Edward Snowden

Two years after Snowden, NSA revelations still hurting US tech firms in China: report

PUBLISHED : Friday, 03 July, 2015, 8:01am
UPDATED : Friday, 03 July, 2015, 6:49pm

Revelations of digital surveillance by American spy agencies could end up costing US firms billions of dollars in lost business and lawmakers in Washington are falling short in their duty to address the issue, a US think tank has said.

Tech firms, in particular, have underperformed in foreign markets following the leaks by former National Security Agency contractor Edward Snowden, according to a paper published by the Information Technology and Innovation Foundation. 

"Our original thought was once policy makers realised this was having an impact on business interests, they would take more aggressive action to address the concerns," Daniel Castro, ITIF vice president, told the South China Morning Post. He helped author the report.

The ITIF predicted in 2013 that "even a modest drop" in the foreign market share for cloud computing could cost the US economy up to US$35 billion by 2016. 

That now looks like a conservative estimate as the revelations of cyber-snooping have negatively affected “the whole US tech industry,” the report said.

READ MORE: UK and US spy agencies targeted Russian and Chinese anti-virus firms: Snowden leaks

Cloud computing firms and data centres have been some of the worst hit, with foreign companies choosing to avoid storing their data in the US following revelations about the NSA's digital surveillance programmes. 

A 2014 survey of British and Canadian businesses by Vancouver-based Peer 1 Hosting found that 25 per cent of respondents planned to pull data out of the US due to fears relating to data privacy. 

In February, Beijing dropped a number of major American tech firms from its official state procurement list, including network equipment maker Cisco Systems, Apple, and security firm McAfee

"The Snowden incident, it's become a real concern, especially for top leaders," Tu Xinquan, associate director of the China Institute of WTO Studies in Beijing, told Reuters in April. 

"In some sense, the American government has some responsibility for that. [China's] concerns have some legitimacy." 

The White House and US International Trade Administration declined to comment on the matter, when contacted by the Post

IBM, Microsoft and Hewlett-Packard have all reported diminished sales in China as a result of the NSA revelations, which first emerged in the summer of 2013. 

The NSA was found to have tapped into the servers of major internet players like Facebook, Google and Yahoo to track online communication, among other forms of digital surveillance.

Chinese firms have also suffered due to security concerns, particularly in the US. 

In 2012, a Congressional committee said that smartphone makers Huawei and ZTE were a national security threat because of their alleged ties with the Chinese government. 

READ MORE: Ex-CIA chief Hayden claims Huawei spies for Chinese state

In April, US officials blocked technology exports to Chinese facilities associated with the Tianhe-2 supercomputer project, a blow to Intel and other hardware suppliers. 

"Both countries are looking into restrictions because of security, that's not a good idea for either of them," said Castro. 

The ITIF paper recommends establishing international legal standards for government access to data, and developing what it terms a "Geneva Convention on the Status of Data". 

"We need to take certification out of the national level and move it to the international level. We don't want each country to set security standards," Castro said. 

He warned that China's pursuance of "protectionist" policies in the name of security could backfire if other countries follow suit and adopt standards that favour domestic over foreign firms for key infrastructure projects. 

"China doesn't want every other country to say ‘We have security concerns about you and refuse to buy your products,’” he added. 

Castro pointed to China's new security legislation, passed by the country's top legislature on Wednesday, to shore up his argument that Beijing is "still going down that path". 

The sweeping law defines the scope of national security in far-reaching terms, ranging from finance, economy, politics, the military and cybersecurity to culture, ideology and religion. 

One clause deals with establishing systems "for the protection of cyber and information security". 

Washington must respond if China keeps pursuing such protectionist policies but this will be problematic until concerns about NSA spying have been addressed, Castro said. 

"At the end of the day, it is very hard to say with a straight face that you should buy US tech products, if the [US] government is not willing to stand up and say ‘We will not use this as a way to conduct surveillance in your countries.’"