Will Xiaomi's lawsuit against the U.S. Department of Defense and the Treasury Department force the U.S. to recognize its unconstitutionality?

On the evening of January 31, Xiaomi Group announced on the Hong Kong Stock Exchange that the company sued the U.S. Department of Defense and the U.S. Treasury Department in the U.S. District Court for the District of Columbia on January 29, Eastern Time, in response to the U.S. Department of Defense's sanctions in mid-January that included nine Chinese companies including Xiaomi on the "blacklist."

According to the relevant information on the official website of the US Department of Defense, this is the fourth time the department has released the so-called "blacklist" since June 2020. The official name of this list is actually the CCMC list, that is, the "Chinese Communist Party Military Industrial Enterprises". After nearly one or two years of refinement from relevant reports in domestic and foreign media, the black list has become another typical name for the US technology war list, different from the US Department of Commerce's Entity List.

Combining the immediate response of Xiaomi Group on January 15 and the official statement announcing the formal lawsuit on January 31, there are two points worth noting:

1. The targets of the lawsuit are not only the U.S. Department of Defense, but also the U.S. Department of the Treasury;

2. Xiaomi requested declaratory and injunctive relief from the local court in the District of Columbia. The two main claims were procedural injustice and fact finding. Xiaomi requested the court to issue an order revoking Xiaomi's designation as "CCMC" and preliminarily and permanently prohibiting the defendant from implementing or enforcing the designation.

Jiwei.com checked reports from Reuters and other foreign media and found that the content mentioned that Xiaomi accused the U.S. Department of Defense of being unconstitutional, and the corresponding wording should be "procedural unfairness" in Xiaomi's announcement.

Two important members of Biden's new cabinet: Treasury Secretary Janet Yellen (left) and Defense Secretary Lloyd Austin are defendants in Xiaomi's lawsuit against the United States (Photo source: BBC)

Why are there two defendants instead of just one?

Over the past two years, whenever the Sino-US trade war and technology war have escalated, the frequency of the appearance of the "National Defense Authorization Act for Fiscal Year 1999" has become quite high. The US National Defense Authorization Act has had a new version almost every year since the 1960s. Why is the 1999 version so special that it is frequently cited by the Pentagon and becomes the criterion for determining whether to be included in the CCMC blacklist?

The most special thing about this National Defense Authorization Act, named by veteran Republican conservative Strom Thurmond, is its Article 1237, as shown in the screenshot below:

This provision stipulates that the U.S. government can exert influence on Chinese military-related enterprises in accordance with the International Emergency Economic Powers Act (IEEPA), and the U.S. Secretary of Defense can consult with intelligence agencies such as the CIA and FBI to determine the publication of a blacklist of Chinese CCMCs operating directly or indirectly in the United States or any of its territories and possessions in the Federal Register within 90 days from the date of promulgation of the law. After obtaining authorization from IEEPA, the president can impose economic sanctions such as financial services, asset transactions, and asset disposal on blacklisted Chinese companies or individuals.

After the Cold War, the means of political and economic games between major powers have basically bid farewell to military close combat. Regarding China, although the Pentagon "holds the sword", it can only "do business".

If they are wolves, then who is the wolf? Without a doubt, it is the US Treasury Department.

We can easily see the linkage with the Department of Defense on the official website of the U.S. Treasury Department. Every time a "blacklist" is announced, the Pentagon will send a copy to the Treasury Department. Once we understand this, we will understand that although the U.S. Department of Defense is the initiator of concocting the "blacklist", as a counterattack, Xiaomi Group must list the U.S. Treasury Department as a joint defendant. Therefore, Janet Yellen, the former head of the Federal Reserve and current core member of Biden's cabinet, the Secretary of the Treasury, has become one of the main defendants.

Are the US Department of Defense’s accusations tenable?

When then-US President Clinton signed the National Defense Authorization Act on October 17, 1998, perhaps no one expected its fate to be so "ill-fated". After 20 years of sleeping in a pile of old papers, the document was awakened by US right-wing politicians in the Trump era like Hades, which is in line with the historical tradition of "learning changes with skills". Article b1 of the bill is the most critical, which explains how to determine the CCMC list. If we compare the original text of 1999 with the Pentagon's criteria for blacklisting technology companies such as Huawei and Xiaomi in 2019, we will find that the two are not completely consistent.

The biggest difference is that the latter has the term "military-civil fusion", which is undoubtedly the latest interpretation of the bill by the US Department of Defense in 2019. Let's combine the original version of the CMCC sanctions standard, that is, the second paragraph of Section 1237 B, to see the application of the "military-related" scenarios of the US Department of Defense:

The original text states that any individual who meets the following two conditions: (1) belongs to or is controlled by the People's Liberation Army of China, and (2) is engaged in providing commercial services, manufacturing or export services to the military may be placed on the "blacklist".

So how do we define the military? The last paragraph of the screenshot above explains it in detail: the navy, army, air force, police force, and related intelligence agencies that serve the state and the Communist Party.

Obviously, the Pentagon's coverage of "military" is far wider than our definition, and its judgment of "dual-use" can be said to have become a complete pocket crime.

We can imagine the following scenario:

A patrolling police car passed by a small roadside auto repair shop in a fourth-tier small city in China. Suddenly, it found that the tire was not fully inflated. It went into the store to change a tire, paid and left. This roadside auto repair shop in a fourth-tier small city is already considered "military-related" and theoretically could be included in the US Department of Defense's blacklist because the store provided maintenance services to a police car, the service objects were the police, and the business entity's behavior was commercial (commercial services).

The ambiguity of the concept of military involvement has given American officials almost unlimited room to accuse others of crimes. In this case, if Xiaomi Group wants to prove in the District Court for the District of Columbia that the company does not meet the "military involvement" determination, the difficulty can be imagined. It can be said that in the "fact finding" stage of this case, Xiaomi Group needs to complete a task that is almost impossible to win.

Rumor has it that the Pentagon is targeting Xiaomi because Lei Jun's Shunwei Capital invested in Galaxy Aerospace in the early days.

In any case, the rumors about Xiaomi's possible "self-examination and self-correction" regarding its involvement in the military have no evidentiary value in the face of the conspiracy, because Huawei was put on the military-related blacklist before Xiaomi about half a year ago, and the US Department of Defense did not give a positive and convincing response.

There is neither factual justice nor procedural justice

As mentioned above, the legal remedies that Xiaomi Group sought in the District Court for the District of Columbia involved both facts and procedures, the latter of which directly pointed out that the US Department of Defense violated the constitution. The facts involving the military are entangled, so can the unconstitutionality be clarified?

When it comes to suing the U.S. government for unconstitutionality, Huawei can be regarded as a senior predecessor of Xiaomi, and one can learn from others’ experience.

Huawei has twice accused the U.S. government of "unconstitutionality" in two years. One was in March 2019, when it challenged the congressional ban on federal agencies using the company's products. Huawei's main basis was that the ban on its products was a "bill of attainder."

At the end of 2019, Huawei again sued the US government for unconstitutionality, with the defendant being the Federal Communications Commission (FCC). In the complaint filed with the U.S. Court of Appeals for the Fifth Circuit, Huawei believed that the FCC directly determined that Huawei posed a national security threat and did not give Huawei an opportunity to refute the relevant allegations, which violated the principle of due process.

Although the two lawsuits were filed in different departments, one in the Texas District Court and the other in the Federal Fifth Circuit Court of Appeals, both directly targeted the relevant US departments for violating procedural justice.

In February this year, a Texas court finally dismissed Huawei's lawsuit against the US government for unconstitutionality.

What is certain at this point is that Xiaomi Group’s lawsuit in the District Court for the District of Columbia will continue along the same path as Huawei. In other words, deprivation of civil rights will still be Xiaomi’s main reason for the lawsuit.

In the view of Huawei and Xiaomi, the U.S. Congress passed the "National Defense Authorization Act" to directly determine that certain Chinese companies were blacklisted and subject to economic sanctions. This is an approach of being both a player and a referee. Congress is acting on behalf of the judicial system. Where is the spirit of the "separation of powers"?