Politicization of the 5G rollout: Litigation way for Huawei?

The Chinese government’s ambition to become the global leader in new technologies, manifested in state-led industrial policies such as Made in China 2025, has prompted a strong response. For example, the United States significantly tightened its export control regulations and expanded grounds for foreign direct investment screening. In turn, the European Union (EU) has been pursuing the policy of technological sovereignty, an integral part of Ursula von der Leyen’s political guidelines for 2019-2024. This growing antagonism between the countries racing for technological superiority, labelled as a “technological de-coupling”, coincided in time with the rollout of the 5G infrastructure, surrounded by controversy over the involvement of Chinese tech companies in the process.

In this blog, we capture the politicization of the 5G rollout reflected in the ongoing resistance to the participation of the Chinese technology giant Huawei Technologies Co., Ltd. (Huawei) in the 5G projects. To tackle this issue, we will shed some light on the 5G technology, then briefly discuss government policies curbing Huawei’s participation in the 5G rollout, and lastly assess the company’s litigation strategy in response.

5G technology: economic implications and national security risks

The 5G – the fifth generation of cellular networks – would offer increased speed, reduced latency (the network’s response time) and greater bandwidth (drastically increasing the ability to handle many more connected devices). This enhances three distinctive areas of network usage: enhanced mobile broadband (enabling larger data volumes and enhancing user experience), massive machine-type communication (enabling Internet of Things), and ultra-reliable and low-latency communication (enabling autonomous vehicles and robotic-enabled remote surgery). Some analysts argue that the rollout of 5G “holds the key to shaping the future of practically every industry by drastically transforming the way machines interact and function”. The 5G is a software-driven network and as Tom Wheeler, former chairman of the US Federal Communications Commission, observed: “5G may be the last physical network overhaul in generations as upgrades will now be only a matter of replacing software and low-cost, commodity components.” As a result, the 5G and the infrastructure required for its functioning can be labelled by states as a “critical technology” and a “critical infrastructure” respectively.

Bearing in mind that the building of the 5G network “requires massive capital investment” and that the alleged Chinese government subsidization of Huawei brings prices for the 5G equipment significantly down, the question that springs to mind is: What are the risks that compel countries to introduce restrictions preventing Chinese tech companies (mainly Huawei) from participation in their 5G infrastructure projects? The answer partly lies in the nature of the technology and partly in the nature of Chinese tech companies. Given that the transition to 5G would expose troves of data, including commercially sensitive and private information, to the network, it multiplies the risks to the economy if the 5G infrastructure is disrupted or its integrity is compromised. Roxana Radu and Cedric Amon conclude that the most pressing 5G threats relate to “the compromise of confidentiality [spying on traffic and data circulated], availability [disruptions to 5G networks] and integrity [modifications or alterations of traffic and information systems]”. When it comes to Huawei’s participation in the 5G rollout, countries are increasingly wary, a point to which we turn now.

Why is Huawei labelled as a national security threat?

Explicit bans on Huawei-produced equipment and services as well as prohibitions on granting government procurement contracts are among the most often-used regulatory actions put in place to prevent Huawei’s participation in the 5G rollout (detailed analysis is here). It should be noted that the gamut of the undertaken measures is diverse and it includes both formal and informal actions (e.g., use of diplomatic pressure to influence other countries not to use Chinese components in their 5G infrastructure), domestic and international activities, economic and non-economic policy measures (e.g., the use of the intelligence-sharing partnerships such as the Five Eyes network to argue in favour of Huawei’s exclusion from the 5G networks).  

The reasons behind Huawei’s designation as a “high-risk vendor” can be succinctly summarized as follows: an unclear ownership structure, a potential affiliation with the Chinese military, and long-standing espionage allegations. Another stumbling block to building trust between Chinese tech companies and foreign governments is the National Intelligence Law of the People’s Republic of China, which requires Chinese citizens and companies to cooperate with the Chinese intelligence agencies and assist them in their intelligence work. Thus, concerns regarding Huawei’s participation in the 5G projects can sprout from different roots.

Huawei’s litigation strategy: what do we know so far?

Alain Pellet describes litigation strategy as a “multifaceted and dynamic concept”, which among other things “implies choices concerning the mode of settlement to be used, the forum to be seised and the size and composition of the bench”. When it comes to restrictions prohibiting Huawei from participation in the 5G rollout, the company’s litigation strategy has been multidimensional: Huawei seized the opportunity to initiate proceedings before domestic agencies and courts as well as international organizations and tribunals. 

Proceedings before domestic agencies and courts

To counter numerous restrictions implemented by the United States’ regulatory bodies targeting Huawei, the company relied upon the means of recourse offered by the US domestic legal system. Huawei took similar steps regarding measures introduced by the EU Member States, albeit at a smaller scale.

In 2018, John S. McCain National Defense Authorization Act for Fiscal Year 2019 was enacted. Section 889 of this Act prohibited US executive agencies from (i) procuring Huawei-produced telecommunications equipment; (ii) contracting with the companies that use Huawei equipment or services; (iii) obligating or extending loan or grant funds to procure Huawei equipment and services. In March 2019, Huawei lodged a complaint at the US District Court in Plano, Texas to challenge the constitutionality of the provision. It argued before the court that restrictions are unconstitutional as they violate the Bill of Attainder Clause, the Due Process Clause, and the Vesting Clauses. The government responded that the primary purpose of Section 889 is “[t]o further national and informational security by protecting the networks of federal agencies, contractors, and grantees from the threat of cyber-attacks and -espionage by the Chinese government via companies in a position to exploit those networks.” The court dismissed all claims (detailed analysis is here).

In April 2018, US Federal Communications Commission (FCC) issued a notice prohibiting the use of the universal service funds “to purchase or obtain any equipment or services produced or provided by any company posing a national security threat to communications networks or the communications supply chain.” Subsequently, the FCC labelled Huawei and ZTE Corp. as a threat to national security and thereupon determined that government subsidies from the $8.5 billion universal service fund could not be used to purchase equipment and services from them. The final designation order was issued in June 2020. Huawei submitted an appeal to the FCC, which was denied in December 2020. After this, Huawei along with its US subsidiary filed a case before the 5th US Circuit Court of Appeals. In order to overturn its FCC designation as a national security threat and to challenge its alleged ties to the Chinese military, Huawei argued that such designation “was not based on evidence and that the agency [FCC] exceeded its authority by making judgments about national security”. In June 2021, the court denied Huawei’s petition for review (detailed analysis is here).

Over in Europe, Huawei either sent formal requests to competent authorities or instituted court proceedings in response to various measures proposed or implemented by the EU Member States. This was the case with the court proceedings to repeal the decision of the Swedish Post and Telecom Agency. Apart from this, in September 2020, Huawei sent an official letter to the EU competition chief Margrethe Vestager in response to the 5G security rules proposed by Poland and Romania. It argued that the proposed draft laws “are predicated on several violations of EU law.” This claim was discussed in several meetings and phone calls without any tangible results.

Discussions at the World Trade Organization

At least since 2018, China has raised the issue of restricting Chinese companies’ participation in the 5G networks at the WTO. It started with China’s proposal to discuss Australia’s restrictions on the 5G equipment produced by Huawei and ZTE, under the label “discriminatory market access prohibition on 5G equipment”, at the Committee on Market Access. During the meeting, the Chinese representative accused Australia of introducing WTO-illegal origin-based prohibitions. While the Australian measure did not explicitly name Huawei and its express aim was to protect against security risks that might arise from “the involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law”, the Australian representative contended that requirements were origin-neutral and did not exclude Chinese suppliers.

The issue was later raised during the Council for Trade in Goods meetings in November 2018 and in April 2019. The issue was also discussed at the Council for Trade in Services. So far as a trade dispute is concerned, legal scholars remain sceptical of the possibility to justify the Australian position under the WTO national security exceptions.

In 2021, China brought Sweden’s restrictions on Huawei’s participation in the country’s 5G network to the attention of the Council for Trade in Goods. Recently, in April 2022, Belgium’s draft law introducing additional security measures for the provision of mobile 5G services was labelled by China as a special trade concern and included in the Council for Trade in Goods agenda. As of now, these measures escaped review under the WTO dispute settlement mechanism.

Litigation before international investment tribunals

In 2020, the Swedish Post and Telecom Agency auctioned licensing rights in the 3.5 GHz and 2.3 GHz bands for the upcoming Swedish 5G network. In order to participate in this auction, authorized mobile network operators were prohibited from using equipment sourced from Huawei. The latter made several attempts to overturn this decision at the Swedish domestic courts. Failing to reach an amicable solution despite efforts, Huawei initiated an ICSID arbitration based on the China-Sweden BIT in January 2022. This dispute appears to be the first case to question the legality of a country’s decision to restrict Huawei from its 5G network, even though in 2019, Huawei was threatening arbitration proceedings against the Czech Republic.

Huawei claimed that Sweden had violated the following obligations: (i) fair and equitable treatment under Article 2(1); (ii) national treatment standard, incorporated through Article 2(2); (iii) prohibition of expropriation and nationalization under Article 3. Hence, Huawei demands full reparation. It should be noted that neither the China-Sweden BIT nor its amendment protocol contains public order or national security exceptions. Even so, Sweden can invoke customary international law defence of necessity embodied in Article 25 of the ARSIWA, a move which allowed some respondents to successfully defend their government policies before. To justify its conduct under the plea of necessity, several prerequisites should be fulfilled: challenged measure safeguards an ‘essential interest’ of the state; this measure should be the only way of safeguarding that interest; the measure addresses a ‘grave and imminent peril’; no other essential interest of the state, another state, or the international community should be seriously impaired as a result. In the past, states have invoked the plea of necessity “[…] in the context of the Argentine financial crisis in 2001, […] in the context of war, revolutions, national security crises and public order and security.” In light of this, it remains to be seen if the 5G rollout and risks associated with it can qualify for this purpose.

Conclusion

The idea of restricting access to the supplier, e.g. Huawei, who offers the lowest price on the market is antithetical to the free-market principles underpinning the global economic order. The invocation of national security to justify such moves only complicates the matter and confirms our assumption that the 5G rollout is politicized. As the national security rhetoric is increasingly infiltrating global economic affairs, being already heralded as a “shift to a new geo-economic world order”, it remains to be seen if the dispute settlement mechanisms created by the international economic order could restrain states from imposing their will on their domestic constituencies as well as their trading partners.

Photo: ‘Huawei, Internationale Funkausstellung 2018, Berlin’ (by Matti Blume, CC Attribution-Share Alike 4.0 International license).