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CORRECTED-Huawei faces exclusion from planned Canada government network

(Corrects amount of Ontario grant, in paragraph 7, to C$6.5million from C$67 million)

* 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 hintedstrongly on Tuesday it would exclude Chinese telecom equipmentgiant Huawei Technologies Co Ltd from helping to builda secure government communications network because of possiblesecurity risks.

Ottawa has invoked a national security exception to allow itto discriminate, without violating international tradeobligations, against companies it deems to be too risky to beinvolved in putting together the network for carrying governmentphone calls, emails and data center services.

"The government's going to be choosing carefully in theconstruction of this network, and it has invoked the nationalsecurity exception for the building of this network," AndrewMacDougall, spokesman for Conservative Prime Minister StephenHarper, told a news conference.

"I'll leave it to you if you think ... Huawei should be apart of a Canadian government security system," MacDougall said.

MacDougall was speaking in reaction to a report on Mondayfrom the U.S. House of Representatives' Intelligence Committee,which urged U.S. firms to stop doing business with Huawei andanother Chinese company, ZTE Corp . Itwarned that China could use their network equipment forcyber-espionage.

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

Huawei has a thriving business in Canada. It won a contractin 2008 to build telecommunications networks for domesticoperators Telus Corp and BCE Inc's Bell Canada,and it has even received a C$6.5 million ($6.6 million) grantfrom the province of Ontario towards a C$67 million investmentby Huawei in research and development.

"The national security exception only applies to foreigncompanies," said Huawei Technologies Canada Co Ltd spokesmanScott Bradley.

"Huawei is fully incorporated in Canada, and operates as asubsidiary Canadian company. This alone effectively enables usto bid on any potential procurement opportunities."

In invoking the security exception for the governmentnetwork, Canada has not gone as far as Australia, which hasbarred Huawei from taking part in contracts to build thegovernment's $38 billion national broadbandnetwork.

Bradley suggested the Australian decision was taken forother reasons.

"Australia has made pretty clear direction that they aretrying to cozy up to the United States right now in terms oftheir trade relationship," he said, adding that Australia hasalso agreed to have 2,500 U.S. troops stationed there.

David Skillicorn, Internet security expert at Queen'sUniversity in Kingston, Ontario, said he supports the U.S.recommendation not to deal with Huawei and said Ottawa shouldrevisit its decision to let it operate in Canada.

"The Harper government is putting Canadiantelecommunications companies at risk. We shouldn't be rollingout 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