(Corrects amount of Ontario grant, in paragraph 11, to C$6.5
million from C$67 million)
* Canada invokes national security exception
* It suggests Huawei may be excluded from building network
* EU holds fire on Huawei, ZTE telecom trade case
OTTAWA, Oct 9 (Reuters) - Canada indicated strongly on
Tuesday it would exclude Chinese telecom equipment giant Huawei
Technologies Co Ltd from helping to build a secure
Canadian government communications network because of possible
security risks.
Meanwhile, the European Commission has delayed a trade case
against Huawei and another Chinese telecom equipment maker, ZTE
Corp , easing tensions between the European
Union and China, its second-biggest trading partner.
Canada has invoked a national security exception to let it
discriminate, without violating international trade obligations,
against companies deemed as too risky to be involved in putting
together the network for carrying government phone calls, emails
and data center services, Canadian Prime Minister Stephen
Harper's spokesman told a news conference.
"The government's going to be choosing carefully in the
construction of this network, and it has invoked the national
security exception for the building of this network," Andrew
MacDougall, spokesman for the Conservative prime minister, said.
"I'll leave it to you if you think ... Huawei should be a
part of a Canadian government security system," MacDougall said.
MacDougall was speaking in reaction to a report on Monday
from the U.S. House of Representatives Intelligence Committee,
which urged American firms to stop doing business with Huawei
and ZTE.
It warned that China could use equipment made by the two
companies to spy on certain communications and threaten vital
systems through computerized links.
CBC television reported that the House committee chairman,
Representative Mike Rogers, is also urging Canadian companies
not to do business with Huawei.
Huawei and ZTE are the world's second- and fifth-largest
makers of wireless telecoms gear.
EU Trade Commissioner Karel De Gucht is gathering evidence
in order to launch an anti-dumping or anti-subsidy case. His
efforts have been hindered by the fact that no European
producer, such as Ericsson and Alcatel-Lucent
, has complained. A formal complaint is normally a
prerequisite for an investigation.
'PROCUREMENT OPPORTUNITIES'
Huawei has a thriving business in Canada. It won a contract
in 2008 to build telecommunications networks for domestic
operators Telus Corp and BCE Inc's Bell Canada,
and it has even received a C$6.5 million ($6.6 million) grant
from the province of Ontario towards a C$67 million investment
by Huawei in research and development.
"The national security exception only applies to foreign
companies," said Huawei Technologies Canada Co Ltd spokesman
Scott Bradley.
"Huawei is fully incorporated in Canada, and operates as a
subsidiary Canadian company. This alone effectively enables us
to bid on any potential procurement opportunities," Bradley
added.
Huawei has 130 engineers in its Ottawa
research-and-development facility and has 300 employees in its
Canadian head office in Markham, Ontario, the company said. The
company says it has so far procured C$400 million from Canadian
companies.
Its services may be in particular demand by Canadian firms
next year after an auction of valuable wireless spectrum of 700
MHz frequencies, compatible with the new mobile broadband
technology known as long-term evolution (LTE), one of Huawei's
fortes.
In invoking the security exception for the government
network, Canada has not gone as far as Australia, which has
barred Huawei from taking part in contracts to build the
government's $38 billion national broadband
network.
Bradley suggested the Australian decision was made for other
reasons.
Bradley said that Australia has made pretty clear that it is
"trying to cozy up to the United States right now in terms of
their trade relationship," noting that Australia has also agreed
to have 2,500 U.S. troops stationed there.
David Skillicorn, Internet security expert at Queen's
University in Kingston, Ontario, said he supports the U.S.
recommendation not to deal with Huawei and said the Canadian
government should revisit its decision to let it operate in
Canada.
"The Harper government is putting Canadian
telecommunications companies at risk. We shouldn't be rolling
out the red carpet for this company," Skillicorn said.
The negative publicity in Canada for Huawei and for China in
general may have ramifications for a $15.1 billion bid by
China's CNOOC Ltd for Canadian oil firm Nexen Inc
.
The Canadian government must decide if the takeover would be
of net benefit to Canada. Some politicians have said a Chinese
state-owned firm should not be allowed to scoop up a Canadian
oil firm.
Canada's spy agency Canadian Security and Intelligence
Service has put out a report saying investment in strategic
sectors by some foreign state-owned firms could threaten
national security.
($1=$0.98 Canadian)
(Additional reporting by Philip Blenkinsop in Brussels; Editing
by Peter Galloway and Will Dunham)
