Brazil & Southern Cone - August 2020

The role of Chinese telecommunications company, Huawei, in Brazil’s ‘5G’ rollout is still uncertain, and an ongoing cause of friction in relations between Brasília and Washington. 

In an interview published by Brazilian daily O Globo on 29 July, US ambassador to Brazil Todd Chapman said that Brazil would suffer “consequences” if it selected the Chinese company to build its 5G cellular telecoms network. The US claims Huawei violates intellectual property rules and collects data for the purpose of espionage by the Chinese state. Huawei denies this. In Chapman’s telling, the “consequences” could involve reduced investment interest in Brazil among companies worried over the protection of their intellectual property. There was also a carrot as well as a stick. The ambassador said the US International Development Finance Corp (IDFC) has US$60bn in its coffers to help allies who chose “trustworthy suppliers” in the place of Huawei, such as Sweden’s Ericsson, South Korea’s Samsung, or Finland’s Nokia.

Brazil’s Vice President Hamilton Mourão responded on 3 August telling a press conference for foreign correspondents that his government did not fear US pressure on the issue. He added that Brazilian legislation does not allow Huawei to be excluded from the bidding process as long as it is transparent in observing the bidding rules. Mourão pointed out that “over one third” of existing 4G telecoms equipment in Brazil has been provided by Huawei. Any decision to ban the company would therefore cause serious difficulty and financial losses to the country’s mobile phone operators. The vice president acknowledged the existence of a trade and technology war between China and the US (respectively Brazil’s first and second most important trade partners) but said that Brazil wished to maintain its links with both.

US pressure on the issue may already have had some impact at the margins. In early July sources at Telecom Italia (TIM) said it had excluded Huawei from a tender for 5G equipment for use in both Italy and Brazil. Company sources said the decision was part of a supplier diversification policy. Officially, however, the company’s Brazilian subsidiary, TIM Participações, said it had not taken any decision over its suppliers and might hold a second tender next year after 5G frequencies are allocated. Brazil’s 5G frequency auction is now scheduled for June 2021, after two earlier postponements. It has been estimated to bring in up to US$5.6bn in government auction revenues and to trigger over US$24bn in private sector investments over the following five years, but these numbers are out of date and are probably underestimates. What is clear is that the quarrel over Huawei may lead to very costly delays limiting the productivity gains 5G offers across the wider Brazilian economy.