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Trade tensions are easing. But the US crackdown on Huawei is just beginning

Updated 7:36 AM ET, Wed March 6, 2019

New York (CNN Business) - The United States and China could soon reach a deal on trade. But the US government's prosecution of Huawei, one of China's most important tech companies, is just getting started — leaving open the possibility of another flare-up between the world's two largest economies.

The high-profile case against Huawei's chief financial officer, Meng Wanzhou, is moving forward despite protests from Beijing. Canada said Friday it would proceed with an extradition hearing for Meng, who is due back in court in Vancouver on Wednesday to schedule further appearances. US prosecutors want her to stand trial in New York.

Meanwhile, two cases against Huawei are unfolding in US federal court. Huawei pleaded not guilty in Seattle last week to charges that it tried to steal trade secrets from T-Mobile. The company's arraignment in Brooklyn on charges that it worked to skirt US sanctions on Iran is scheduled for later this month. Meng has also been charged in that case. She and Huawei have denied the charges.

There's still a possibility that US President Donald Trump could intervene in the Huawei cases. But even if he did, it would be hard for US officials to leave the company alone entirely. Its campaign against Huawei has been aggressive and intense.

"The US has boxed itself into a corner on Huawei, with all the rhetoric coming fast and furious, but nothing to ... buttress it, like evidence [or] an executive order," said Paul Triolo, an expert on global tech issues at consulting firm Eurasia Group.

Court battles

The US Justice Department laid the groundwork for a years-long court battle with Huawei when it revealed a host of charges against the company in late January.

Those cases are progressing, although at a gradual pace. The trial in Seattle is set for March 2020.

In that case, US prosecutors claim that Huawei worked for years to steal T-Mobile's proprietary phone testing technology, known as "Tappy." Huawei supplied phones to T-Mobile, and had access to some information about Tappy because of that relationship.

The company also launched a formal bonus program that rewarded employees who stole trade secrets from competitors, according to prosecutors.

In New York, US authorities are focused on alleged efforts by Meng and Huawei to deceive financial institutions and the US government about the company's business in Iran. The arraignment in that case is scheduled for March 14.

Huawei has not yet entered a plea, but it has denied breaking the law. Meng's lawyer said in January that she "has never spent a second of her life plotting to violate any US law, including the Iranian sanctions."

Meng drama

Meng's detention has been the biggest flashpoint so far, forcing a diplomatic standoff between Canada, China and the United States.

The executive, who is the daughter of Huawei founder Ren Zhengfei, was arrested in Vancouver in December at the request of the United States.

She was released on bail of 10 million Canadian dollars ($7.5 million US). But Beijing has continued to furiously call for her immediate release.

On Friday, Canada cleared the way for her extradition hearing, raising the stakes for Meng's upcoming court appearance.

Chinese Foreign Ministry spokesperson Lu Kang has said that China "deplores and firmly opposes" that decision.

"This is a severe political incident," Lu said over the weekend. "We once again urge the US side to immediately withdraw the arrest warrant and extradition request." He reiterated that position at a regular news briefing Monday.

Canada has said it's just following the letter of its extradition agreement with the United States, and that Friday's decision followed a "thorough and diligent review" of the evidence in the case.

Chinese retaliation?

Shortly after Meng's arrest, Chinese authorities detained two Canadians on suspicion of activities that endangered China's national security and sentenced another to death for drug trafficking. The moves were widely viewed as retaliation for Meng's arrest despite denials from Beijing.

Top Canadian agricultural firm Richardson International said Tuesday that its shipments of canola, a major Canadian export to China, are being blocked. A senior vice president at Richardson, Jean-Marc Ruest, told Canadian broadcaster CTV that he believes the move by Beijing to revoke the company's customs registration is politically motivated.

Chinese Foreign Ministry spokesman Lu Kang's said Wednesday at a regular news briefing that the decision to suspend the imports was "quite normal and legitimate" because customs officers had found "hazardous organisms" in canola imported from Canada several times.

That contradicts what Canadian Foreign Minister Chrystia Freeland said Tuesday in Montreal when asked about the Chinese move against Richardson's shipments.

"We do not believe there is any scientific basis for this," Freeland told reporters, saying she is "very concerned" about the decision.

Trump factor

The remaining wild card is Trump, who has suggested that he could consider intervening in Meng's case if it would help his administration's trade talks with China.

But in reality, curbing legal pressure on Huawei may not be so simple.

"After marching far down this road, putting Canada on the hot seat, and releasing documents publicly leveling charges against Meng and Huawei, the US law enforcement system has its credibility on the line," Triolo said. "Congress will also be taking a hard look at this."

Then there's the wider campaign to limit Huawei's influence by the US government, which sees the company's technologies as a global security threat. The Trump administration has been trying to persuade allies to shut out Huawei products from next-generation 5G wireless networks over spying concerns.

Huawei, which says it's owned by its employees and not the Chinese state, denies its products pose any security risk.

Australia banned Huawei gear from its 5G networks, and New Zealand blocked one mobile carrier's plan to use it. But it's not clear how many other countries will follow suit. Some carriers and governments have been pushing back.

A top executive at UK telecoms group BT, for example, says the company has seen no evidence that technology from Huawei poses a security risk. And Germany is reportedly weighing strict controls on Huawei, but the country may avoid banning the company's participation 5G networks outright.

Fighting back

Huawei and Meng are showing they're prepared to go on the offensive.

Meng has filed a civil lawsuit in Canada alleging that she was unlawfully detained and questioned for three hours, and that her electronics and luggage were illegally searched before she was told she was under arrest.

And Huawei is preparing to sue the US government for banning federal agencies from using its products, according reports by The New York Times and the Financial Times. The company may announce the lawsuit later this week.

Huawei declined to comment on the reports.

In an interview last week, Huawei's chief US security officer Andy Purdy said the company was still fighting to make its products available in the United States.

"We have to understand the risk to this country, and to make this country safer," Purdy told CNN Business. "Blocking Huawei does not make America safer."

He added that Huawei is still trying to engage with government officials, even if the company isn't gaining ground.

"We have not given up," he said.


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