* Requires federal law enforcement approval of IT systems
* Rule is "discriminatory" against Chinese firms-foreign
* United States imports about $129 billion in advanced tech
By Alina Selyukh and Doug Palmer
WASHINGTON, March 27 Congress quietly tucked in
a new cyber-espionage review process for U.S. government
technology purchases into the funding law signed this week by
President Barack Obama, reflecting growing American concerns
over Chinese cyber attacks.
The law prevents NASA, and the Justice and Commerce
Departments from buying information technology systems unless
federal law enforcement officials give their approval.
A provision in the 240-page spending law requires the
agencies to make a formal assessment of "cyber-espionage or
sabotage" risk in consultation with law enforcement authorities
when considering buying information technology systems.
The assessment must include "any risk associated with such
system being produced, manufactured or assembled by one or more
entities that are owned, directed or subsidized" by China.
The United States imports about $129 billion worth of
"advanced technology products" from China, according to a May
2012 report by the nonpartisan Congressional Research Service.
During a news conference on Thursday, Chinese foreign
ministry spokesman Hong Lei urged the United States to abandon
the law to help develop relations and trust on both sides.
"This bill uses Internet security as an excuse to take
discriminatory steps against Chinese companies. It is not
beneficial to mutual trust between China and the United States
nor to the development of trade and economic relations," Hong
The amendment to the so-called "continuing resolution" to
fund the government through Sept. 30 originated in the Commerce,
Justice and Science subcommittee of the House of
Representatives, chaired by Virginia Republican Rep. Frank Wolf.
It had gotten little attention until a blog post this week
by Stewart Baker, a partner in the Washington office of Steptoe
& Johnson LLP and a former assistant secretary in the U.S.
Department of Homeland Security.
Writing in the "Volokh Conspiracy", one of the country's
most prominent legal blogs, Baker wrote on Monday that the
measure "could turn out to be a harsh blow" for Chinese
computer-maker Lenovo and also "bring some surprises for
American companies selling commercial IT gear to the
Lenovo Group Ltd, which bought IBM Corp's
PC unit in 2005 and is now on track to become the world's
largest PC maker, said it was aware of the bill and reviewing
the specific language.
"Depending on how the language is interpreted, it could in
fact apply very broadly to many companies across the IT industry
from all around the world," Lenovo said in an emailed statement.
"We are very confident and comfortable that we will continue
to be very successful in growing our business in the U.S. even
as we and all of our competitors navigate new regulations."
U.S. concern about Chinese cyber-attacks has mounted in
recent months, with top officials, including President Barack
Obama, vocally condemning the practice.
Obama raised the issue in a phone call with Chinese
President Xi Jinping earlier this month, and told ABC News in an
interview that some cyber-security threats are "absolutely"
sponsored by governments.
"We've made it very clear to China and some other of the
state actors that, you know, we expect them to follow
international norms and abide by international rules," he said.
Xi said the United States and China should avoid making
"groundless accusations" against each other about cyber-security
and work together on the problem.
The exchange came after U.S. computer security company
Mandiant said a secret Chinese military unit based in Shanghai
was the most likely driving force behind a series of hacking
attacks on the United States.
Last year, the House Intelligence Committee released a
report urging U.S. telecommunication companies not to do
business with Huawei Technologies Co Ltd and ZTE Corp
because it said potential Chinese state
influence on the companies posed a threat to U.S. security.
Both companies took issue with the report, which Huawei
spokesman William Plummer called "baseless."
Plummer said in an email their reading of the bill is that
it "does not apply to Huawei based on the description of covered
ZTE officials declined to comment on the latest U.S. law,
while Huawei officials were not available for comment.
Baker, a technology security lawyer, said he believed the
language would live on in future appropriations bills and
possibly get tougher over time.
"Once a provision ends up in the appropriations bill...it
tends to stay there unless there's a good reason to take it
out," Baker said. "We could easily see (the appropriation
committees) tighten up some of the language in the future."
China could challenge the measure as a violation of World
Trade Organization rules, but may have a tough time making that
case because it is not a member of the WTO agreement setting
international rules for government procurement.
The WTO agreement also contains a national security
exemption that could be another U.S. line of defense against a
possible Chinese challenge, Baker said.
It is possible other countries could raise objections
because of the potential for the provision to prevent purchases
of Lenovo computers manufactured in Germany or Huawei handsets
designed in Britain, he said. But they may decide to tolerate it
because of their own concerns about Chinese hacking, Baker said.
"The goal is not to hurt American and European companies
that have operations in China," said a congressional aide who
worked on the House bill where the wording originated. "It was
really targeting entities that are directed by Beijing," said
the aide, who asked not to be identified.
The federal government's purchases, which are funded by
taxpayers' money, are often urged to give preference to vendors
that offer the cheapest services.
The congressional aide said China may heavily subsidize some
companies to present the U.S. market with a much lower price.
"It's a helpful reminder to look at the supply chain" of
U.S. firms, the aide said. "The cheap option may be artificially
lowered because potentially there are ulterior motives."