U.S. Hits Back at Huawei's Constitutional Challenge to Sales Ban

(Bloomberg) -- A U.S. law prohibiting federal agencies from buying Huawei Technologies Co. equipment isn't legislative punishment but serves to protect against China gaining a strategic foothold in those agencies' networks, the government said.

Justice Department lawyers on Wednesday asked a federal judge in Sherman, Texas, to throw out a lawsuit Huawei filed against the U.S. government in March. The Chinese telecom giant sued to invalidate a law Congress passed last year barring government purchases of its products.

"Congress's concern that Huawei could be used by the Chinese government to target U.S. telecommunications networks did not develop overnight," according to the government's filing. "Lawmakers and numerous executive branch officials have been raising concerns about Huawei's potential to enable Chinese cyber-activity against U.S. networks for over a decade and have been acting over that time to mitigate the threat."

The litigation in Texas involves Huawei's ability to sell equipment into the U.S. market and is separate from the U.S. government's blacklisting of Huawei, which prohibits the company from buying components from American suppliers.

President Donald Trump on Saturday announced that U.S. companies will be allowed to sell their equipment to Huawei when there are no national security concerns, thereby easing the blacklist restrictions the Commerce Department imposed in May. That concession wasn't a "general amnesty" as part of an agreement to restart trade talks with China, Larry Kudlow, the White House National Economic Council director, clarified on Sunday.

The U.S. has been engaged in a global campaign to block Huawei from so-called 5G communications networks, calling the company a security threat. The Trump administration has alleged the Chinese government could use Huawei's products to spy on countries that use them in their networks.

White House trade adviser Peter Navarro on Tuesday said Huawei's involvement in 5G networks remains a "national security concern” but the sale of a “small amount of low-level chips” isn't a “bad thing” if it persuades China to return to trade negotiations.

In the Texas lawsuit, Huawei is challenging a section of the 2019 National Defense Authorization Act that bars federal agencies from buying Huawei equipment. The law passed by Congress last year also prohibits federal contractors from using Huawei equipment, and blocks federal loan or grant recipients from using the funds to buy the company's equipment or services.

Huawei claims Congress abused its powers by sanctioning the company without a hearing or trial. The law violates constitutional prohibitions against the legislature singling out individuals for punishment, the company said in its request to have the section that targets its equipment declared unconstitutional.

The case is Huawei Technologies USA Inc. v. U.S., 19-CV-00159, U.S. District Court, Eastern District of Texas (Sherman).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Elstrom, Jillian Ward

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