[Analytics] Korea maintains ‘strategic ambiguity’ amid US assault on Huawei

South Korea’s top two trade partners are the United States and China, which has put Korea’s trade-based economy between a rock and a hard place as the trade war between the economic giants escalates. Case in point? Huawei. Lee Shin-Hyung specially for the Asia Times.

South Korean corporates have been tight-lipped ever since President Donald Trump issued a national security order on May banning US companies from doing business with China’s tech flagship and its 68 affiliates.

Korean brands like Samsung Electronics are deeply embedded in trans-Asian supply chains – in which Huawei is a major player – and they supply both components and finished products to China and the US. Perhaps wisely, they have refused to comment on the matter.

Thus far, there has been no clear signal that South Korean firms and products are being targeted by the restrictions imposed by their US ally. This is leading to cautious speculation that Korean companies are safe – at least, for now.

Heads down, antennae up

After Washington blacklisted the world’s largest Chinese telecom equipment company, US tech firms such as Qualcomm, Micron Technology, Intel and Google had little choice but to halt business with Huawei. Some non-US companies are also taking no chances. ARM – a British semiconductor design firm – joined them, citing the use of US technologies in ARM products.

However, Asian firms appear to be taking a more robust attitude.

According to a report by Nikkei Asian Review, Japan’s Toshiba temporarily suspended shipments to Huawei on May 23, then resumed them the same day, saying that they did not breach the US ban against Huawei.

And Taiwan’s TSMC, which produces semiconductors under orders from Qualcomm and other US firms, said it would continue business with Huawei.

“TSMC is one of the companies that faces difficulty determining whether their products are subject to the ban,” a Korean industry expert said. TSMC is a chip foundry that produces chips designed by US companies.

Permission needed?

An official with Seoul’s Ministry of Trade, Industry and Energy said the most sensitive items would be non-US goods that have potential military specifications, or those that use 25% or more of US parts, or non-US products that use certain US technologies and software, particularly those that have potential military applications.

The official told Asia Times that non-US firms, which provide such goods to Huawei need to get permission from the US government. If they do transactions with Huawei without permission, they could be subject to sanctions.

But other officials are not sure how strongly Washington will pursue sanctions against non-US companies doing business with Huawei.

“It is Korean tech firms [not the government] that should examine whether their products are subject to the Huawei ban by the US,” another official at the industry ministry said.

“However, basically, the Huawei ban targets US companies – it’s not like a UN sanction against Iran or North Korea. It is solely a US government action. So, we don’t know how strictly the US will impose sanctions on companies in other countries for ‘violations’.”

Give the level of US action so far – essentially, requests rather than demands – some speculate that Korean tech firms may be safe.

“Given that there are only requests to quit doing business with Huawei – albeit strong requests – from the US government without specific mention on Korean products or companies, hopefully, the ban may not apply to Korean tech products,” a former high-ranking government official said.

However, that is an assumption. No one is giving a definite answer.

Mounting pressure

But what about using Huawei technologies?

“Firms using Huawei products are not currently subject to sanction,” the ministry official said. That must be a relief to LG Uplus, the smallest of Korea’s three mobile carriers, which uses Huawei gear in its 5G network.

However, even if no sanctions are being brandished at this point, the US is clearly asking its allies not to use Huawei’s equipment.

According to Yonhap news agency, US Ambassador to South Korea Harry Harris warned at a conference on May 5 that cybersecurity of 5G networks is crucial to protect the communications of allies. He stressed that short-term cost savings could be tempting, but long-term risks and costs would inevitably be very high if a company opted to choose an “unreliable” supplier.

In an apparent response to the point that Harris raised, Yoon Jong-won, a senior presidential secretary for economic affairs, told journalists last week: “There are fields where corporates make their own decision” – but he noted that the government would manage communication security thoroughly.

LG Uplus has answers to any awkward questions ready to hand. “We are currently using European equipment from LTE to 5G in areas [of Korea] where the US military is stationed,” it told Asia Times last month.

No guidance from the top

Meanwhile, a quiet controversy is brewing over Seoul’s stance. Some argue that the government should play a more active role and make a decision, for the country on which side to take.

“I don’t know what role the government is playing in this critical situation,” a former official complained to Asia Times. “The Korean government needs to give companies more clear guidelines or, if that is difficult, at least it actively collects information and helps them make the right decision.”

But others say that it is appropriate for the government to engage in diplomatic efforts behind closed doors, leading another former senior official to argue for a hands-off approach.

“LG Uplus has to deal with the problem on its own. If the government intervenes, it could face a lawsuit. The government and corporates should maintain strategic ambiguity as much as possible till the last moment,” he said. “The trade war is worsening now, but we don’t know at what moment things will change. If the government and companies decide which side to advance, they may face a tricky situation later.”

In a worst-case scenario where the trade war reaches an irreconcilable level, which economy would Korean companies choose?

“Although China is a huge market, many Korean companies are likely to end up choosing the US, considering their technological relations with their US counterparts,” the industry expert said.