Brazilian President Jair Bolsonaro’s government is looking for a legal way to exclude Chinese telecoms equipment maker Huawei Technologies Co. from 5G networks in Brazil, according to two sources familiar with the matter.

A presidential decree is being studied by Bolsonaro’s national security adviser Augusto Heleno and the ministry of communications who are looking at security provisions that telecoms and their suppliers must comply with, the sources said.

Bolsonaro, following his ally President Donald Trump, opposes Huawei on the unproven grounds that it shares confidential data with China’s Communist government. But, with China being Brazil’s largest trade partner, he has faced resistance from industry and within his own government, including from Vice-President Hamilton Mourão.

Brazil’s Communications Minister Fabio Faria declined to comment and Heleno’s office said it is not involved in the 5G matter.

Industry representatives said such a presidential decree could lead to a legal battle with telecoms companies that already use Huawei equipment and oppose a ban on the Chinese company because it would force them to make costly technology swaps.

Most Brazilian telecommunication firms use Huawei equipment on their 3G and 4G networks. According to lobby group Conexis, the largest cellphone company Vivo, owned by Telefônica Brasil, uses Huawei equipment in 65 per cent of its networks. Claro’s equipment is 55 per cent from Huawei, while Oi has 60 per cent and TIM has 45 per cent.

A legal dispute could delay the auction of 5G spectrum frequencies planned for June next year and set back Brazil’s transition to fifth-generation technology.

“Regulator Anatel needs legal provisions to set the rules for the 5G auction,” a first source, with access to the government plans, said. “Instructions from the president’s security adviser is not enough, so they’re looking at a presidential decree to back up any restriction on Huawei.”

A rule set by the government in March requires that companies guarantee data reliability, allow their systems to be audited and says they must deal with equipment suppliers in their geographical area. But it stops short of excluding Huawei.

The government has so far not been able to find a way to ban Huawei that legally holds water without affecting other suppliers.

According to a second source, the government considered excluding suppliers not listed on Sao Paulo’s Bovespa stock market, but that would also bar other companies.

“If set rules restrict one company without a plausible justification, it would not be upheld in court,” said the second source, who requested anonymity to speak freely. “That would not only delay technological advance but impact other areas of Brazil’s trade relationship with China,” the source warned.

Last month, Brasilia declared support for the Clean Network, a US initiative to get countries on board in preventing the growth of Chinese technology in 5G networks worldwide.

The US government has offered Brazilian telcos finance to encourage them to buy from Western providers such as Nokia and Ericsson instead of Huawei.

Huawei said it has been in Brazil for 22 years operating with the highest international cybersecurity standards, as it does in 170 countries worldwide, and has already conducted 5G tests with all the wireless companies in Brazil.

“We expect all decisions on the subject to be made in a strictly technical, non-discriminatory manner and in favour of the free market,” Huawei said in a statement.

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