes.

In technology-speak, that means they are non-interoperable. They don’t talk to each other. I believe that the next Administration—to protect U.S. national security, ensure continuity of policy, and to fully address the unprecedented scale of the challenge that we are facing—must find a way of harmonizing all these diverse lists and marrying them up together. If a company is of such great national security concern that it is barred from receiving U.S. investment, then it probably shouldn’t be able to receive sensitive technology either. And vice versa.

In my experience, the effectiveness of U.S. policy is undercut when we add a company like Huawei to the Entity List, but then still issue licenses to them. Sure, there is an effect on U.S. companies profits, and sure we should do this in better coordination with our allies in Korea, Japan, and Europe.But what’s more important? Profit, or our national security from the Chinese Communist Party?

The Communist Party could not be any clearer about its strategy for military-civil fusion, bringing its leading technology companies in to support its military, intelligence, and security apparatus. Military-civil fusion is not a secret. It’s one of President Xi Jinping’s signature initiatives. What’s shocking is that Communist Party and government leaders in Beijing talk about military-civil fusion openly and publicly all the time.

The United States has to do more to address this. Today, only 7 of the 35 companies on the Defense Department’s list of Communist Chinese military companies are on the Commerce Department’s Entity List.

For the sake of U.S. national security, we have to bring together these lists—which share the same underlying rationale—U.S national security.  I hope the new Administration makes the harmonization of these lists a top priority. Without it, we’re fighting with one hand tied behind our back.

I want to leave plenty of time for your questions, but let me close by noting the important role all of you play in this.You wield the torch of transparency for the American citizen. And we need you to shine it on the CCP’s efforts to co-opt American wealth. All Americans have a right to know that their money is going into the pockets of autocrats who use it to tighten their iron-fisted grip on their own people—and increasingly, on the world.

Please tell American citizens who are investors and pension holders that their fund manager should notify you if your investments are contributing to the Chinese Party’s military buildup, the surveillance state, and human rights abuses. If you have not been notified by January 30th, call them. Ask them if you are exposed. If you are exposed, ask them the name of the companies, the amount and when you will be divested. Then ask them why they do not directly and clearly disclose to you. If they do not get a satisfactory answer, best to find a new fund manager.

When empowered with this knowledge, I am confident that they will join in demanding that all implicated Chinese companies be scrubbed from U.S. financial markets. Until that happens, the CCP will continue to bleed every penny it can out of American pockets to fund its malign purposes.

Now I’ll be happy to take your questions.

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06/25/2020

PRESS CONFERENCE: Under Secretary Keith Krach Briefs the Press on Huawei and Clean Telcos

An audio file of this Briefing is available here .

Moderator:  Greetings from the U.S. Department of State’s Asia Pacific Media Hub in Manila.  I’m Zia Syed, the Hub Director, and I’d like to welcome our participants dialing in for this briefing.  Today we are very pleased to be joined from Washington, D.C. – Keith Krach, Under Secretary of State for Economic Growth, Energy, and the Environment.

We will begin today’s call with opening remarks from Under Secretary Krach.  We will try to get to as many questions as we can during the time that we have.  Please note that, due to the high number of journalists on this call, we ask that you please limit your questions to just the one question so others can participate.

Finally, as a reminder, today’s call is on the record.  And with that, I will turn it over to Under Secretary Krach.

Under Secretary Krach:  Thank you so much, Zia, and thank you all for being here.  I look forward to taking your questions.

First, I want to take a moment to expand on a statement sent out by Secretary Pompeo yesterday, and what he talked about at the podium.

As he said, the tide is turning in the favor of trusted 5G vendors and against Huawei in its quest to dominate global 5G.  I think the reason is simple:  citizens around the world are waking up to the danger of the Chinese Communist Party’s surveillance state.

Huawei’s deals with the telecommunications operators around the world are evaporating, because countries are only allowing trusted vendors in their 5G networks, many of them.  A few examples are  the Czech Republic, Norway, Poland, Sweden, Estonia, Romania, Denmark, Greece, New Zealand, Japan, Australia, Taiwan, Israel, Albania, and Latvia.  The list goes on.

The UK foreign secretary, Dominic Raab, recently remarked that it isn’t just the devastation of COVID-19 that takes the shine off of China, but also the fact the CCP doesn’t live up to the deals that it makes.  The crackdown on Hong Kong is a case in point.  As Foreign Secretary Raab said, it comes down to an issue of trust.  He said, “Otherwise, why would anyone trust them with other deals we might make?”

And that is precisely the question that governments and businesses around the globe are asking about 5G:  Who do you trust?  The primary choices are two world-class European vendors on one side in Ericsson and Nokia, who are trusted European, and Samsung.  It’s only been a month since Beijing broke its promise and trust with the people of Hong Kong.

The United States continues to build this trust among countries, companies, civil society around the world in support of freedom of expression, privacy, and security of personal information.  And that’s why we unveiled the 5G Clean Path initiative to promote safe, secure, resilient, and trusted communications over next-generation networks built by trusted vendors.

Following the pandemic, the crackdown in Hong Kong, skirmishes at the Indian border, and so many other efforts by Beijing to conceal, coerce, and co-opt the world, citizens of the world are waking up to the Communist Party’s true intentions to dominate 5G.  And Huawei’s efforts are running out of steam. 

And it’s really giving the political will to government leaders around the world, and also to corporate leaders.  Telefónica states in its digital manifesto that security is paramount.  And its CEO and chairman, Jose Lopez, this week declared, “Telefónica is proud to be a Clean Path company, and Telefónica in Spain and the UK are fully clean networks.  And Telefónica Deutschland and Brazil will be, in the near future, without equipment from any untrusted vendors.”

Just a few weeks ago, the big three telcos of Canada decided to partner with Ericsson and Nokia because Canadian public opinion was overwhelmingly against allowing Huawei into the 5G networks.

The largest telco companies in major countries around the globe are also becoming “Clean Telcos.”  In addition to Telefónica, we’ve seen this with Orange in France, Reliance in India, Telstra in Australia, SK and KT in Korea, Cosmote in Greece, NTT in Japan, and O2 in the United Kingdom.

The momentum in favor of securing 5G is building.  The more countries, companies, and citizens ask whom should they trust with the most sensitive data, the more obvious the answer becomes:  not the Chinese Communist Party’s surveillance state.

The United Kingdom’s decision to reconsider the use of Huawei and its 5G networks resulted in a dramatic backlash from China.  It threatened to punish the British bank HSBC, and pull investment from major British infrastructure projects.  Clearly, the Chinese Communist Party sees much more than mere financial benefit to having Huawei embedded in foreign 5G networks.  And I think it is no wonder why so many countries are reevaluating their partnerships with Chinese firms and standing up to that – the Chinese Communist Party’s aggression, like Australia.

Earlier this year, Huawei boasted that it had 91 5G commercial contracts signed.  But from what we can see, that list has dwindled down to low double digits.  Huawei’s deals have evaporated in direct proportion to the threats to retaliate against any country taking steps to protect its citizens and businesses’ most personal, sensitive information.

For too long, Beijing bullied other countries and threatened retaliation if it did not get its way.  China is a big marketplace, and consequences of retaliation are real.  Just ask the people of Norway, who suffered economically for years after the committee that awards the Nobel Peace Prize bestowed that prize on a democracy activist who questioned the Communist Party.

The bullying is out of desperation, perhaps fear.  China is feeling its 5G dream of global domination suddenly slipping through its fingers.  We’ve all had experience with bullies in our lifetime, and if there is one thing we know about bullies, it’s that they back down when they’re confronted.  And they really back down when your friends are standing by your side.  And the U.S. is proud to do exactly that.

As Secretary of State Mike Pompeo recently said regarding UK’s actions on 5G, “The United States stands with our allies and partners against the CCP’s bullying, and we stand ready to assist our UK friends with any needs they have.”  And that goes for all freedom-loving countries, because the CCP’s 5G strategy is a real and urgent threat to all who value liberty and justice around the world.

Huawei is an extension of the Chinese Government and a tool to extend its surveillance state.  5G is the backbone for that surveillance state.  All you have to do is hook up cameras and microphones, and you’ve got Big Brother, George Orwell’s 1984.

Where are they headed with this?  They want to export that surveillance state.  5G gives them the capabilities to repeat what they’ve done in those horrid camps in Xinjiang province in the west of China.

Fortunately, the world is waking up.  Huawei is losing its luster.  And the appetite for trusted networks and carriers has never been higher.  This is good news for all who value freedom and security.

With that, I’m happy to take any questions.

Moderator:  Thank you very much.

Just a reminder, if you’re asking a question, please state your name, media affiliation, and location.  Our first question will go to Melo Acuna from Asia Pacific Daily, in the Philippines.  Melo, can you please go ahead?

Question:  Mr. Under Secretary, greetings from Manila.  How would countries like the Philippines know if 5G technology is indeed safe?

Under Secretary Krach:  Well, a good question to ask yourself is: what countries do they come from? Because one of the facts of the matter is that the technology providers have the keys to that kingdom. They are updating that software almost every day.  A lot of times, Huawei will say, “We’ll sign an agreement that says there are no back doors.”  The fact of the matter is there is a front door every day in the software business.  

And the other thing a lot of companies will say, “Well, we won’t put them in the core, we’ll just put them on the edge.”  The other thing about a 5G system is that it’s like a necklace with chains; you’re only as strong as your weakest link.

So, it really boils down to: who do you trust?  And do you trust two companies that come from a country that has a National Intelligence Act that requires any company, state-owned or otherwise, or any citizen, to turn over any information – proprietary technology, intellectual property, data – upon request to the Chinese Communist Party, the government, or the People’s Liberation Army?  And if you don’t do that, you suffer the consequences.

So, that’s the question that you have to ask with this particular technology.  And this is not one where the United States has a company. There are’s three. There’s Samsung from Korea, there’s Nokia from Finland, and then there’s Ericsson from Sweden.  And I think that’s the question the country of the Philippines really has to ask. 

The United States, along with many of our allies, really believes in this.  And the Philippines has been a great partner with the United States.  And that’s one of the reasons that many of us have expanded our financing capabilities to help countries like the Philippines and others, particularly when they are suffering from this horrific pandemic.  So, we are here to help, and this is an important thing.  So, I hope that answers your question, sir.

Question:  Thank you, sir.

Moderator:  Thank you very much.  Next, if we could, go to Jiyoung Seo from the Korean Broadcasting System, KBS, in Washington, D.C.

Question:  My name is Jiyoung Seo from KBS.  Last time, you mentioned on a teleconference that Washington is ready to do – it’s almost [inaudible] South Korea, if South Korea would be faced with any retaliatory action from China when South Korea joined the U.S.-led EPN or sanctions against Huawei.

Concerning that situation, there are serious concerns that South Korea is stuck in the middle in the conflict between the U.S. and China.  I mean, South Korea should avoid choosing sides, or defend its own principles.

So my question is, can you specify how the U.S. will protect those countries, including South Korea, which may be retaliated by China?  Thank you.

Under Secretary Krach:  Yes.  And there is one thing that I want to make perfectly clear – because I’ve seen some things written in the Korean press.

The Economic Prosperity Network is comprised of like-minded countries, companies, institutions, and civil society that operate under a set of trust principles for areas of all economic collaboration.  And it is built on the idea that strong partnerships advance shared prosperity.  And so, it is by harnessing the innovation of resources and synergies of its members that the EPN creates a unified and equitable global framework for trusted geo-economic partnerships.

And, the Economic Prosperity Network enables a set of shared principles, that form the basis of trust.  And those trust principles are based upon those shared values like integrity, accountability, transparency, reciprocity, respect for rule of law, respect for property of all kinds, respect for sovereignty of nations, and respect for basic human rights.

And it does this in pursuit of three long-term goals:  the first is ensuring sustained economic growth and prosperity for all partners; the second is expanding fair, transparent, and reciprocal collaboration and trust principles to all aspects of economic partnering; and the third is creating a level playing field for companies, economies, and countries, based on integrity, reciprocity, accountability, transparency, and fairness.

And one I want to be very clear on, is that countries that currently do not abide by those trust principles will be excluded from membership.  But it doesn’t mean it’s forever.  No country is excluded forever.  And the Economic Prosperity Network does not prevent members from working with any country or organizations outside the network, or compel them to choose between partnerships.  So, this is not a choice between China and all the other countries on the Economic Prosperity Network.  We wouldn’t be respecting a country’s sovereignty if that was the case.

And with regard to your question, in terms of how do we protect, we really believe that there is strength in unity and solidarity.  We see the Chinese Communist Party retaliate against the country of Korea when you put up the defense capabilities.  I mentioned the example of Norway.  It happens to companies.  It happened to Lotte.

It happened to America’s National Basketball Association, where one general manager of one team, the Houston Rockets, sent out a seven-word tweet from the United States that was sympathetic to Hong Kong.  This was last year.  And within 24 hours, $100 million of sponsorships to teams and to players were dropped.  And that is obviously, a retaliation playbook.  And they temporarily canceled their schedule.  And then they called up the CEO of the NBA and they said, “You have to fire the general manager of the Houston Rockets.”  And they also said, “You have to apologize to the country of China,” and then they sent them, “These are the exact words you need to use.”  And we see that quite a bit.  And for every time we see it, there is a lot more out there.

And this is what I was referring to – the world has woken up to these aggressive tactics.  And the pandemic has certainly done that, because the pandemic is the result of the concealment of the virus.  And it’s a practice of concealment, co-option, and coercion.

Countries have woken up and seen that their economies have been co-opted by entangling supply chains.

And China’s so-called “face mask diplomacy” is a tool for seduction and coercion to get countries to do the things they really don’t want to do.  And the citizens of the world don’t like it.  And that’s what’s given the political will to government leaders around the world, and to corporate leaders around the world.

And when Beijing threatened the British bank, HSBC, because the UK said, “We want to reconsider letting Huawei in part of the 5G network,” and then the Chinese ambassador to the UK said, “We’re going to pull our investment from the rail system in England, and also investment into a plant,” Mike Pompeo was pretty clear.  He said, “We stand with our allies and our partners.”  And he also said, “Whatever the UK needs, we are here to assist you.”

And he said that’s true for any nation. This is an important stance for the United States. We know a lot of other countries feel the same way.

You saw what happened down in Australia.  And you saw that retaliation.  The Australians held their ground.  And we all have experience with bullies.  When a bully is confronted, they back down.  And they especially back down when you have all your friends by your side.

The world has thought about it, it’s always been the 800-pound elephant in the room, and it’s time people started talking about it.

Moderator:  Thank you, Under Secretary.  Next, we’ll go to Jennifer Dudley-Nicholson from News Corp in Australia. Jennifer, please go ahead.

Question:  Thank you.  And thank you, Under Secretary.  We’re talking about 5G networks, and Huawei’s involvement in them at the moment.  But is there a case to be made to discontinue the use of Huawei equipment in other networks, as well?

Under Secretary Krach:  By the way, could you repeat that question?  I had a hard time hearing you.

Question:  Absolutely.  So, we’re talking about Huawei in 5G networks.  In Australia, there is still the use of Huawei equipment in 3G and 4G networks.  Is there a case to be made that that shouldn’t continue?

Under Secretary Krach:  Well, I think there is, but it’s really 5G – we look at that as the bigger threat.  It really expands the capabilities, and the speed, and the transmission, and all of that – and this is what was really laying the backbone for the internet of things. Also, with 5G capabilities, that enables the surveillance state.

So, to the extent that countries are putting in 3 or 4G systems from Huawei, my recommendation is don’t even begin.  And then, when countries are choosing their 5G systems, this is definitely the time to do a rip-and-replace, a transition.  And that’s what I mentioned.  And that’s where there is a lot of financing tools that I think many countries like us are willing to help provide, because we recognize this danger.  Thank you for that question.

Moderator:  Thank you, Under Secretary.  Next we will go to Pearl Matibe from the Mail and Guardian.  And Pearl, if you could, mention your location please.

Question:  Sure, absolutely.  Thank you very much.  I’m actually here in Washington, DC with you, Under Secretary.  It’s a beautiful morning.  But my geographic area is southern Africa.

Under Secretary Krach:  Great.

Question:  My question to you is, it seems to me that your greatest concern is potential espionage and surveillance issues, if I understand you correctly.  Correct me if I’m wrong.  And so, given the growing ties that Africa has with China, that it has with Russia, do you have any particular concerns with countries in southern Africa?

For instance, I’ll point out one – Zimbabwe has very strong ties now with China.  And other countries –  they’re not the only ones – Mozambique.  What about South Africa?  Do you have any particular concerns with this growing relationship and the use of 5G on the continent?  Thank you.

Under Secretary Krach:  Yes.  By the way, I don’t have any specific concerns about trading relationships. We believe in free markets. But also, when somebody comes into a free market and they don’t play by the rules, the market is no longer free.

And we, obviously, have concerns.  Because it’s not just espionage or senior citizens’ most private information, or taking intellectual property – and the amount of intellectual property that the Communist Party has stolen from countries all around the world is unbelievable.

I have personal experience. I spent 30 years in Silicon Valley, and I saw that. And now that I’m at the State Department, I’m seeing that all around the world. And I was blown away when I found out that there is actually a law – yes, a law – that is the National Intelligence Act, that requires any company, state-owned or other, or any citizen to turn it over, or suffer the consequences.  And we know what those consequences are – we’ve seen them, we’ve heard about them, and it’s pretty dramatic.  And it scales from A to Z.

So, from that standpoint, we’re concerned for countries’ national security.  And South Africa is a great partner with the United States, so we’re concerned.

And we’re also concerned about global economic security, and anybody who values freedom of speech and liberty.

And t puts the country of China in control.  They can shut those 5G systems down.  There’s all kinds of things that they can manipulate when they control 5G.  Autonomous vehicles will be hooked up to those systems. That’s one aspect of the internet of things.  It’s not just machine equipment and power plants, it could be the very vehicles that you and your family are in.

And so, what it provides is a tremendous point of leverage.  And when we look at Africa, yes, that’s certainly as important as anywhere else.

And then also, you look at the other leverage that the CCP has on the continent of Africa with its debt diplomacy.  The interesting thing is that, if you look at the sovereign debt – when Japan, Australia, Germany, the United States, offer financial assistance to countries, they don’t ask for collateral.  China is the only nation that does that.  And when you do that, you have to sign a non-disclosure agreement.  So, you’ve got to keep it secret.  And we hear about these agreements when all of a sudden, a new government comes in.

I’ll give you an example outside the continent of Africa. Ecuador owes the country of China $13 billion.  Now, if they don’t repay it, then the PRC has the right to seize any asset in the country, other than their historical artifacts and their military. Think about that.  That’s called leverage.  So, all of a sudden, you can’t make the debt payment, you go hat in hand over to China and say, “Please, can we renegotiate?”  Or they take your ports, or they take your highways, or they take your airports, or they take your office buildings.  They have the right to seize anything but historical artifacts.  So 5G is a big point of leverage, just like that.

It’s a multi-pronged strategy.  And I think it’s been an awakening for me, because I’ve just been a businessman my whole life, to actually see this, and how entangled it is, how co-opted economies are.  And everybody is afraid to talk about it, because everybody is afraid of that bully.  And the most important part of this solution is for people to talk about it – because they cannot retaliate against every country in the world.  They cannot retaliate against every company in the world.  And it’s just gone on too long.

The citizens have really woken up to it, thanks to great journalists like all of you on this call.

This information will not get back inside the country of China.  And if you think about, well, why does the bully become a bully? A bully becomes a bully because chances are, they’re insecure within themselves.  And so why does the Communist Party have a reason to be insecure? They’ve got one million members of the Communist Party in China.  But that also means they have 1.4 billion minus a million who aren’t. I guess I’d be insecure, too.

And you think about that.  What do they do to their own people?  They bully them.  They have this Great China Firewall, where all day they can come in, nothing can come out.  They use the data for AI and to further that surveillance state, and control the world.  But if you look at the reciprocal of that, that’s just propaganda.  Everything can come out of that Great Firewall, but nothing can go in.  And nobody talks about it.  So, I think it’s time that it gets talked about, and I really appreciate this question, it’s a great question.  Thank you.

Moderator:  Thank you, Under Secretary.  We may have time for just one more.  If we could go to Olivia Zhang. Olivia Zhang is from Caixin Media, which is based out of Beijing, though I believe she is actually calling in from Washington.  Please go ahead, Olivia.

Question:  Yes, hi.  Can you hear me?

Under Secretary Krach:  I can.

Question:  Okay, well, hi, thank you so much for doing this, Mr. Under Secretary.  I wonder – I think about, like, Huawei – I think the UK excludes Huawei from their core network, but not, like, the whole 5G network.  Does the U.S. consider it acceptable?  And some countries in Europe would see, like, excluding Huawei may cause the lack of 5G networks building for a decade or so.  What would be your response to that?  Thanks.

Under Secretary Krach:  Sure. Those are two fabulous questions from Beijing.  So I appreciate that.  In terms of the UK saying, “this is so risky,” because they understand the security threats that Huawei’s systems have — “we’ll just put it, not in the core, but on the edge.”  If you look at anybody who knows technology, they would say that’s a big mistake.  And the reason why is that 5G is a system, and everything is connected to it.  And I think that’s also a strategy of Huawei:  “Oh, we’re just – just put us in the edge, don’t put us in the core.”  Well, once you’re in, you’re in.  It’s an interconnected system.  And you’re only as strong as your weakest link.

Now, your question with regard to 3 and 4G, Huawei is in other networks around the world.  And what’s your thought of 10 years of effort down the drain?  Because you’ve got to replace it.  By the way, if you’re going to do it, do it now. Those transformation costs are not that high.  And, as I mentioned, there is plenty of government assistance to bridge that gap, in terms of finances.

So I don’t see that as an issue at all.  And you know about those concentration camps in China, and Huawei technology is used for that.  So, I think that really hits at the core of all these countries on the phone.

And I’ll tell you one of the things that I wish.  I wish I could publish an op-ed for the citizens of China in your newspaper. My first time in China was in 1981.  I have a tremendous love and respect for the Chinese people.  And they have a tremendous history and culture.  They’ve invented everything from spaghetti to gunpowder.  Great business people, great scientists.  But it’s that one million in the Chinese Communist Party that are really holding them back.

So, any time you hear me talk about this whole thing, it is not aimed at the wonderful people of China.  It is that Chinese Communist Party.  And the irony, of course, is that Communism, everybody is supposed to be equal.  But I think the manifestation of it in China is some are more equal than others, and we can see that.  And it’s just gotten so aggressive.  And to extend that surveillance state, to extend that great firewall beyond the borders of China, this is the time to stop it.  And if you would ever let me write an op ed, I’d love to do it. Thank you so much for that question, xiexie.

Moderator:  Thank you, Under Secretary.  I’m afraid we are now out of time.  But, Under Secretary, would you like to make some closing remarks?

Under Secretary Krach:  Well, I’d just like to thank all of you.  As I mentioned, freedom of the press is key to freedom and liberty.  And my mission is to advance global economic security and advance prosperity and peace throughout the world.  And I think one thing:  We all believe it.  And I bet there is about 1.4 billion people, minus a million, in the country of China that believes the same thing: that there is no sustaining prosperity without liberty.  And we need to talk about that, and we need to call out the bully.

So, I hope and pray that you great journalists have the courage to do that, because I know that the Communist Party is not afraid to retaliate against the media.  And I admire what you do.  So, thank you for your time.

Moderator:  That concludes today’s call.  I want to thank Keith Krach, Under Secretary of State for Economic Growth, Energy, and the Environment.  And I also thank all of our journalists on the line for participating, and I apologize to the – to those of you that were in the queue and we weren’t able to get to your question.

Please stay on the line for information regarding access to an audio recording of the call.  Also, please be aware that a transcript of the call will be posted to our social media platforms and sent out to all of you within a day.

If you have any questions about today’s call you may contact the Asia Pacific Media Hub at AsiaPacMedia@state.gov.  Thank you.

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05/15/2020

PRESS CONFERENCE: Briefing on Taiwan Semiconductor Manufacturing Corporation’s Intent To Invest $12 Billion in the U.S. and on the CCP’s Ability To Undermine U.S. Export Controls

MS ORTAGUS: Thanks. Hello again, everyone. We’re three for three briefings today. I know it’s at the end of the day and we do a full Friday afternoon, so thank you so much for dialing in. Just a reminder that this call is on the record but is embargoed – the contents are embargoed – until the end of the call, please.

We wanted to highlight two separate but related developments for your attention today. We note with pleasure that on May 14th, Taiwan Semiconductor Manufacturing Corporation, or TSMC, announced that it intends to invest 12 billion in the state of Arizona starting in 2021 to develop the most state-of-the-art five-nanometer semiconductor fabrication foundry in the world. The TSMC deal is a game changer for the U.S. semiconductor industry that will bolster American national security and our economic prosperity.

Meanwhile, the U.S. Department of Commerce announced today its plan to restrict Huawei’s ability to use U.S. technology and software to design and manufacture its semiconductors abroad. This action is intended to cut off Huawei’s, and by extension, the PRC’s, efforts to undermine U.S. export controls.

To help put these events in broader context, I’m joined for this on-the-record briefing with Keith Krach, our under secretary for economic growth, energy, and the environment; as well as Assistant Secretary Chris Ford, who heads our Bureau of International Security and Nonproliferation; and for Q&A we have Mung Chiang, the Science and Technology Adviser to the Secretary. They’ll all be available to answer your questions after their brief introductory statements.

As always, the contents of this on-the-record briefing are embargoed until the end of the call, and to get into the question queue, please dial 1 and then 0. We’ll start with Keith’s opening statements first. Keith, go ahead.

UNDER SECRETARY KRACH: All right, thanks so much, Morgan, and thanks to everyone for being here. A happy Friday to you. So this is a big day for America – for national security, our economic security, and our long-term prosperity. And I’d like to highlight the three separate yet highly interrelated achievements of the week, and the first, as Morgan said, is the $12 billion investment by TSMC; the second is the tightening of export controls to restrain Huawei; and third, the continued implementation of the 5G Clean Path. Any of these alone is – are newsworthy, but together they represent a 5G national security trifecta.

And first let me turn to TSMC to give you an overview. TSMC will invest $12 billion, a truly massive sum, in perhaps one of the most historic onshorings in decades, and from 2021 to 2029 to develop the world’s most advanced five-nanometer chip fabrication facility in Arizona. And this means that chips critical to our lives and national security will once again be made in America, where the semiconductor industry was first invented. The chips will power everything from smartphones in our pockets to 5G base stations to the F-35s that help defend our homeland.

The deal is a game changer for the U.S. semiconductor industry. TSMC is bringing its supply chain companies to the United States. This is a giant leap towards bringing high-tech manufacturing back home where it belongs and keeping that commitment that President Trump has made. The fab – and they call these manufacturing facilities “fabs” – the fab will promote the creation of thriving, high-skilled sub-industries known as clusters, and that will help ensure American leadership in technologies of the future. And I want to say something about so highly skilled that in talking with the chairman of TSMC, over 50 percent of the employees that are going to work in this fab are going to have master’s degrees or higher. And the clustering effect is perhaps unique to the semiconductor industry or at least really intensified, and that’s where all that ecosystem builds up around. I mean, that’s how Silicon Valley became Silicon Valley.

The investment will of course create thousands of jobs across the entire supply chain and create a broad ripple effect of technical training and know-how throughout the tech ecosystem. TSMC will train hundreds of American workers on its leading-edge technologies in Taiwan, and these workers will bring skills back home, where they will proliferate. The deal will also spur cutting-edge research and development by American universities and campuses, and in particularly in the equipment manufacturers themselves.

Not least of all, it strengthens our relationship with Taiwan, a vibrant democracy and a force for good in the world and a great friend to the United States. Yet again, President Trump is delivering on his pledge to make America stronger, safer, and more prosperous.

Let me move on to the second part of that trifecta, and that’s with the Foreign Direct Product Rule. All of this is also supported by the day’s other big news: expansion of the Foreign Direct Product Rule to prevent Huawei from dodging U.S. export controls. And Dr. Ford will talk about this in detail after I complete my remarks, and I simply want to make this point: Since its addition to the entity list one year ago today, Huawei has persisted in its efforts to circumvent U.S. export controls. Huawei benefited from a loophole that allowed it to make use of U.S. electronic design software and manufacturing equipment to continue to produce its own semiconductors.

That ends today. The United States is closing this loophole to prevent Huawei from exploiting U.S. technology and threatening our national security. Quite simply, Huawei cannot be trusted to respect the rule of law. It is required by the PRC to cooperate with Beijing’s security and intelligence services, and that really relates to the law that I’ve talked with you many times about in terms of the National Intelligence Act of the PRC. We urge our allies and our partners to join us in aligning their domestic export-control laws to address the very real security threat posed by Huawei and the PRC. Huawei is a PRC state-supported firm serving as a tool for the Chinese Communist Party. The United States will continue to restrict most exports to Huawei.

And the third part of that trifecta is the Clean Path. And let me call your attention to the State Department’s 5G Clean Path initiative, and that was announced by Secretary Pompeo on April 29th. It said that 5G data entering or exiting U.S. diplomatic facilities, domestically and overseas, like in our embassies, must transit only through trusted equipment. The 5G Clean Path is an end-to-end communication path that does not use any 5G transmission, control, computing, or storage equipment from an untrusted vendor, including Huawei and ZTE. 5G Clean Path implementation in the 2019 NDAA prohibits U.S. executive agencies from procuring, obtaining, extending, or renewing contracts for any equipment, system, or telecommunications services that make the use of Huawei, ZTE, and Xiaomi, and other untrusted PRC vendor equipment.

The 5G Clean Path embodies the highest standards of security against untrusted, high-risk vendors by blocking their ability to siphon sensitive information into the hands of the PRC. And we encourage all of our allies and partners to join us in requiring a 5G clean path for their diplomatic facilities overseas.

So just to sum it up, each of these initiatives form a three-legged stool of trust, security, and resilience for the United States. Each reinforces the others and greatly augments U.S. national and economic security, especially as we’re facing increasing competition from the PRC.

The last five months can leave no doubt in the minds of any freedom-loving nation that the PRC is untrustworthy, and only by maintaining solidarity with our trusted partners can we guarantee a secure future for the United States, our companies, and our friends.

So with that (inaudible) I’d like to turn it over to Dr. Ford for his comments.

ASSISTANT SECRETARY FORD: Thank you, Keith, and good afternoon, everybody. As Under Secretary Krach noted, while major suppliers of semiconductors are clearly flocking to the United States to take advantage of the opportunities available here in America, the other piece of good news is that we are also in the Trump administration taking decisive steps to protect U.S. technology and suppliers from being exploited by Huawei and its masters in the PRC.

We announced today the expansion of something called the Foreign Direct Product Rule, or FDPR, if you will, which is designed to help keep Huawei, as the Under Secretary indicated, from circumventing U.S. export controls. This expanded rule will impose a U.S. licensing requirement, an export-control licensing requirement whenever anyone anywhere in the world uses U.S. technology or software to design or produce semiconductors for Huawei. Companies wishing to sell certain items to Huawei produced with U.S. technology must now obtain a license from the United States.

Now, this is done because we need to understand how Huawei is taking advantage of cutting-edge U.S. technology in this field, and we need to make it harder for Huawei to use this technology against us, against our allies, and against our partners. These licensing requirements will help us do that.

The key issue today, and I’d like to add a bit of a gloss on what the Under Secretary had said, is why we are doing this and why the United States believes Huawei to be such a threat. And I would say that our concerns with Huawei are at least threefold. First of all, for starters, Huawei engages, clearly, in illegal activity, including intellectual property theft from U.S. companies and the evasion of U.S. sanctions, in support of the world’s biggest state sponsor of terror and a notorious proliferator. The U.S. Department of Justice has issued not one but two indictments against Huawei for a range of crimes, including intellectual property theft, violations of the Racketeer Influenced and Corrupt Organizations Act – that is to say, RICO – and for helping Iran evade sanctions. This is not the sort of entity with which reputable U.S. or other foreign companies should be doing business as usual, and our changes reflect that.

The second factor is that Huawei is an enabler for human rights abuses by the People’s Republic of China. It provides technological support for Chinese Communist Party ethnic cleansing in Xinjiang, for example, and for the party’s technologically facilitated surveillance-and-control authoritarianism throughout China. Huawei also helps make such technologies available for export to other repressive regimes. So that’s the second factor.

And the third one is that – is perhaps in some ways the most troubling over time, and that is that because of the PRC’s governance model and standing Chinese laws, Huawei is a company that is structurally subject to manipulation and to control by the Chinese Communist Party, essentially at any time. Whenever the party calls upon it, Huawei can function – and indeed has no choice but to serve – as a tool of strategic influence and political manipulation, including through providing support where it can to the PRC’s broader military-civil fusion strategy for acquiring Western technology and diverting that technology to military and security uses that further the CCP’s, the Chinese Communist Party’s, repressive agenda at home and its geopolitical revisionism abroad.

So in our view, U.S. national security simply requires that we put mechanisms in place to understand how U.S. exports and technology are being used by and for Huawei. These new licensing rules help to do that so that we can keep an eye on any malign activity that runs contrary to our foreign policy and national security interests, and indeed I would suggest those of all free and democratic countries.

So for these reasons, we needed to take action to prevent Huawei from flaunting our export-control laws, exploiting American technology, and threatening our national security. And we would be happy to answer such questions as you might have as best we can about how it is specifically that we are doing that.

But I should probably turn things back over to Morgan. Thanks.

MS ORTAGUS: Thanks, Chris. I know we’ve got a queue started already. We’re going to try our best to get through everybody in the queue. And again, just dial 1 and 0 if you’d like to be added.

First up is from Reuters, we have Humeyra.

QUESTION: Hello, can you hear me? Hi.

MS ORTAGUS: Yes, we (inaudible).

QUESTION: Thank you. Can I ask a couple of things? Can you comment on the timing of this? TSMC announced this investment, and the next day USG has moved to amend this export rule, which is something that could restrict its sales. Why now? And can you talk a little bit about whether this investment actually makes it easier for them to get the license?

And lastly, can you talk a bit about the incentives that were given to TSMC? Was it federal money, tax breaks, what is the breakdown? Thank you so much.

UNDER SECRETARY KRACH: First of all, with regard to the timing, the Direct Foreign Product Rule has been in the works for quite some time. So that was on a path to happen. And then also on a separate path were discussions with TSMC, and they actually announced on their earnings call – on their last earnings call that they were looking at this. So they lined up together. And then it also lined up as well with the Clean Path.

And I think – now, nothing really happens by total coincidence, but this went – on these particular days it actually did. But I think you’ll also see future announcements in terms of different clean strategies coming down the road that will be rolled out, and we’ll be having some other announcements in the June timeframe. We haven’t set a date for it, but there’s some more coming down the path.

And I think a big thing in terms of the deal itself, the Trump administration is committed to advancing the reshoring of manufacturing, particularly for critical components such as semiconductors, and this is a strategic imperative for our national security. And the administration policies will help make TSMC successful in their investment in the United States, and it will provide the same benefits to other investors and companies in the semiconductor industry. Our objective is that U.S. chip manufacturers build all their future fabs in the U.S., and also that other foreign chip manufacturers build their next state-of-the-art fabs in the United States to really create that ecosystem.

And the semiconductor was invented in the United States. We have tremendous capabilities here. Sixty percent of TSMC’s customers are based in the United States. So that’s kind of the rationale. So did I answer your question?

ASSISTANT SECRETARY FORD: Okay. If I might, Keith, just to add some —

UNDER SECRETARY KRACH: Yeah, sure.

ASSISTANT SECRETARY FORD: — gloss on that, just to underline what the Under Secretary said, that both of these things moved entirely on their own steam and on their trajectories and timelines. It was actually quite surprising to me that they lined up to be so close in sequence, but they are conceptually different and moved for different reasons.

I would say that the common element that they share in some respects is the fact that they are both in different ways reflections of the commanding comparative advantage that U.S. high technology skills and prowess and innovation in the realm of soft – of semiconductor design and fabrication. We have an extraordinary position in the global technology ecosystem by virtue of the skills and efforts of U.S. companies in this respect. And they – it’s not surprising in light of that both that we will need – both that our – that the United States would be an attractive location for companies to come to and take advantage of all that we have in this country to offer, and at the same time that we would need to be careful about making sure that others did not exploit and try to gain inappropriate access to our technology moving forward.

So these are both two sides of the same coin, but they are, in terms of timing, entirely coincidental.

MS ORTAGUS: Thanks. Okay. Let’s go over to Nick Wadhams from Bloomberg.

QUESTION: Hi, thanks very much. I just wanted to try to put a finer point on Humeyra’s question because I didn’t hear an answer there, just two issues. Is there any understanding with TSMC as part of this deal that it will get a license given that it gets about 10 percent of its revenue from Huawei, that that business will not be affected? And is the federal government offering any incentives or subsidies to TSMC as part of this agreement? Thanks.

UNDER SECRETARY KRACH: So the TSMC will not be granted a license or not granted a license based upon their commitment, their intent to build a five-nanometer fab here in the United States. So that’s not part of it at all.

If you look at this decision for their press announcement in the first place, it’s really a result of – they looked at the investment climate here in the U.S., and some of the statements they shared with us is President Trump’s tax cuts, regulatory reform, workforce development, and an emphasis on the high-tech innovation is a big reason why they decided to make that $12 billion commitment, along with the – as I mentioned, many of their main customers like Apple, (inaudible) Intel, AMD, Qualcomm, Nvidia are all customers, great customers for TSMC.

And so – and they – and I think they were really successful and galvanizing their ecosystem as well. So – and they looked at the workforce here as well. So – and there’s already a ecosystem here in the U.S. So I think it was a natural choice by them, but certainly one that reflects the great emphasis that President Trump has put on bringing jobs and – back to the United States, and a particular interest of what our focus is at the State Department, and that’s national security.

MS ORTAGUS: Thanks.

ASSISTANT SECRETARY FORD: And if I might, from my perspective, just to say that although we do not have someone from the Department of Commerce on the call, if we were to have someone from the Department of Commerce on this call, I have every confidence that they would be very, very clear and state unequivocally that all licenses are reviewed on their own merits and always will be.

MS ORTAGUS: Thanks, guys. Hey, Ruben, my email is acting up. Can you tell me who’s in the queue next, please? I’m sorry.

MR HARUTUNIAN: Sure. We’ve got Asa Fitch from The Wall Street Journal next.

QUESTION: Hi, guys. Thanks for doing this call. Where is this TSMC plant going to be exactly? We know Arizona; we don’t know anything more specific than that. Does that depend on the incentives you can offer, the biggest ones? And then just to echo what some others have asked, what are the incentives that have been discussed?

UNDER SECRETARY KRACH: With regard to the location in Arizona, the – I don’t think that’s been 100 percent nailed down. I believe it might be somewhere around the Phoenix area, but it’s not been 100 percent nailed down.

In terms of the incentives, I know there is a number of things that the United States Congress is looking at. I think they – they understood there’s some really good possibilities coming down the road as well as the climate for this. And there’s a lot we’re doing in terms of R&D, and I think that was a big point to it. But – and they did the math and it worked out for them.

MS ORTAGUS: Great. Thanks. We now have Ana Swanson from The New York Times.

QUESTION: Hi. Thank you so much for doing the call. I appreciate that. So setting the issue of the facility aside, do you think that TSMC will receive a license, or has the company received any assurances about the license? This – right, it seems like this regulation on Huawei announced today could be quite a blow to the company, and there are some rumors and reports that TSMC had received some kind of assurance. And if they had not, would TSMC be reacting negatively to this measure that you announced today that could clamp down on their revenue? Thank you.

UNDER SECRETARY KRACH: Well, I could say for a fact that there’s no assurance whatsoever on that. And about – I think roughly around 10 to 12 percent of TSMC’s business is China, and I think that is in essence almost primarily Huawei, so they will be restricted unless they’re granted a license. And there’s no assurances on that, and we don’t anticipate that.

MS ORTAGUS: Thanks. Let’s go over to Nick Schifrin, PBS.

QUESTION: Hey, guys, thanks for – thank you for doing this. Just wanted to switch over to 5G a little bit and have you zoom in on that. So the Secretary’s talked about what you spoke about earlier in terms of trying to protect U.S. institutions around the world, U.S. facilities around the world from 5G. What does that look like? Does that look like, I don’t know, some local businessman who wants to walk into the embassy can’t have a Huawei phone or something much more specific about U.S. infrastructure? And can you talk about the larger effort to try and convince countries around the world to get, for example, Nokia or Erickson 5G when Huawei’s been out front packaging 5G for over a year now? Thanks.

UNDER SECRETARY KRACH: So just to put the Clean Path in the most simplistic terms, what that means is that for traffic coming in, let’s say to a U.S. embassy or a U.S. military base, it cannot have touched a Huawei base station. Or if you have a Huawei – to the TELCO providers, they have a Huawei tower and a Huawei antenna, they’re going to need to put it in Ericsson or a Nokia one right alongside of it. So those technical details would be up to the TELCO operator. It definitely increases their cost if 5G Huawei is one of their vendors. And this is a 5G program, so most TELCO operators have not rolled out their pure 5G yet, but – so it will be a significant cost. And I forgot what your second question was.

MS ORTAGUS: Can – AT&T, can unmute Nick Schifrin’s line and let him re-ask?

UNDER SECRETARY KRACH: And Mung, you may want to – you may want to add —

MS ORTAGUS: Nick?

QUESTION: Yes. Can you hear me now?

MS ORTAGUS: Yes.

UNDER SECRETARY KRACH: — in terms of the Clean Path.

QUESTION: If you can hear me, what I was asking about, the second question is the larger context of the 5G battle. As you guys know, Huawei’s been packaging these 5G offers around the world for over a year. Obviously, you’ve been working with Nokia and Ericsson, so can you talk about the larger effort to try and convince countries not to buy these Huawei packages and instead consider the more expensive European ones?

UNDER SECRETARY KRACH: Sure. And we’ve had a lot of discussions with countries as well as TELCO operators, and it boils down to one word and one word only. It’s who do you trust. Because a lot of times people will say: Well, Nokia or Ericsson, they can’t do the job, or we’ve – we’re only going to put them on the edge, or they’ve given us a written agreement that there will be no back doors. Well, the fact of the matter is that AT&T, Verizon – T-Mobile, which is majority owned by Deutsche Telekom – NTT Docomo – they’re all rolling out with Nokia, Ericsson, or Samsung, so they can do the job.

In terms of hey, there’s no back door. Well, anybody from Silicon Valley knows – or anybody’s who’s been in the software business know there’s no such thing as a back door. There’s a front door every day because that software’s being updated almost every day, so they could slip in there anything that they – anything they want. And in terms of just putting it on the edge, well, a way to look at a 5G system, it’s like a necklace with chains. You’re only as strong as your weakest link. So once you’re in, you’re in.

So the fact of the matter is that the IT vendors have the keys to the kingdom, and so it depends who do you trust. And when you look at Huawei and ZTE, coming from a country where they have a national intelligence act that requires any state-owned company or otherwise or any Chinese citizen to turn over any information, proprietary technology, intellectual property, or data upon request to the Chinese Communist Party or to the Chinese Government or the PLA. And if they don’t, they have to suffer the consequences. Then – I think countries and TELCO operators really understand that, and I think now citizens of the world do as well. And we’re seeing that around the world.

And the other thing, too, is sometimes we say well, it’s so much less expensive, and I’ll say to them, “Well, you’re paying something, you’re getting ripped off,” because in a lot of cases, they’re giving it away for free. And my question is: Why do you think they’re giving it away for free? They want to be able to control it. They want to have access to the data.

MS ORTAGUS: Great, thanks. Let’s see. I think now we have Jeanne Whalen from Washington Post.

QUESTION: Oh, hello. Won’t the new commerce rule just incentivize fabs to buy their chip-making equipment from non-U.S. manufacturers? Like how hard would it be for GSMT or other fabs to just buy chip-making equipment from the Netherlands or other suppliers?

UNDER SECRETARY KRACH: Well, I would say in response to that that it depends what one wants to make. And one of the virtues of this approach is – that we’ve taken with the direct product rule – is precisely that it does put foundries all around the world on a level playing field and makes it very difficult simply to substitute in foreign supply. With respect to the cutting edge of chip technology, the Chinese technology companies of course would very much like to and are working very hard to try to indigenize all aspects of the supply chain. But at least for the moment and for at least some time to come, U.S. companies have still a very significant comparative advantage when it comes to the largely software-facilitated design tools that are involved in producing the very best chips.

One might be able to find non-U.S. providers for design tools for making somewhat less sophisticated chips, but if you really want to play on the cutting edge of this technology area right now, you still for the most part have to use U.S. technology. And so frankly, it’s taking advantage of that relative position that enables the direct product rule change that we have just rolled out to be effective, because it applies to anyone who wishes to use the very best tools in support of Huawei. And it doesn’t matter whether that user of those tools is in the United States or someplace else. So we regard this as a very elegant solution that in fact structurally does in fact address the concerns that you raise.

MS ORTAGUS: Thanks. Thanks so much. And our last question is going to go to Nike Ching, Voice of America.

QUESTION: Thank you. Good afternoon – for this phone call. How much will this deal pave the way for U.S.-Taiwan free trade agreement? And is a free trade agreement with Taiwan still on the table? Thank you.

UNDER SECRETARY KRACH: It – by the way, it won’t affect it at all. One thing that I can say, though, is we think it does nothing but strengthen the relationship between the United States and Taiwan. So nothing’s changed in terms of those discussions, and Taiwan’s been a great friend to the United States.

QUESTION: And can I —

MS ORTAGUS: Great, thanks – sure, go ahead, Nike. You can follow up.

QUESTION: Yes, thank you. So a more technical question: For people who do not know much about the semiconductor like me, could you please help us understand the five-nanometer semiconductor technology? And what can they do? What is so – such a game change deal, and why it’s so, like, state of the art? Thank you.

UNDER SECRETARY KRACH: By the way, Dr. Mung, if you’re – we haven’t heard from you, and this probably would be a good one.

DR CHIANG: Sure.

UNDER SECRETARY KRACH: And Dr. Mung comes to us from Purdue University where he was dean of engineering. Before that he was dean of electrical engineering at Princeton, three-time entrepreneur, did his PhD in 5G. So Dr. Mung, I turn over to you.

DR CHIANG: Thank you, Under Secretary Krach. Good afternoon, everyone. Thank you for sticking around. And I’m going to focus on this particular technology aspect of the first story, that is the very important TSMC investment in United States. And Under Secretary Krach summarized very well why this is a game-changer for the U.S. semiconductor industry that will bolster the American national security. And to answer the question just raised, indeed semiconductor is the backbone to the entire digital industry, going from artificial intelligence to autonomous vehicles to next-generation wireless networks. And indeed one can say that with this investment, now United States has a very vibrant 5G chip future. And this is the cutting-edge technology.

Different generations of semiconductor technology is often labeled by the number, and smaller the number the better, because you will be able to do more with the same given resource. And this five-nanometer technology will be the cutting-edge one, not just in the U.S. but around the world, and coming from one of the pioneering companies in the entire industry, coming from Taiwan, as mentioned, friend to the United States. And we have seen bipartisan support of such research and development leadership here in the United States, and with this latest cutting-edge semiconductor investment, we can anticipate a full blossom just like the old Bell Lab days, if you will. We can now anticipate a full blossom of American innovations in the coming years. Thank you.

MS ORTAGUS: Thanks, Mung. We appreciate that. Well listen, everybody, thank you so much for dialing in on a Friday. While we were on the call, we did issue, I believe – Ruben, correct me if I’m wrong, but we went ahead and issued the Secretary’s statement on the commerce action, is that right?

MR HARUTUNIAN: That’s right.

MS ORTAGUS: Okay, great, so you all should have that in your queues as well. So thank you so much, Keith, Chris, Mung. We really appreciate it. And hope everyone has a great weekend.

UNDER SECRETARY KRACH: Thank you.

DR CHIANG: Thank you, everyone. Cheers.

ASSISTANT SECRETARY FORD: Yes, thanks, Morgan. Have a great weekend.

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