Congress yesterday passed the 2019 National Defense Authorization Act (NDAA), which includes a section on prohibitions ofcertain telecommunications and video surveillance equipment (Sec. 889). The bill is expected to be signed into law by the President shortly.
The bill’s prohibitions explicitly cover the use of ZTE and Huawei telecommunications equipment and services and video surveillance equipment of several other manufacturers, in government procurements as well as in government-funded projects. In addition, the provision’s prohibitions also cover telecommunications equipment and services and video surveillance equipment of any entity that the Secretary of Defense believes is owned or controlled by or connected with China.
Here’s a very quick overview.
At a high level, the provision prohibits government agencies from (1) procuring or extending contracts for “covered telecommunications equipment or services” effective 1 year from enactment (2) or making loans or grants used in the procurement of covered telecommunications equipment or services, effective 2 years from enactment. Our understanding is that the loan/grant prohibitions would apply to a host of government programs used to fund telecom and broadband-related infrastructure such as the Rural Utilities Service telecom and broadband programs and FCC universal service funding programs.
Covered equipment and services are initially limited to telecom equipment produced by Huawei and ZTE, and video surveillance and telecom equipment produced by Hytera Communications, Hangzhou Hikvision Digital Technology Co. and Dahua Technology Co. Importantly, however, the legislation specifically authorizes the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the FBI, to add the telecommunications or video surveillance equipment or services of any entity the Secretary believes to be owned or controlled by or otherwise connected to China. Obviously it is this last provision that is the greatest concern to Chinese manufacturers in the telecom and video surveillance space, as it potentially extends the coverage of the prohibitions to other Chinese-related entities that provide telecom or video surveillance equipment or services, with little definition and no specified process.
For companies receiving government funding or grants that use covered equipment in their networks, the provision also includes a section that directs funding agencies to prioritize available funds to assist companies in transitioning from prohibited equipment to replacement equipment. The provision also includes a few exceptions, including one that exempts the equipment of third party providers that have wireless roaming, backhaul, interconnection and similar arrangements with entities that have government contracts or government grants or loans. The section also makes provision for a couple of different waivers by agency heads, as well as by the Director of National Intelligence.