How Chinese companies are challenging national security decisions that could delay 5G network rollout

Source : Philippine Canadian Inquirer

Brit­ish prime min­is­ter Rishi Sunak recently declared that the “golden era” of UK-China rela­tions is over. The next day, the gov­ern­ment removed China Gen­eral Nuc­lear Power Group, a Chinese state-owned com­pany, from the con­struc­tion of the UK’s Sizewell C nuc­lear power sta­tion.

Other coun­tries have made sim­ilar moves in recent years. In 2020, for example, then-US pres­id­ent Don­ald Trump attemp­ted to ban social media plat­form Tik­Tok in the US. The move was sub­sequently stopped by two US judges fol­low­ing a law­suit by Tik­Tok, and even­tu­ally dropped by cur­rent pres­id­ent, Joe Biden.

But such gov­ern­ment decisions based on national secur­ity con­cerns could affect the future inter­na­tional growth of Chinese busi­ness. This is par­tic­u­larly import­ant given that inter­na­tional invest­ment and trade by China has increased in recent years, enabling it to emerge as a power­ful chal­lenger to the global eco­nomic order.

Indeed, Chinese com­pan­ies and investors often refuse to take such national secur­ity changes lying down. With vary­ing degrees of suc­cess, firms have moun­ted a range of formal and informal chal­lenges in recent years. This includes lob­by­ing, media cam­paigns and dip­lo­matic assist­ance or sup­port from busi­ness asso­ci­ations, but also con­test­ing national secur­ity decisions in domestic courts.

A rel­at­ively new strategy for China, however, is to chal­lenge national secur­ity decisions before inter­na­tional tribunals using a method called investor-state dis­pute set­tle­ment. These tribunals are usu­ally set up to handle spe­cific dis­putes, with arbit­rat­ors appoin­ted and paid for by one or both of the parties involved. The suits tend to claim that national secur­ity decisions have breached host coun­tries’ oblig­a­tions to Chinese investors under bilat­eral invest­ment treat­ies (BITs). These treat­ies grant for­eign investors cer­tain stand­ards of treat­ment and allow them to sue host states for alleged viol­a­tions.

Most recently, Chinese tech giant Hua­wei made an invest­ment treaty claim against the Swedish gov­ern­ment over its exclu­sion from the rol­lout of the coun­try’s 5G net­work. And my research shows that Hua­wei’s legal chal­lenge to Sweden’s ban might only be the tip of the ice­berg since Hua­wei equip­ment is also cur­rently banned in other coun­tries that have signed BITs with China. In the UK, for example, the gov­ern­ment has com­mit­ted to exclude Hua­wei’s tech­no­logy from the coun­try’s 5G pub­lic net­works by the end of 2027.

The out­come of Hua­wei’s dis­pute with Sweden could affect pub­lic interest there and in other coun­tries like the UK. If the tribunal finds in Sweden’s favour, pre­vent­ing the use of Hua­wei equip­ment could delay 5G rol­lout by years and inflate prices for mobile phone users.

It’s also worth not­ing a 2019 tribunal decision that ordered Pakistan to pay US$6 bil­lion in com­pens­a­tion to an injured for­eign investor, min­ing com­pany Tethyan Cop­per. If Hua­wei wins this or any other sim­ilar legal chal­lenge, fin­an­cial liab­il­it­ies could be passed on to tax­pay­ers.

Defin­ing ‘national secur­ity’

Hua­wei’s chal­lenge of Sweden’s national secur­ity decision shows how brew­ing ten­sions and increas­ing dis­trust between China and west­ern coun­tries is affect­ing inter­na­tional trade and busi­ness.
Indeed, when coun­tries adopt an expans­ive concept of “national secur­ity” in domestic law, com­pan­ies might see it as a pre­text for pro­tec­tion­ism or a tool of geo­pol­it­ical rivalry. Cer­tainly, there is no con­clus­ive evid­ence that Hua­wei products, for example, are inher­ently unsafe versus sim­ilar products from other com­pan­ies, or that Hua­wei poses a national secur­ity threat.
To com­plic­ate mat­ters fur­ther, some early Chinese BITs – between China and Sweden, and China and the UK for example – do not expli­citly allow host states to pro­hibit for­eign invest­ment based on national secur­ity con­cerns. And so Hua­wei’s recent legal chal­lenge should help determ­ine:
• when and why a host coun­try can stop a for­eign invest­ment based on national secur­ity con­cerns
• and how inter­na­tional arbit­ral tribunals are likely to review national secur­ity decisions in the future.

Chal­len­ging national secur­ity decisions

But what could this case mean for 5G rol­lout? In this spe­cific example, Hua­wei is likely to fight an uphill battle to per­suade a tribunal that Sweden’s decision is incon­sist­ent with the China- Sweden treaty, for three reas­ons.

First, any poten­tial threat to the secur­ity of 5G net­works con­sti­tutes a national secur­ity risk because it means a coun­try’s com­mu­nic­a­tions could be brought down by espi­on­age, sab­ot­age or sys­tem fail­ure.

Second, 5G net­works are so com­plex that it is vir­tu­ally impossible to find and elim­in­ate every sig­ni­fic­ant vul­ner­ab­il­ity. This means attempts by Hua­wei to argue for screen­ing and con­trol of soft­ware, for example, may not defuse national secur­ity con­cerns. And third, tribunals usu­ally defer to a host coun­try’s national secur­ity decisions.

Of course, tribunal decisions can go the other way. For example, sev­eral tribunals found against the Argen­tinian gov­ern­ment that the coun­try’s fin­an­cial crisis in the 2000s was severe enough to qual­ify as a national secur­ity issue. But gen­er­ally, these tribunals tend to decide that gov­ern­ments are best placed to make such judge­ments.

Hua­wei has not brought a case against the UK yet, but west­ern coun­tries gen­er­ally should think about how to main­tain and improve tech­no­logy infra­struc­ture – even if innov­a­tion comes from regions with which ten­sions are strained. Fail­ure to do so could sig­ni­fic­antly impact con­sumer costs and access to cut­ting-edge tech­no­logy. 

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