Huawei’s court challenge to a Federal Communications Commission order that declared it to be a national security threat and denied it access to federal funding was rejected as the FCC ramps up pressure on the company and seeks to deny all future authorizations to it and similar businesses with links to the Chinese Communist Party.
The FCC initially designated Huawei and ZTE as national security threats last summer, banning the two companies from accessing U.S. government subsidies to build communication infrastructure. The commission said government subsidies from its $8.3 billion annual Universal Service Fund “may no longer be used to purchase, obtain, maintain, improve, modify, or otherwise support any equipment or services produced or provided by” Huawei. The Public Safety and Homeland Security Bureau concluded that Huawei was a national security threat. After Huawei sought a review of the designation, the FCC again affirmed in December that the company “poses a threat to the security and integrity of our nation’s communications networks.”
In February, Huawei filed an appeal with the U.S. Court of Appeals for the 5th Circuit, claiming the FCC’s ruling “exceeds the FCC’s statutory authority, violates federal law and the Constitution, is arbitrary, capricious, and an abuse of discretion, and not supported by substantial evidence.” A trio of circuit judges (George W. Bush appointee Judge Jennifer Walker Elrod and Trump appointees Judge Cory Wilson and Judge Stuart Kyle Duncan) rejected Huawei’s appeal on Friday.
“The FCC deals with national communications, not foreign relations. It is not the Department of Defense, or the National Security Agency, or the President. If we were convinced that the FCC is here acting as ‘a sort of junior-varsity [State Department]’ … we would set the rule aside. But no such skullduggery is afoot,” read the lengthy opinion. “Assessing security risks to telecom networks falls in the FCC’s wheelhouse. And the agency’s judgments about national security receive robust input from other expert agencies and officials. We are therefore persuaded that, in crafting the rule, the agency reasonably acted within the broad authority Congress gave it to regulate communications. Additionally, having carefully considered the companies’ other challenges under the Administrative Procedure Act and the Constitution, we find those unavailing as well.”
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Ajit Pai, the former Republican chairman of the FCC, celebrated the ruling on Friday, saying, “In 2019, the FCC took decisive action to secure the communications supply chain, barring companies from using FCC subsidies to buy equipment from entities deemed national security threats. Pleased 5th Circuit today rejected #Huawei’s appeal of our decision.”
The appeals court loss for Huawei came one day after the FCC proposed a new rule that would crackdown on the Chinese telecom even further, with the commission saying the proposal would “would prohibit all future authorizations for communications equipment deemed to pose an unacceptable risk to national security.”
Chinese Foreign Ministry spokesman Zhao Lijian lamented the FCC’s new proposal on Thursday.
“Til this day, some people in the U.S. are still stretching the concept of national security and abusing state power to crack down on certain country and companies without providing any proof,” Zhao said, adding, “The U.S. should immediately stop abusing national security and exerting unjustified suppression on certain Chinese companies.”
A bipartisan Senate bill proposed in May would mandate that the FCC no longer review or approve business requests from entities on the FCC’s designated list, with the Senate offices saying this would “prevent further integration and sales” of Huawei and other Chinese state-backed firms inside the United States “regardless of whether federal funds are involved.”
In March, the FCC released an updated list of Chinese communication companies “that have been deemed a threat to national security,” including Huawei and other businesses, that it said all “produce telecommunications equipment and services that have been found to pose an unacceptable risk to U.S. national security or the security and safety of U.S. persons.” The blacklist, which also extends to subsidiaries and affiliates of the Chinese firms, was created in accordance with the Secure Networks Act, which was passed last year.
The Justice Department and U.S. intelligence agencies believe that Huawei, ZTE, and other Chinese companies are working hand-in-hand with the ruling Chinese Communist Party, potentially giving China‘s surveillance state access to hardware and networks around the world. The U.S. has sought to limit Huawei’s global reach, especially in the area of 5G, pushing its “Five Eyes” partners of Australia, Canada, New Zealand, and the United Kingdom to reject Huawei’s technology in their communications networks.
In February 2020, the DOJ unveiled a superseding indictment of its 2019 charges against Huawei, charging it with racketeering and conspiracy to steal trade secrets.
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The Commerce Department explained in December 2020 that Huawei was added to the entity list in May 2019 because the company and its affiliates “engaged in activities that are contrary to U.S. national security or foreign policy interests.” The Bureau of Industry and Security amended its foreign-produced direct product rule in May 2020 to “target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology” and in August 2020 announced even broader restrictions.
