VANCOUVER (Reuters) - Huawei Chief Financial Officer Meng Wanzhou’s arrest was valid, but her ongoing detainment is illegal, defense lawyers told a Canadian court on Wednesday, in a slight deviation from China’s official stance on the case.
FILE PHOTO: Huawei Technologies Chief Financial Officer Meng Wanzhou leaves her home to attend a court hearing in Vancouver, British Columbia, Canada December 7, 2020. REUTERS/Jennifer Gauthier
Meng, 49, was arrested in December 2018 at Vancouver International Airport on a warrant from the United States, where she faces charges of bank fraud for allegedly misleading HSBC about Huawei Technologies Co Ltd’s business dealings in Iran.
She maintains her innocence and is fighting extradition while under house arrest in Vancouver.
Huawei lawyers have argued that Meng’s actions were so far removed from the United States that the country has no legitimate jurisdiction over them.
Prosecutors representing the Canadian government have argued in court that Canada had no choice but to arrest Meng under treaty obligations to the United States, given that there was an outstanding warrant for her arrest.
Defense lawyer Gib van Ert said on Wednesday that he agreed Canada had to arrest Meng, “having received what was, on its face, a bona fide extradition request.”
But he said her continued detainment was illegal.
“There’s nothing about it that is an arbitrary detention, but ... it is now revealed to be an unlawful detention,” van Ert said, pointing to the defense allegation that the United States broke international law by requesting her arrest.
China has said that it considers Meng’s arrest and possible extradition illegal. In the aftermath of her being detained, China arrested two Canadians on charges of espionage, which Canada has said it sees as retaliation.
Meng’s case is set to conclude in May.
Reporting by Moira Warburton and Sarah Berman in Vancouver; Editing by Peter Cooney
Huawei’s sales of telecommunications equipment in overseas markets also have suffered from a years-long U.S. campaign to persuade allied nations to abandon the gear over security concerns.
The U.S. effort has reduced Huawei’s global footprint and left it more reliant on the Chinese market, where much of its business is still growing, according to 2020 financial results the company released at its Shenzhen headquarters on Wednesday. Huawei’s sales in China grew 15 percent last year as revenue in many other markets, including Europe and North America, fell by double-digit percentages.
Last year was “a really tough year for Huawei,” a Huawei executive told U.S.-based journalists on Tuesday, speaking on the condition of anonymity because the official results had not yet been released. U.S. export controls have had “a huge impact to Huawei, especially for Huawei’s consumer business,” he said.
The company hasn’t seen any signs yet that the Biden administration will ease up on Huawei, the executive added, though he said it was early days.
The anti-Huawei campaign may give the company’s industrial rivals a leg up in the short term, he added, “but for the long run we believe this is damaging the reputation and also the competitive advantage of U.S. industry.”
U.S. semiconductor companies have voiced similar complaints, saying they have lost valuable sales to what was previously one of their biggest customers.
Yet some veterans of the campaign against Huawei said they are pleased to see the company losing some business as telecom companies choose rival equipment suppliers.
“A lot of [telecom] operators kind of see concern with using an untrusted vendor now and are working to find ways to replace the Huawei equipment and go with trusted vendors like Ericsson, Nokia, Samsung,” said Rob Strayer, a top State Department official for cyber matters until August 2020 who is now executive vice president for policy at the Information Technology Industry Council, a trade association.
Presenting the 2020 results on Wednesday, rotating chairman Ken Hu vowed that Huawei would survive and continue investing heavily in research in areas including 5G networks, artificial intelligence and autonomous driving. The company said it spent about $22 billion, or 16 percent of its revenue, on research and development last year.
U.S. officials began raising concerns about Huawei during the Obama administration, but the campaign to weaken the Chinese company accelerated in May 2019, when the Trump administration banned most U.S. technology sales to the company, calling it a security threat.
U.S. officials have long argued that the Chinese government could tap into Huawei telecom equipment installed overseas to spy on the West or disrupt infrastructure, though they have declined to publicly detail any evidence they hold. Huawei has denied the allegations.
The Trump administration also sought to punish Huawei for allegedly violating U.S. sanctions on Iran. Canada in 2018 arrested Meng Wanzhou, daughter of Huawei’s founder, at the request of the United States, which charged her with aiding the alleged sanctions violations. She has denied wrongdoing and is fighting extradition to the United States.
The decline of Huawei’s overseas smartphone business accelerated in the fourth quarter of 2020, as its worldwide shipments of handsets dropped by 42 percent from a year earlier, according to International Data Corporation (IDC), a market research firm.
That left Huawei in fifth place globally among smartphone makers, compared with its usual top-three position in years past, alongside Apple and Samsung.
The company’s inability to install the Google Play app store on its phones was particularly damaging in overseas markets, where previously the company had been gaining ground. That means consumers cannot easily access such apps as Google Maps or YouTube.
“From Africa to the high-end Gulf market, [Huawei] really overcame the negativity associated with Chinese things,” said Nabila Popal, research director for the global device market at IDC. But because the Google Android user base is so large, “it’s really hard to convert people from what they are used to,” she said.
A lack of some high-end semiconductors also has damaged Huawei’s smartphone sales overseas, the Huawei executive said.
He said the U.S. trade restrictions really began to bite when the White House toughened the measures last August, banning any semiconductor factory anywhere in the world from supplying Huawei if the factory used U.S. manufacturing equipment or software, which most do. Tech analysts also saw that as a turning point.
Global revenue at Huawei’s consumer unit, which includes phones, grew 3 percent last year thanks to the Chinese market. But even inside China, Huawei is losing ground to rivals including Xiaomi and Oppo, according to market research firm Canalys.
Canalys blamed U.S. sanctions, saying Huawei’s phone shipments inside China have fallen in recent months, with the company unable to meet high levels of demand.
China’s large appetite for 5G wireless network equipment is a bright spot for the company, helping boost its total sales by 3.8 percent last year to $136.7 billion, a modest level of growth compared with previous years.
China overall now accounts for about 65 percent of Huawei’s revenue, a significant increase from a few years ago, the Huawei executive said.
But excluding China, Huawei’s share of the global market for wireless network equipment fell by about 2 percentage points last year, as rivals gained ground, Stefan Pongratz, a Dell’Oro analyst, said in an interview.
Countries that have either banned Huawei 5G network equipment or created obstacles for its use include Sweden, Norway, Denmark, Belgium, France and Estonia, according to Roslyn Layton, a telecom consultant in Denmark for Strand Consult who also publishes the website China Tech Threat.
“There are places where you can see that the efforts of the U.S. government to curb the rise of Huawei are starting to pay off,” Pongratz said.
Yet over the past few months, Ericsson Chief Executive Börje Ekholm has gone on a lobbying campaign—on Huawei’s behalf.
Mr. Ekholm met Swedish politicians to protest the way the country barred Huawei equipment from the country’s 5G networks over national-security concerns. He complained to journalists in Europe and China. He sought law firms to help Huawei fight the ban.
Mr. Ekholm says that in an increasingly intertwined world he is just looking after his company’s interests. After the Swedish 5G ban, Beijing threatened to retaliate against Ericsson’s business in China, where it runs a major factory and gets 8% of its sales, versus 1% from Sweden.
“We depend on free trade,” Mr. Ekholm said in an interview. “It’s about having access to markets, and that is at the center of what we are.”
In 2015, China added the Digital Silk Road (DSR) to its massive Belt and Road Initiative (BRI). While Beijing uses DSR to offer a suite of technologies to BRI countries, Huawei’s effort to provide next-generation communication networks to countries has drawn the most scrutiny in the United States.
U.S. officials have frequently claimed that Huawei is effectively an extension of the Chinese Communist Party. Under China’s 2017 National Intelligence Law, Huawei, like all Chinese companies and entities, appears legally required to conduct intelligence work on behalf of the Chinese government. According to this analysis, the Chinese government has the ability to use Huawei-built fifth-generation (5G) networks to collect intelligence, monitor critics, and steal intellectual property. There are also worries that the company might bow to government demands and disable networks to exert coercive pressure on a country.
The United States also has commercial concerns. Once Huawei builds a country’s 5G network, that country is likely to choose Huawei to upgrade those systems when newer technologies become available, thus excluding U.S. companies for potentially decades. Huawei has already finalized more 5G contracts than any other telecom company, half of which are for 5G networks in Europe.
In response to growing concerns about Huawei’s reach, the Trump administration leveraged U.S. dominance in advanced semiconductors to bar sales of essential computer chips to the company without a specific license. Access to U.S. chips, particularly 5G-related semiconductors that enable wireless communications, network management, and data storage, is crucial to Huawei, which is reported to be running out of supply. The Trump administration also pressured countries not to use Chinese components in their 5G infrastructure.
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As part of a CFR Independent Task Force on BRI, we analyzed every country’s official policy toward Huawei 5G and the extent to which this pressure campaign has succeeded. We found that in addition to the United States, eight countries have issued outright bans of the company. Almost all of these are close U.S. allies such as Australia, Japan, and the United Kingdom.
More countries have taken a quieter approach, attempting to simultaneously allay U.S. concerns and not provoke a Chinese response. Some have taken measures that amount to a de facto ban without actually barring Huawei. For example:
India has not formally banned the company but has begun to phase out the use of Huawei equipment in future projects, and is reportedly weighing a formal ban.
France announced telecommunications operators would not be able to renew licenses for Huawei equipment when they expired, effectively phasing out the company’s presence in the country.
Vietnam has not barred Huawei, but its service providers have avoided using its equipment in both their 4G and 5G networks.
Italy’s government vetoed a deal between Huawei and telecommunications provider Fastweb that would have used Huawei as the sole supplier of its 5G network.
Canada has put off a decision on Huawei for so long that its companies have chosen to exclude Huawei from their 5G networks due to the risk that they will be forced to replace the equipment in the future.
Still, others have chosen to use Huawei’s competitors without taking a public stance against the company. The largest telecommunications firms in Belgium, Croatia, Finland, Greece, Norway, Portugal, Singapore, and Spain have all contracted with Ericsson or Nokia to build their 5G networks.
While the U.S. pressure campaign has had some success, it is likely meeting its limits. The threat of the loss of intelligence sharing and security partnerships is unlikely to persuade countries that are not formal allies or close security partners with Washington.
Moreover, the United States has been unable to persuade all of its allies to avoid Huawei. The company is involved in 5G networks in NATO members Hungary, Iceland, the Netherlands, and Turkey. Some of the United States’ closest partners in the Middle East, including Saudi Arabia and the United Arab Emirates, are also using Huawei.
A principal reason that the United States has not had more success in persuading countries not to use Huawei equipment is that it cannot offer an alternative. The United States does not and will not have a company that is competitive in the full stack of 5G equipment.
To make it easier for countries to avoid Huawei, our Task Force recommends that the U.S. Development Finance Corporation partner with its counterparts in Finland, South Korea, and Sweden to co-finance Nokia, Samsung, and Ericsson 5G projects.
The United States should also work with its partners to develop the nascent open radio access network, or Open RAN, architecture. While Huawei offers a full 5G stack, Open RAN allows multiple companies to supply different parts of a modular 5G network. The hope is that 5G networks built on an Open RAN architecture can better compete with Huawei on price. In addition, while no U.S. company offers an end-to-end 5G solution, they can better compete by specializing in individual components of a modular network, like end-user devices.
In the longer term, the United States must be better prepared for the arrival of 6G, which is likely to replace 5G within 15 years. U.S. policy-makers should fund R&D centers at universities that focus on 6G technologies, and consider tax breaks and other incentives to support private sector investment in 6G, so that there is at least one competitive U.S. company in this space.
Finally, recognizing that some U.S. allies and partners will adopt Huawei 5G despite U.S. pressure, the United States will need to develop mitigation plans for possible Chinese disruption of telecommunications infrastructure in those countries. In the words of one Pentagon-advisory group study, the U.S. military will need to “assume that all network infrastructure will ultimately become vulnerable to cyber-attack” and adopt a “zero-trust” network model.
Washington cannot expect countries to sit on the sidelines and forego upgrades to their networks while the United States gets its act together. Instead, the United States should work with allies and partners to offer a viable alternative and prepare for a future in which China controls a large part of the 5G infrastructure.
