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Huawei faces exclusion from planned Canada government network

Tuesday, 9 Oct 2012 | 4:27 PM ET

* Canada invokes "national security exception"

* Suggests Huawei may be excluded from building network

* U.S. House report urged U.S. firms not to deal with Huawei

By Randall Palmer

OTTAWA, Oct 9 (Reuters) - The Canadian government hinted strongly on Tuesday it would exclude Chinese telecom equipment giant Huawei Technologies Co Ltd from helping to build a secure government communications network because of possible security risks.

Ottawa has invoked a national security exception to allow it to discriminate, without violating international trade obligations, against companies it deems to be too risky to be involved in putting together the network for carrying government phone calls, emails and data center services.

"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 Conservative Prime Minister Stephen Harper, told a news conference.

"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 U.S. firms to stop doing business with Huawei and another Chinese company, ZTE Corp . It warned that China could use their network equipment for cyber-espionage.

CBC television reported that the committee chairman, Rep. Mike Rogers, is also urging Canadian companies not to do business with Huawei.

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$67 million ($68 million) research grant from the province of Ontario.

"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."

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 taken for other reasons.

"Australia has made pretty clear direction that they are trying to cozy up to the United States right now in terms of their trade relationship," he said, adding 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 Ottawa 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," he said.

($1=$0.98 Canadian) (Editing by Peter Galloway)

((randall.palmer@thomsonreuters.com)(+1-613-235-6745)(Reuters

Messaging: randall.palmer.thomsonreuters.com@reuters.net))

Keywords: USA CHINA/HUAWEI CANADA