Image Courtesy: Maclean’s
Article No. 73/2018
The following is a text of a virtual dialogue conducted by C3S members and researchers. The theme revolved around ‘Huawei’s CFO arrest in Canada’. Various perspectives were put forth on the recurring allegations of Intellectual Property theft on China and the international legal dimensions of it.
Mr. Sundeep Kumar Samraj, Research Associate, C3S
Not often a country takes such audacious measures against a Chinese tech giant for technology theft. I am curious about this case and would love to follow this story development. Knowing how ferociously the Chinese state responds to such international embarrassment, I think this case will be an important study to analyse Chinese corporate diplomacy, especially when they are going global with BRI. Kindly share your thoughts.
Mr. T.V. Krishnamurthy, Investment Banker and Business Strategist; Member, C3S
It is a serious matter. America is behaving like an international, bully. This has never happened before. In any of the previous US sanctions with Countries. With UN approval. Yes, the sanctions prohibit countries and their corporations to do business with blacklisted nations. As per the resolution passed in the UN Security Council under pressure from the US. China is angry but will stop of arresting any U S corporate leader in China on some fictitious charges. China will make noise but negotiate back door with the US. Because China has too many stakes with the US. Their trade with the US. Their investments in the US. Their reserves in the US FED. And the 350 plus U S corporations outsourcing manufacturing from China in special zones. In World class facilities. I expect a resolution of this issue soon.
If China retaliates badly, it will be free for all with the US acting against the Chinese banks holding trillions of US $ monies held in their dollar accounts in the US, arising out of global trade and banking transactions. But none of this will happen.
Mr. Kandaswami Subramaniam, Former Joint Secretary (Retd.), Ministry of Finance, Government of India; Treasurer, C3S
It is truly a serious matter. We have to wait for China’s reaction. From the report by Reuters, it is an action for violation of Iran sanctions and not for stealing technology. It is unilateral, illegal and contrary to global laws. Even EU has opposed Iran sanctions along with India. Know short, US is acting like a cowboy. Trump seems to think that they are no international law or is he bound by any.
Mr. Sundeep Kumar Samraj
Chinese brands traditionally does not enjoy the same reputation as a Japanese or a German brand does. China, of course, overcame that with flooding the global market with their goods. China took an ‘in your face’ approach over consumers across borders. Competitive pricing and the sheer volume led us to naturally pick Chinese products. I am sure that the majority of the young minds here and our members use a Chinese smartphone.
Though Chinese brand image has changed to some extent, the general notion of a Chinese product remains to be on the negative side for reasons relating to IPR, the longevity of the item and overall quality. There is no doubt that Xi’s China wants an image makeover for the Chinese brand. One of the core objectives of BRI is to make brand China globally superior.
In this context, I think this is a serious issue and the repercussions will be long term. Shaming a Chinese brand as big as Huawei creates a huge dent in Chinese BRI ambitions to make brand China superior in the minds of consumers across the world.
I am not getting into the discussion of whether there was technology theft or not, or into Trump’s politics or what has happened is right or wrong because it cannot be reversed. I am just trying to imagine the possible implications this act will have globally on the long run. I feel China’s ego is hit hard in this issue. Hence the concern.
Shree B.S. Raghavan, IAS (Retd.), Former Policy Advisor to UN (FAO), Chief Secretary, State Governments of West Bengal and Tripura, Secretary to the Ministry of Food and Agriculture, Government of India; Patron, C3S
I am inclined to agree with Mr. TV Krishnamurthy. The TOI article Sundeep has attached makes out in essence that Men was arrested by Canadian authorities on a requisition sent by the US and the reason mentioned is in the following sentence in that article:
Meng was detained on December 1 in Canada for allegedly selling US-made components to Iran and violating sanctions against the West Asian country. The detention was part of an American investigation into an alleged scheme to use the global banking system to evade US sanctions against Iran.
For long the USA has included in many of its laws the provision to impose sanctions and otherwise punish other nations which violate whatever it regards as sacrosanct to its national interest. When I was Chairman of UN Committees on world food security issues in the 1970s I got resolutions passed against the US making food aid a political weapon. The US Ambassador in India called on the Commerce Minister, Shivraj Patil, to recall me and not to send me again as leader of any future delegation, and Patil, to his credit, promptly showed him the door. (Patil told me this himself).
Subsequently, the situation has become worse with the US running amok with its own domestic laws mandating sanctions and punishments against other countries. When I was Editorial Adviser to The Hindu, I wrote several edits and articles against this, and they were noticed by our External Affairs establishment also. My stand was that India should, behind the scenes in the first instance, but going public if necessary, strongly urge the USA NOT to use domestic laws as if they applied extraterritorially as well to punish nations. Now, most regrettably and reprehensible, the UN Security Council has also become the Cat’s Paw of the US.
This is where I miss Jawaharlal Nehru. He would have immediately come out with public statements and tried to mobilise international opinion.
In this case of Huawei also, if I were Foreign Secretary, I would advise the Foreign/Prime Minister, at the very minimum, to raise with the US President/Administration objections against such punitive actions for violating US-imposed sanctions against Iran or any other “blacklisted” (by the US) country. Of course, if Meng’s arrest had something to do with some provable technology theft or concrete evidence of espionage, violative of US laws which any corporate entity is bound to follow, it is another matter, But if it is ONLY for violating sanctions against Iran, then our Foreign/Prime Minister should be put wise to the great risk of the Prime Minister himself being arrested and extradited to the USA for buying oil from Iran or conducting trade with Iran!!! It is a preposterous situation which no self-respecting country should let go unprotected. If we remain quiet, we will be behaving like the sheep in a slaughterhouse which stands quietly chewing the cud awaiting their turn while the other sheep are being taken one by one for slaughter.
Mr. T.V. Krishnamurthy
This morning while taking exception to the arrest of the Huawei CFO, Meng, you have raised the unlikely madness of Prime Minister Modi being arrested for buying oil from Iran with an implicit waiver from the US.
In my original mail, I wanted to raise the possibilities of Ratan Tata being held in the US because the largest bank in Iran, Bank Melli Iran, is running on TCS software. It is so disgusting, I avoided that.
Mr. Subramaniam Sridharan, Youngminds of C3S
There have been two opinions expressed so far: one, it is to strike at China’s image which is currently centred on BRI and the other the USA acting like a ‘bully’. I do not think that this issue can be looked at only through a narrow prism of ‘brand-image’. While we don’t know what transpires in the highest echelons of governance in any country when certain decisions are taken, much less the USA or China, I believe that both those characterizations are not accurate.
Let me explain.
The arrest of Meng Wanzhou – the CFO cum Deputy Chairwoman of the Huawei Board cum daughter of the founder of Huawei and heir-apparent to Chairmanship of Huawei – has multiple aspects to consider.
What is the case?
The US claims that the CFO of Huawei deliberately and knowingly misled the Americans in the period between 2009 and 2014 by falsely claiming that a Huawei subsidiary, SkyCom, located in HongKong and dealing with Iran was a separate company, thus violating the UN and US sanctions on Iran. The sanctions against Iran were relaxed only in c. 2015 after Iran and P5+1 struck a long-term deal (JCPOA, Joint Comprehensive Plan of Action). The Chinese deny that there is any wrongdoing on their part.
Ms. Meng was arrested while transiting flights at Vancouver and is awaiting extradition trials. China has been provided with consular access to Ms. Meng by the Canadians. The Trump administration reimposed sanctions on Iran unilaterally in November 2018, but the case in point pertains to the previous UN/US/EU sanctions against Iran.
Huawei is the second biggest smartphone manufacturer in the world after Samsung. Unlike Samsung or Apple, the other big smartphone manufacturers, Huawei also makes networking equipment like routers and switches that are the backbone of telecommunications and the Internet. It also makes laptops, tablets and wearables. Even in the US market, as it is in many parts of the world, the Huawei laptops, tablets and wearables are not under scrutiny. It is *only* the handsets and backbone telecom equipment such as routers & switches. This puts to rest, in my opinion, the fear that somehow this is more an attempt at brand-shaming than anything else. Even the Chinese have not made such a connection.
This case is almost a decade old now. I do agree that big countries engage in thuggery and either get away with it or justify it. The nuking of Japan by the US or the attack on Iraq, come to mind. The rejection of a unanimous UNCLOS ruling over the Indo-China Sea by China or its annexation of Tibet also come to mind equally. There are plenty of examples. If one considers that Ms. Meng, as an individual, would go through a formal legal process both in Canada and the US (if extradited), then this ‘thuggery’ issue is ruled out. This is not like the case of the two Indian businessmen being incarcerated in Yiwu because of the thuggery of Chinese businessmen a few years back.
There are two other reasons in the case of Huawei that cannot be overlooked either in my opinion. One is espionage and the other is IP theft. Neither of these can be wished away.
There has been a worldwide alert against using Chinese networking backbone equipment for fear of backdoor Trojans for purposes of espionage. Australia and New Zealand have already banned Huawei equipment. Japan did so recently. The UK has imposed stringent conditions on accepting Huawei backbone equipment in government networks. As far back as c. 2012, Huawei products were blacklisted in the US on intelligence concerns. This year, ZTE was also added to that list.
In India too, concerns against using Chinese-made backbone equipment have been raised. In fact, inc. 2014, the IAF specifically requested its personnel not to use Chinese Xiaomi RedMi 1S because of privacy considerations as it was sending data to Xiaomi’s Beijing servers. It is a fact that for several years, the Huawei technology centre in Bengaluru had banned entry of Indians in certain sections of the centre.
It is a well-known fact that even Chinese private companies are commandeered by their government to covertly help in the espionage activities. To add to suspicions about Huawei, its founder (and father of Ms. Meng) was once a technology officer for CPC. Even more, Huawei is a privately owned company, not a public limited company.
For decades now, the US and Europe, especially the US, has been concerned about IP theft by China. The theft takes place through two methods: industrial espionage and policy decisions of the Government forcing Transfer of Technology (ToT). But, China is tightening its IP Laws as it becomes confident in generating local IP.
P.S: The US, in its myopic policy of ‘realpolitik’ has supported and built-up several countries, like Pakistan, Iran, Saudi Arabia. China was one of them in the 70s and up to late-80s. Without the US and its ally, Japan, investing heavily in China the latter could not have got to where it is today. Of course, it speaks volumes for Chinese smartness, intelligence, focus, political support and hard work to rapidly reach their current level, a level they achieved in a much shorter time frame than what it took Japan t do so after the Meiji Restoration, the closest example in my opinion. But, these should not cloud our judgement and each case should be approached on its own merits.
First of all, what I have written are to support my contention that it was neither a branding issue, nor was it thuggery. These were the two issues raised. There is nothing there that was out-of-context.
The ‘voluminous’ things are to support my theory, not for any other purpose as I know that eminent persons like you with the kind of experience you have quoted are reading this.
The security scare about Chinese telecom equipment & IP theft may not appear to you to be related to this case. Many a time, what appears externally may not be the truth. Unable to find a smoking gun, prosecutors do resort to other ‘technical’ charges. If there is a weak case, let the Canadian & US courts take care of it.
The EU might be dithering on sanctions against Iran now, but this case relates to the earlier sanction period when they were all on board in the UN against Iran. India too was. Focus does not mean taking a narrow view, in my humble opinion. We are all entitled to our opinion. You have yours and I have mine.
Mr. Kandaswami Subramaniam
US has unilaterally reneged an agreement negotiated for so man years. All the other members stand by the agreement. Even after reneging the agreement, the spelt out spelt out what it wants and keeps on raising the bars. It wants to keep the global banking system under its control by invoking Iran sanctions and abusing its domination over SWIFT. It is easy for US agencies to fault any company which remits (directly or indirectly) to Iran and try to prosecute them. The arrest of the Huawei senior executive is one such instance which is violative of all international laws or agreements. More importantly, as I see it, it is an attempt to crush major technology companies of China which are commercially a threat to US companies.
Mr. Subramaiam Shridharan
I find nothing conspicuous in the arrest. Carlos Ghosn of Nissan has been arrested in Japan. The US arrested the General Manager of Volkswagen, a year ago, while he was holidaying in Florida regarding the fudging of emission data and jailed him for seven years. The saving grace is that at least in countries like Canada or the US or Japan, there is an independent judiciary. However, the judiciary in China is controlled by the CPC.
In the current context of heightened tensions between the US and China, the detention by Canada and possible extradition to the US might look political, but Chinese entities have been living a dangerous life for far too long. For example, they have stolen Intellectual Property all over the world, have acted as the front-end of the PRC for espionage, have violated international and specific country laws with impunity etc. They have been caught red-handed many times before.
(All views expressed in this dialogue are the members’ own.)