Arbitration between Huawei and Sweden Over the Exclusion of 5G Investments13/06/2022
In January 2022, Huawei filed a request for international arbitration against the government of Sweden before the World Bank’s Arbitration Chamber – the International Centre for Settlement of Investment Disputes (ICSID) for the protection of its 5G technology investments in the Swedish market, valued at more than 520 million euros. Here is a summary to better understand the case: Sweden’s communications regulatory agency (Swedish Post and Telecom Agency) has banned the supply of 5G network technology by the company Huawei.
The decision was adopted on the occasion of the 3,400-3,720 Mhz frequency band auction. The Agency decided that Huawei equipment used in telecommunications networks’ core functions must be removed by January 1, 2025. In light of this, Huawei filed an appeal with the Swedish Administrative Court, but it was unsuccessful. It should be noted that this Swedish decision was influenced by the lawfare practices adopted by the US government against Huawei.
In 2022, Huawei took the case to the World Bank’s Arbitration Chamber – International Centre for Settlement of Investment Disputes (ICSID). In its request for international arbitration, Huawei alleged the reasons discussed below: Huawei has contributed to Sweden’s economy for 20 years. The Swedish authorities have adopted discriminatory treatment of Huawei’s investments made in Sweden through its subsidiary Huawei Sweden. The decision to exclude Huawei from the Swedish market implies damages of an additional 520 million euros or 5.2 billion in Swedish currency.
The Swedish decision violates the international obligations arising from the investment agreement between Sweden and China (mutual protection agreement between Sweden and China). Huawei claims it has implemented all the required cybersecurity rules, achieving more than 270 global certifications. According to Huawei, Sweden’s decision to exclude Huawei from supplying 5G technology represents a drastic and unexpected change in the Swedish authorities’ position.
Swedish legislation (the Electronic Communications Act of 2003) grants the Telecommunications Agency the power to regulate telecommunications services. In 2020, this law was modified so that the telecommunications agency must consider the risks to the security of telecommunications networks in the licensing procedure. Thus, the telecommunications agency must consult security authorities and the armed forces when granting individual licenses that may pose national security risks. In this case, the telecommunications regulatory agency must consult the relevant authorities.
According to Huawei, the telecommunications regulatory agency acted contrary to legal requirements. On the other hand, the telecommunications agency is against the rule that determined the possibility of imposing different security conditions when granting individual licenses. The Agency’s final decision found that Huawei’s products pose security risks to Sweden. However, the Agency did not specify any threat by Huawei to Sweden’s national security.
With the exclusion of Huawei, Ericsson, the main competitor, now has a monopoly in the supply of 5G products and services. Despite this, Ericsson’s CEO stated that Sweden has deviated from the European Union’s guidelines regarding the security of 5G networks, which considers balancing legitimate national security concerns and free competition. And yet, the aforementioned Ericcson CEO stated his criticism of the European 5G networks’ cybersecurity legislation. Huawei claims in its petition that it relied on the right to protect its investment under the international agreement between Sweden and China.
Huawei tried to settle the dispute with Sweden through negotiations, unsuccessfully. Sweden has breached the international agreement with China. National security reasons are not present in the international investment agreement between Sweden and China. In the twenty years of Huawei’s operations in Sweden, there has never been a security incident. Sweden has violated its obligations under Article 2 (1) of the international agreement that guarantees fair and equitable treatment of Chinese investors in Sweden. Sweden has violated the parameter related to fair and equitable treatment because the telecommunications agency’s decision is: 1) arbitrary and discriminatory; 2) disproportionate; (3) is not transparent; (4) is contrary to the legitimate expectations of Huawei as an investor in Sweden; and (5) was made without guaranteeing Huawei’s right to the due process of law.
Under the China/Sweden agreement, no contracting state shall expropriate, nationalize, or take any other measures in respect of an investment made in its territory by an investor from another contracting state, except based on public interest, provided that there is due legal process and compensation. Thus, Sweden adopted measures that had the effect of expropriating Huawei’s investments without compensation. Therefore, one of Huawei’s requests is that the Swedish government compensate for the investment loss totaling approximately 520 million euros – 5.2 billion in Swedish currency.
Under the principle of full reparation, the loss of reputation due to the breach of the international treaty between Sweden and China must be considered. Huawei’s final requests in the arbitration proceedings are: for the Arbitration Panel to declare that Sweden has breached its obligations under the Sweden-China investment agreement; order Sweden to compensate Huawei for all damages and losses suffered as a result of Sweden’s breach of the Sweden-China investment agreement, to be quantified by Huawei in due course; order Sweden to pay all costs of arbitration, including Huawei’s legal costs and expenses; order Sweden to pay interest on the amounts mentioned above from the time of Sweden’s breach of the Sweden-China international agreement; and grant Huawei any other relief as the Panel deems appropriate.
Huawei reserves the right to raise other issues relating to the matters in dispute described in the request for arbitration or related to the parties, to amend and/or supplement the petition, and to seek interim measures before the Arbitration Panel. In short: the focus of the international arbitration request is to protect Huawei’s investment in the Swedish market for the supply of 5G telecommunications network equipment. It is an issue that affects international trade and the international investment protection regime.
As can be seen from this precedent, geopolitical and geo-economic reasons impact international trade and ultimately negate freedom of trade and freedom of investment. The lawfare practiced by the United States against the Chinese company influenced the Swedish government to adopt the ban on Huawei. Therefore, companies must consider geopolitical and geo-economic factors in their risk analysis and investment plans.
Ericson Scorsim is a lawyer and consultant in Communications Regulatory Law, with a focus on telecommunications and media infrastructures, with a Ph.D. in Law from USP (University of São Paulo), and author of the books “Jogo geopolítico das comunicações 5G – Estados Unidos, China e impacto sobre o Brasil” (The Geopolitical Game of 5G Communications – United States, China, and Impact on Brazil), Amazon 2020, and “Geopolítica das Comunicações” (Communications Geopolitics), Amazon 2021.