2 | FTReports FINANCIAL TIMESThursday 30January 2020

Trade SecretsSanctions

F

or a long time the business

of economic and financial

sanctions was relatively

sedate. They were usually

applied in a fairly consist-

ent way to a generally predictable set

of countries. True, their sophistica-

tion increased with the complexity of

the world financial system and sup-

ply chains. But their use was often

politically constrained by corporate

interestsinthesanctioningcountry.

Then came Donald Trump. The US

president has been far more willing

than his predecessors to mix eco-

nomic and security considerations.

Indeed, since he regards reliance on

imports as intrinsically damaging to

theUSeconomy,hisworldviewisthat

thetwoarenecessarilylinked.

This has created an atmosphere in

which the US has been more prone to

reach for sanctions and much more

careless about their knock-on effects.

Further uncertainty arises from Mr

Trump’s readiness to shunt govern-

ments — notably Iran — between the

“friends” and “enemies” columns in

hismentalspreadsheet.

The extent to which security and

economic concerns can be inter-

twined was underlined by Canada’s

arrest of Meng Wanzhou, chief finan-

cial officer of Chinese technology

company Huawei — at the US’s

request — for allegedly breaking

sanctionsonIran.

The issue is tied up with Mr

Trump’s obsession with China’s role

in the global economy and particu-

larlyintech,wherehehasbeentrying

to assert US self-sufficiency and dom-

inance. He has identified Huawei in

particular as a security threat to the

US, and is trying to drive it out of 5G

systems worldwide. Mr Trump even

mixed trade with security when he

offered to intervene in the Huawei

Trump weaponises

the dollar in drive

to put America first

President deploys

sanctions for his

political goals with

little concern for

collateral damage,

writesAlan Beattie

Companies operating in

Europe face a headache as the

UK prepares to diverge from

the European Union’s sanc-

tions regime, making it even

more complex to avoid doing

business with blacklisted peo-

ple,businessesandcountries.

A framework of EU restric-

tions against countries from

Venezuela to Russia, designed

to support goals such as

defending human rights and

fighting terrorism, is initially

set to be largely mimicked by

the UK following the end of the

Brexit transition period,

scheduled for the end of this

year.

But foreign secretary

Dominic Raab is expected to

outline a new British sanctions

regime in February, targeted

at individuals deemed respon-

sible for human rights abuses.

This is to be followed by the

publication of a list of people

whose assets in the UK are to

befrozen.

And compliance lawyers see

signs that the UK will eventu-

ally gravitate closer to the US

stance on sanctions. Mean-

while, the EU, shorn of a UK

that has been the driving force

behind much of the bloc’s

sanctions regulations, could

starttosoftenitsapproach.

“I see the UK drifting to

more of a mid-Atlantic posi-

tion,” says Sunny Mann, who

co-leads law firm Baker

McKenzie’s UK compliance

andinvestigationspractice.He

adds: “I can see the EU drifting

below the current benchmark

if the UK is not at the table

pushing for tougher sanc-

tions.”

Britain’s plan on sanctions —

measures that can range from

arms embargoes and travel

bans on specific individuals to

limits on trade and the use of

some financial instruments —

comes at the country seeks to

forge a new foreign policy

following its departure from

theEU.

The new policy is intended

to counter fears that concern

for human rights might fall by

the wayside in a post-Brexit

Britain more concerned about

courting new business and

tradeopportunities.

While Boris Johnson, prime

minister, has promised that a

new “global Britain” will be

“generous in temper and

engaged with the world”, the

challenges of putting its new

policy into practice have

become apparent in the past

month. The issue of sanctions

has come into sharp focus fol-

lowing the US’s decision in Jan-

uary to impose further sanc-

Business faces new headache if Brexit

Britain adopts stricter rules than EU

Europe

Lawyers expect

tougher stance, writes

Laurence Fletcher

tions against Iran after assassi-

nating Iranian military com-

manderQassemSoleimani.

The UK, France and Ger-

many have been trying to keep

alive a 2015 deal designed to

restrict Iran’s nuclear pro-

grammeaftertheUSpulledout

ofitin2018.Yetthismonththe

European trio triggered a dis-

pute mechanism in the deal

after Tehran abandoned its

uranium enrichment limits.

That pushes the 2015 deal

closer to collapse and could

mean the reimposition of UN

sanctions against Iran,

although the UK’s position

could end up being markedly

differenttotheEU’s.

“One area where you could

seepoliticaldivergenceiswhat

to do with Iran,” says Baker

McKenzie’s Mr Mann. While

The regulations

tend to be a grey

area, leaving

plenty of room for

companies to trip up

Contributors

Alice Ross
Editor, Trade Secrets
Alan Beattie
Senior trade writer
Henry Foy
Moscow bureau chief
Laurence Fletcher
Capital markets correspondent
Bruce Love
Freelance writer
James Politi
World trade editor
Conor Sullivan
Commissioning editor
Steven Bird
Designer
Daniel Pudles
Illustrator
Esan Swan
Picture editor

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FINANCIAL TIMESThursday 30 January 2020 FTReports| 11

Trade SecretsSanctions

There was a time when export

controlswereanobscureback-

water of Washington’s trade

policy, involving licences for

thefewtechnologiesthatcould

be put to both military and

civilian use. But since he came

to office, President Donald

Trump has seized on them as a

way to contain China’s use of

innovation to gain an edge in

military prowess and intelli-

gencegathering.

“We are alert to China’s

civil−military fusion strategy,

and understand China’s tena-

cious pursuit of American

technologies it needs to mod-

ernise its military,” Wilbur

Ross, the US commerce secre-

tary and former distressed

asset investor, said in a speech

last July. “This cannot be toler-

ated, and we are updating our

export control policies to

account for this very real

threat.”

Mr Ross was speaking less

than two months after the

Trump administration made

its most high-profile and con-

troversial move on export con-

trols. Last year, after talks on a

comprehensivetradedealwith

China collapsed in acrimony,

the US commerce department

placed Huawei, the Chinese

telecoms network company,

on its “entity list”, preventing

American companies from

doing business with it in the

absence of a government

licence.

The move by the Trump

administration was met with

strong opposition in Beijing

and plenty of angst among US

companies, from chipmakers

to internet platforms, that sell

theirproductstoHuawei.

The backlash was so strong

that the Trump administra-

tion effectively watered down

the import ban by ensuring

that some American busi-

nesses could continue to sup-

ply Huawei. But the Chinese

group has nonetheless tried to

quickly cut its dependence on

American components and

software.

US officials contend that

they have good reason to mon-

itor and block business with

Huawei, given allegations of

espionage, sanctions viola-

tions and links to the Chinese

military that have been lev-

elled against the company.

And Huawei is not the only

target.

As the US administration

ratcheted up pressure on

China over the past year in the

midstofatradewar,whichwas

paused just this month, it also

imposed export controls on

dealings with other companies

including surveillance tech-

nologygroupHikvision,onthe

grounds that their products

are used by Beijing to perpe-

tratehumanrightsabuses.

“In recent years, China has

taken a sharp U-turn toward

control and oppression of its

own people,” Mike Pence, US

vice-president, said in a

speechinOctober.

“Today, China has built an

unparalleled surveillance

state, and it’s growing more

expansive and intrusive —

often with the help of US tech-

nology.”

The Huawei and Hikvision

designations are only the tip of

the iceberg — the US govern-

ment is subjecting those who

do business with Chinese tech

companies to much greater

scrutiny.

The US Export Controls Act

of 2018 paved the way for

Washingtontowidenthescope

of the restrictions to include

the most cutting edge technol-

ogies, from genomics to facial

recognition, robotics and arti-

ficial intelligence. The com-

merce department has been

busy translating that legisla-

tion into specific regulations.

Silicon Valley companies are

watching very closely, not only

for signs that their sales might

be jeopardised, but also to

ensure that they are not cut off

from innovative Chinese

research that could help their

businesses.

So far, fears that the Trump

administration could imple-

ment the law with a hatchet

have subsided somewhat,

since the commerce depart-

ment has moved slowly and

deliberately to put it into prac-

tice. But the US tech sector

remains anxious about the

final regulations. The US said

this month that it would apply

the new export controls to

geospatial imagery technol-

ogy, in the first specific meas-

urerelatedtothe2018law.

Samm Sacks, a cyber secu-

rity policy and China digital

economy fellow at the New

America Foundation, has

argued that the restrictions

could backfire dangerously if

they are too sweeping. “Unlike

the Cold War space race with

the Soviet Union, the line

between US and Chinese tech-

nological development is not

as clear as the political border

between the two countries,”

she told the House foreign

affairs committee, just a few

days before Huawei was

placed on the export blacklist

in May. “Efforts to segregate or

‘decouple’ the two systems will

comeatasteepcosttoUSinno-

vation and technological lead-

ership.”

Since the US and China

reached their “phase one”

trade deal this month, a big

debate in Washington trade

circles has been whether the

detente would also extend to

areas like technology competi-

tion and export controls. But

the prevailing assumption is

that the US will continue piling

pressure on Beijing through

thesemeasures.

“The decoupling of the US

and Chinese tech sectors is

already disrupting bilateral

flowsoftechnology,talent,and

investment,”warnedtheEura-

sia Group, a risk consultancy,

this month. “In 2020, this

decoupling will move beyond

strategic tech sectors like sem-

iconductors, cloud computing,

and 5G into broader economic

activity.”

Trump uses

legal blocks

to curb

China’s rise

Export controls

Tech decoupling is

set to gather pace,

writesJames Politi

‘The line between US

and Chinese [tech] is

not as clear as the

political border’

Under observation:

Hikvision, whose

surveillance cameras are

pictured above, has been hit

by US export controls

Qilai Shen/Bloomberg