Trade vs security: New Zealand's Huawei dilemma

By Paul G Buchanan *

Opinion - For two decades New Zealand has tried to balance its trade and security relations: opening Middle East and Asian markets (China in particular) while reaffirming security ties with its traditional Western partners.

While seemingly reasonable in the geopolitical context of the 1990s, it is now the basis of a deepening diplomatic row.

This separation worked well until the US and China began to view each other in competitive rather than cooperative terms, now accentuated under the respective leaderships of Donald Trump and Xi Jinping.

Thanks to a 2008 bilateral Free Trade Agreement, China is New Zealand's largest export destination at nearly $15.3 billion and 24 percent of total exports in 2018.

Over 55 percent of New Zealand exports are destined for Asia, with another 17 percent destined for Oceania (led by Australia), which means New Zealand is not reliant on its security partners for its economic well-being.

Most of New Zealand's exports are primary goods and value-added agricultural commodities such as milk derivatives and forestry products, so demand for them is very contingent and variable.

China is also New Zealand's largest source of imports, amounting to $11.9 billion and nearly 20 percent of the total (mostly consumer non-durables, also very elastic by nature).

New Zealand business groups are acutely aware of their trade dependency, so are highly motivated to ensure the relationship with China remains exemplary.

On the other hand, after the 2010 Wellington and 2012 Washington Declarations, New Zealand is a US military-security ally in everything but name. It also has upgraded intelligence as part of the Five Eyes group along with the US, UK, Australia and Canada.

That matters because China is considered a major military and intelligence adversary by the US and its allies, and a growing threat to Western liberal democracies.

The closeness of these ties means it is impossible for New Zealand to abandon its security commitments without serious consequences.

Now those relationships hinge on a decision by the New Zealand government on whether to allow Chinese telecommunications firm Huawei to participate in the national 5G broadband infrastructure upgrade.

The Five Eyes partners have called for a ban on Huawei participation in all their countries, citing national security concerns that:

• Huawei 5G technologies could be used for espionage such as via bulk data collection and mining.
• Huawei is seen, by the US at least, as a bad corporate actor that engages in intellectual property theft, copyright violations, fraud, corruption and international sanctions-dodging.

Having seen the evidence from its security partners, the Government Security Communications Bureau (GCSB) advised against using Huawei.

Huawei has fought back, claiming it is the victim of an anti-competitive, anti-Chinese campaign designed to favour Western telecommunications providers.

It has offered to exclude Chinese workers from the 5G roll-out and open up its equipment to inspection.

It has demanded explanations from the Labour-led government, and evidence from the GCSB, while embarking on a public relations campaign to demonstrate its good intentions.

The Chinese government has protested the bans already in place in Australia, the US and Europe, and threatened to retaliate against other countries that follow suit.

That is no idle threat.

China responded to Canada's arrest of the Huawei CFO (and daughter of the company founder) on a US extradition warrant by arresting two Canadians, and arrested a dual Australian-Chinese national shortly after the Australian ban on Huawei was announced.

All three are being held indefinitely on "national security" grounds. This appears to be an example of "hostage diplomacy" whereby a state arrests citizens of a country it is in dispute with to use them as leverage in negotiations.

The choice is stark, then: will New Zealand risk strong retaliation by China by banning Huawei, or will it risk its national security by ignoring the advice of its security partners and its own intelligence professionals?

Already, China has postponed a state visit by Prime Minister Jacinda Ardern, and a Chinese tourism-focused conference at Te Papa as a sign of its displeasure.

Although soft, as far as diplomatic responses go, these actions can be interpreted as signals from China that New Zealand needs to re-consider its position.

Absent a contingency plan, New Zealand's economy will also suffer significant losses should China economically retaliate.

Meanwhile, the US has asked New Zealand to increase its participation in US military exercises in the Western Pacific, which are seen in Beijing as directly aimed at Chinese maritime operations.

Of such things diplomatic dilemmas are made.

* Paul G. Buchanan is the Director of 36th Parallel Assessments, a geopolitical and strategic analysis consultancy.