Washington DC:
Bloomberg reports the U.S. Department of Defense is testing a smartphone made by China’s Xiaomi Corporation. This program marks an important milestone for the tech firm, which has rapidly increased its market share over recent years.
What Is the DOD Xiaomi?
On March 15th, 2019, Chinese smartphone giant Xiaomi was added to the US Department of Defense (DOD) blacklist as one of nine companies it considered tied to China’s military. This designation came after President Donald Trump issued an executive order prohibiting US-based firms from working with these organizations – along with oil giant CNOOC and telecom equipment maker Huawei.
The DOD blacklist contains companies it deems linked to the Chinese military that could potentially be used in combat or have control of them by their government. This list was compiled pursuant to an executive order signed by President Trump in 2020 and serves to limit US-based companies’ ability to collaborate with Chinese firms generally and military-related technology in particular.
When the Department of Defense added Xiaomi to its CCMC list, it claimed that the company was engaged in procuring advanced technologies for China’s military. Furthermore, Xiaomi acknowledged investing in 5G and AI technologies – two areas deemed essential by the DOD for modern military operations.
However, the court determined that the DOD had failed to provide sufficient evidence for its claim that Xiaomi was a CCMC. They noted only two facts as evidence for making their determination: an acknowledgement by Xiaomi’s CEO that he had received an award from China’s government; and Xiaomi’s 2019 Annual Report acknowledging heavy investments in 5G technology and AI.
In its ruling, the court found that DOD’s CCMC designation process for Xiaomi was flawed and failed to abide by various APA requirements. Therefore, they granted a preliminary injunction preventing DOD from imposing certain securities trading restrictions due to their CCMC designation of Xiaomi.
This injunction is the latest in a string of court victories against DOD efforts to place companies on sanctions and export controls lists. It also suggests there may be another avenue for companies to challenge their designations in federal court, providing hope to both foreign companies that may be designated as CCMCs as well as the US government which could weaken its dependence on these lists in future anti-China initiatives.
How the DOD Xiaomi Works
The US Department of Defense is known for its security-minded policies and has been using some high-tech gadgets to keep its men and women in blue safe and secure. The latest addition to their arsenal is a mobile device from Chinese tech giant Xiaomi, which reportedly comes equipped with various technological marvels such as encryption, state of the art camera, GPS navigation system – plus dual GSM sim slots that support 4G LTE connectivity while on-the-go.
Xiaomi created the Mi Mix smartphone, which has seen tremendous success in recent years as it becomes America’s fifth largest smartphone maker by market share. Its most prominent product is the Mi Mix smartphone which comes in various colors and sizes; other notable products include Mi TV and Home. Unfortunately, this particular model is currently only available within America but could potentially expand internationally soon enough.
Why the DOD Xiaomi Is Important
The Department of Defense (DoD) is currently testing Xiaomi smartphones for use by their personnel. This pilot program represents an important milestone for Xiaomi and could pave the way to wider adoption of their phones within US government organizations.
The DOD’s evaluation of Xiaomi is part of a larger initiative to assess the security of Chinese-manufactured consumer electronics products. The DOD has expressed concerns that Chinese manufacturers might insert malicious code into their items and use those devices to spy on or disable U.S. military systems.
In response to security concerns, former President Trump issued Executive Order (EO) 13959 in November 2020. This EO created a list of Communist Chinese Military Companies (CCMCs). Additionally, it required the Treasury Department to develop and implement financial restrictions that would prohibit American investors from owning or purchasing publicly traded securities from CCMCs.
When Chinese companies, such as Huawei, challenge the EO’s CCMC designation in court, they can face serious financial and reputational harm that cannot be remedied by simply blocking sales to the U.S. The EO’s national security justification has consistently been rejected by courts across the board – including in this particular instance.
On March 12th, U.S. District Court Judge Rudolph Contreras issued a preliminary injunction that found the Department of Defense’s CCMC designation process for Xiaomi was flawed and violated multiple provisions of the Administrative Procedure Act (APA). The injunction highlighted several factors, but most significantly that DoD failed to provide “substantial evidence” to back up their determination that Xiaomi should receive CCMC status.
This precedent-setting ruling is significant because it sets a precedent for other Chinese technology companies that are sued by the U.S. government in federal court and opens the door to future lawsuits challenging government regulatory actions such as sanctions and export controls.
The court decisions in this case will shape how the US government implements policies related to national security and China. Historically, challenging a government’s national security justification has been difficult; however, on March 12th it appears that this may change. It leaves CCMC designation vulnerable to legal challenge which could render EO 13959 ineffective. It serves as a timely reminder that President Biden should take a more thoughtful and nuanced approach when crafting national security strategies rather than hasty decisions without testing their feasibility first.
The Future of the DOD Xiaomi
Recent Wall Street Journal reporting suggests the Department of Defense may want to reconsider its position regarding Chinese smartphone maker Xiaomi, a U.S.-listed company with an alleged military history.
According to the report, the Department of Defense (DoD) is adding phone maker Huawei to a blacklist of Communist Chinese military companies (CCMC), prohibiting American investors from investing in any shares or securities related to those firms. This list, created to comply with an executive order signed by President Trump in November 2020, limits domestic investment in companies labeled as owned or controlled by Chinese military forces.
Later this month, the DOD added seven more Chinese firms to its list. These included Huawei, chipmaker SMIC and China Mobile, China Unicom and China Telecom.
However, the DOD did not add any other companies listed on the US stock exchange to its blacklist. Thus, it remains uncertain if future American investors will have to sell off their holdings in Xiaomi before March 15, 2021, as required by DOD regulations.
According to The Wall Street Journal (WSJ), the DOD relied on two pieces of evidence for its designation decision. Firstly, the company is investing heavily in 5G and AI technologies due to their increasing prevalence in consumer electronics devices. Secondly, these technologies have many applications within the military, such as drones and artificial intelligence.
These pieces of evidence, however, were insufficient to meet the standards required by the American Psychological Association for review of a CCMC designation. As such, the court determined that DOD’s decision memo contained numerous explanatory defects.
Final Words
One of the primary reasons why the DOD included Xiaomi on its CCMC list was due to alleged connections with China’s military. This decision caused controversy and is one that the company is actively fighting to have reversed.
The company, which overtook Apple as the world’s third-largest smartphone maker in Q3 2020, insists it is not a CCMC and that this designation was incorrect. Furthermore, it claims it isn’t owned or controlled by China’s military nor does it provide services for their government.
