HUAWEI – THE FOOLISH ART OF POKING THE SLEEPING GIANT

The Trump regime’s recent treatment of the Chinese electronics giant Huawei sends an unfortunate set of messages to an international audience. When Trump et al instigated the arrest of Huawei’s CFO Meng Wanzhou, the US order to Canada to detain Meng en route from Hong Kong to Mexico and extradite her to the US was not merely news worthy.   The impression of barely concealed hypocrisy was almost breath-taking.

The principal charge, that Huawei had broken US sanction arrangements against Iran, may have seemed at first glance to have had some superficial plausibility, but since it was the Trump Administration, not China, who had arbitrarily chosen to abandon the treaty with Iran, it was already arguable to hold a Chinese company to the Trump insistence on sanctions against a US target nation.

US neighbours, allies and competitors, must also see this as provocative in that acceptance of the sanctions depends on accepting the US right to impose extra-territorial sanctions on other powers. The UN Security Council in their Resolution 2231 specifically called on all nations to drop sanctions on Iran in recognition of the 2015 Iran nuclear agreement. The US refused to recognise that Security Council request, but it does raise the question why other nations should continue to allow the US to dictate their foreign economic policy.

To show the problem here, assume for a moment the roles are reversed. We can only imagine how Mr Trump would receive the message that since China had taken offense at a third nation – say Vietnam,  and further that any attempt by the US to break the sanctions on Vietnam thereby imposed by China would result in the arrest of a CEO or CFO of any offending company eg Apple?

A second problem is to disentangle the element of fair competition from the desire to run roughshod over competitors. It is hard not to notice that the US targeting of Huawei coincides with the challenge to US electronics giant and in particular with their success in marketing the so-called 5G Technologies.

A third problem is that at the international level, the arrest of Meng Wanzhou, as CFO of Huawei, is totally out of synch with what normally happens when a company steps out of line. Whereas company officials have been arrested this is normally for alleged personal crimes. Embezzlement, fraud, accepting or offering bribes, assault or bullying have at various times justified arrest and subsequent court judgment but this for actions with a clear line of personal responsibility. A company charge such as violation of sanctions would normally be directed at boards.

For example, there have been many past accusations of companies being charged with failure to respect sanctions. Unfortunately for those of us watching from the side-lines a reasonable question to ask is how come in those cases travelling company representatives of such companies have not been detained. And more to the point how come the Chinese company in this case has been singled out when US companies guilty of the same charge have their officials left alone? When JP Morgan Chase was found guilty of violating US sanctions against Cuba, Iran and Sudan, the company were charged $88.3 million in fines but, as Professor Jeffrey Sachs pointed out, their boss Jamie Dimon was not arrested by pulling him off a plane.

Nor were the CEOs singled out for arrest despite the many major financial institutions who have found themselves paying fines for major sanction violations. In the aftermath of the 2008 economic collapse, none of the host of banks who were found to have indulged in illegal practices had their top officials snatched off international flights so it will be interesting to see how many of US trading partners feel about a new modus operandi.

The precedent of arresting Meng as a travelling business woman, assumes the Chinese will allow the US to control one of their flagship companies without effective protest. But we are talking here of a symbolic attack on the world’s second biggest economy who currently host production for many major US companies and who provide a major market for US goods. In the recent past any attack on the Chinese system has been met with a measured response in kind. Huawei is not the only prominent business whose top officials fly between the world’s capitals. Why would a thinking administration want these officials put at risk?

The other charge of pointing to evidence of some industrial espionage by Huawei may or may not be founded in fact.   For what it is worth I can accept that over the last few decades there have been many prior examples of industrial espionage. All the major electronics companies as far as I can tell have been caught stealing one another ’s ideas. And yes, where it is known to have happened targeted actions need to be taken.  Stealing ideas is wrong but it happens and according to the law of averages will continue to happen even when those in charge are unaware that it happens.

Companies who use stolen ideas or stolen technology should expect to pay the appropriate fines and the individuals responsible held accountable, but in this instance it seems totally inappropriate to take extreme action with the CFO, who as someone with financial oversight, is probably the least qualified high official in the company to understand the significance of which technology is fair game for intellectual theft.   To pretend that a particular incident of potential intellectual theft is somehow of a different order from the thousands of other cases world wide is at best “curiously convenient”.

Well , as things stand, the Chinese, who own much of the US debt, provide many markets for North American producers, are expected to watch and dutifully accept the US action. No one is likely to ask my opinion, but for my money the arrest of Meng Wangzhou will have some unfortunate consequences down the track. Forget the current trade negotiations.  I want to go on record as predicting that the irritation of the Chinese people was already evident in the reaction to the previous ham-fisted sanctions so that Apple’s share of the Chinese electronics market had fallen.  My prediction is that the Chinese buy-in to US electronics will now take a further hit.    If I were a US shareholder in US electronic companies (which I am not) I suspect I would be wanting to hold the White House incumbent to account.

Even the wider charges aimed at Huawei lack credibility. Although, as with all major electronics companies, there is no telling what potential dodgy spyware or cyber-warfare portals are built into chip design, it is significant that all the US administration has been able to come up with by way of commentary is the vague comment I saw in the Financial Times quoting. “You cannot have proof of interference in ICT unless you are lucky enough to find the needle in the Haystack.” However to some extent I fear this is something that we all need to live with.   Remember it is just as easy for any Chip designer to hide some convenient potential spying portal in their product and this is regardless of where the company is based.   If the US concern is that Huawei might be a potential security risk in that sense, then surely it is equally plausible to guess the same risk for China might come from product commissioned via companies in the US eg Microsoft and Apple.    Surely if China must be penalized for representing such a risk then the Western nations like the US should also be barred from the immensely lucrative Chinese market.

Over recent years paranoia is gradually fading as trade and shared technology have helped the nations of the world develop more cooperative and reasoned friendships.   While it is true that such friendships are often based more on mutual interests than love of neighbour, proceeding with caution makes far more sense than attempting to retreat into antiquated belligerent isolation.

My real or should I say metaphorical concern is that in this case deliberately poking a sharpened stick at a sleeping giant might not be the most sensible approach.

 

 

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