US probe of Huawei, ZTE casts harsh light on Chinese telecoms equipment manufacturers

US agency sends Huawei an administrative subpoena as first step in probe into possible export violations

PUBLISHED : Friday, 03 June, 2016, 2:28pm
UPDATED : Saturday, 04 June, 2016, 7:32am

China’s massive telecommunications equipment manufacturing sector appears to have been put under a microscope by Washington, after industry giant Huawei Technologies was queried about its possible breach of longstanding trade sanctions on countries like Iran and North Korea.

The inquiry made by the United States Department of Commerce followed the agency’s investigation of Hong Kong-listed ZTE earlier this year over the alleged sale of telecommunications equipment containing US hi-tech components to Iran in 2011.

The Commerce Department has requested that Huawei executives at the company’s US headquarters in the city of Plano, Texas, turn over all information regarding the shipment of telecommunications equipment with American technology to nations like Iran, North Korea, Syria and Cuba which are under rigid US export controls, according to the New York Times, which first reported the story.

The agency sent Huawei an administrative subpoena, which means that the company has not been accused of any wrongdoing. It is a process that other Chinese telecommunications gear makers could face.

“Presumably, the subpoena is the first step before more serious action by the US,” said Paul Haswell, a partner at international law firm Pinsent Masons in Hong Kong. “It’s a final chance for Huawei to confess to any wrongdoing before such action is taken, although we have seen no evidence that the company is in breach.”

Shenzhen-based Huawei, China’s largest telecommunications equipment manufacturer, had no comment on the reported US investigation.

Huawei needs to react quickly and decisively. It’s possible to breach a restriction without fully realising its ambit and consequences
Paul Haswell, Pinsent Masons

“Huawei is committed to complying with the applicable laws and regulations in the markets where it operates,” it said in a statement. The company added that it follows “a strict code of conduct, rigorous training and detailed policies relating to export control compliance, and actively cooperates with the relevant government agencies”.

The US probe could throw a monkey wrench into the ambitious global expansion plans of Huawei, the world’s third-largest smartphone supplier and No 1 global equipment supplier to telecoms network operators by revenue.

At a conference in Hong Kong on Friday, Huawei consumer business group chief executive Richard Yu Chengdong said the company aimed to overtake Samsung Electronics and Apple as the global smartphone leader within the next five years.

“Huawei needs to react quickly and decisively,” Haswell said. “It’s possible to breach a restriction without fully realising its ambit and consequences.”

In March, the US found ZTE in violation of export controls on Iran. The firm was slapped with export restrictions which barred shipments of hi-tech components from its American suppliers.

ZTE, also one of the world’s largest suppliers of smartphones and telecoms network equipment, was granted relief in April from the US export curbs with a temporary general licence until June 30, after the company named a new chairman and revamped the rest of its senior management.