Accusations that Huawei has been conducting business in Iran through a company named Skycom have lead to the arrest of the tech company’s CFO and an increase in trade tensions.

China’s Foreign Ministry summoned the U.S. and Canadian ambassadors in protest over the “vicious” arrest of Huawei Chief Financial Officer (CFO)Meng Wanzhou in Vancouver, Canada on December 1. Huawei is a Chinese multinational telecommunications and electronics company based in South China.

Beijing described the arrest as “lawless” and “extremely vicious”. In a statement released on Sunday (Dec.9), Chinese Deputy Foreign Minister Le Yucheng said the U.S. ambassador for China, Terry Branstad, was summoned due to China’s strong protest over Washington’s unreasonable order to have Canada arrest the Huawei executive.

Le said Meng’s arrest “severely violated the Chinese citizen’s legal and legitimate rights and interests, it is lawless, reasonless and ruthless, and it is extremely vicious.”

Le stressed Beijing wants Washington to lift the arrest warrant over Meng Wanzhou and set her free. The deputy also urged Canada to release her quickly or Canada would face “serious consequences.”

How did the arrest happen?

Meng, the daughter of Huawei’s founder, was detained at the request of the U.S. during her travel through the Vancouver airport on Dec.1 — the same day that President Donald Trump and his Chinese counterpart Xi Jinping agreed to reach a 90-day trade tariff cease-fire in an effort to reduce trade tension.

Washington alleges that Huawei is using a Hong Kong-based shell company to sell goods to Iran which is in breach of U.S sanctions. It added that Meng and the tech titan have misled American banks about their business in Iran.

Canadian Prosecutor John Gibb-Carsley said that Huawei has been conducting business in Iran through a company named Skycom. Meng, he added, has misled banks by claiming that Huawei and Skycom are separate firms while the fact shows that “Skycom is Huawei”.

Now, Meng is facing fraud charges that could send her to jail for 30 years.

Is the arrest related to the trade war between the US and China?

According to one of the most influential newspapers in China, the Global Times claims the arrest of Wanzhou has nothing to do with the trade dispute involving the world’s two largest economies.

But, Meng’s detention may ruin the prospect of finding the best solution to the growing trade tensions between the US and China. For its part, Beijing is trying not to link the arrest with the trade broil with Washington.

However, the tension over Meng’s arrest may hijack any efforts to cool down trade tensions and could, thus, rock the world markets, as investors are getting worried that the issue will damage efforts to reduce trade conflicts.

China’s Trade Ministry has decided so far to remain silent on Meng’s arrest, as it seems to be prioritizing solving the trade dispute with the U.S.

Why are Western countries afraid of Huawei products?

The CIA and the FBI called on Americans not to use Huawei and ZTE smartphones as they feared that gadgets manufactured by both companies threaten American’s data privacy.

In February, top officials from the CIA, NSA, FBI and the Defense Intelligence Agency testified in front of the Senate Intelligence Committee that Huawei and ZTE products were a threat to American national security.

“It provides the capacity to maliciously modify or steal information,” FBI Director Chris Wray said. “And it provides the capacity to conduct undetected espionage.”

Both tech giants slammed the accusation as “baseless”.

“We operate in 170 countries where there is trust with governments and customers. We pose no greater cybersecurity risk than other vendors,” Huawei said.

CNN reported the company insisted it “has never been asked to provide access to our technology, or provide any data or information on any citizen or organization to any government, or their agencies.”

The accusations against Huawei forced a deal to fall through between AT&T and Huawei last January. Huawei was hoping the deal with AT&T would help the company break into the US market, where it only has a one percent share. Huawei’s struggles in the US market are largely due to the security allegations against the company.

Huawei is the world’s second largest smartphone vendor, overtaking Apple and behind South Korea tech giant Samsung.

Will China retaliate?

China is unlikely to remain silent if Meng Wanzhou is not freed. On Monday, courts in China issued a ban on the sale of several iPhone models for being in violation of a Qualcomm patent. Qualcomm is the biggest mobile phone chip supplier in the world and originally filed a lawsuit in China in late 2017 accusing Apple of patent infringement.

The models affected by the ban in China are iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X. However, it is almost certain that China will not block Apple completely, given that the iPhone is manufactured in China.

Whether the court order was at all motivated by the arrest of Meng is uncertain, but both issues are part of the ongoing trade battles between China and the US and are likely to heighten tensions rather than lead to any resolutions.

In 2017, 20 percent of Apple’s revenue came from China.

As for Meng and Huawei, a company spokesperson said it is not aware of any wrongdoing by Meng.

In a brief statement sent to AP, Huawei said it is confident that legal systems in Canada and the U.S. will reach the right conclusion.

 

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