Analysts were breathing a sigh of relief last Saturday after the agreement between Donald Trump and Xi Jinping. This agreement suspended tariff increases on Chinese products that the US imports. However, since the arrest of Huawei CFO in Canada on a US warrant, the situation has only gone downhill. China has recorded its official protest to the arrest by summoning the US ambassador to China. They have also warned of grave consequences if the bail does not come through immediately. This drama has now happened just as onlookers were finally expecting a conclusive deal to end the Sino-US trade war.

The Arrest

While transferring flights in Vancouver, Canadian authorities arrested Meng Wanzhou. At the time of her arrest, the authorities refused to reveal the exact reason for her arrest. However, professionals speculate that the arrest is about the company not complying with US sanctions on Iran. There are claims that Huawei allegedly ordered parts from the US and then proceeded to use those to make products on Chinese soil. These products produced in China with US parts were then sold in Iran.

Huawei went on to release an official statement in response. The authorities did not inform the company about the arrest.

“The United States of America seeks the extradition of Ms Meng Wanzhou to face unspecified charges in the Eastern District of New York. The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms Meng. The company believes the Canadian and US legal systems will ultimately reach a just conclusion. Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and EU.”

Canadian authorities made the arrest on US extradition grounds. US officials had accused Huawei of buying spare parts from the US and then making products from them. They then sold these products to Iran hence ignoring the US sanctions on Iran. As a result of this blatant disregard of the sanctions, the US requested Canadian authorities to arrest Meng Wanzhou as she changed flights in Vancouver. The Canadian authorities obliged. However, as time passes and Wanzhou stays in detention, the prospects look bleak.

Court Proceedings

Meng Wanzhou has been appearing in front of a Canadian provincial court for bail hearings. She is currently facing extradition to the US. If the CFO is surrendered to the US, it can create far-reaching problems in future Sino-US relations pertaining to a global reach. Meng has submitted an affidavit claiming she is innocent. She has warned of legal action against both the Canadian and US authorities if she is extradited.

The original accusation is that Meng misled banks about Huawei’s control over a company operating in Iran. The company is called Skycom Tech. If they can prove that Meng misled banks on purpose, they can detain her not only for breaking US sanctions on Iran but also on the grounds of violating UN sanctions.

The court has paused proceedings until 10 am PST today after they had a hearing about her bail yesterday. Meng has also tried her hand on getting bail over medical grounds. After the arrest, the authorities took her directly to a hospital due to hypertension issues. Citing hypertension as a plausible medical excuse, the Chinese authorities are naming it as a violation of Meng’s human rights.

China Reacts to the Arrest

The fact that Canadian authorities arrested Meng on the same day as Trump meeting Jinping in Argentina does not settle well with the diplomatic relationship between the two states. Initially, government officials kept the detention a secret. It was the CFO’s legal team that requested the media blackout over the issue. However, when it leaked, the Chinese ambassador in Ottawa said that the detention “strongly harmed the human rights of the victim” and pledged to take “all measures to resolutely protect the legitimate rights and interests of Chinese citizens.”

Moreover, the Vice Foreign Minister of China Le Yucheng called both the US and Canadian ambassadors for a meeting. In the subsequent meetings, China officially recorded a ‘strong protest’ over the arrest and ‘demanded immediate release.’ The foreign ministry released a statement saying:

“Le Yucheng pointed out that the US side has seriously violated the legitimate rights and interests of Chinese citizens, and the nature of the violation is extremely bad. The Chinese side firmly opposes this and strongly urges the United States to attach great importance to China’s solemn and just position. China strongly urges the Canadian side to immediately release the detained person… otherwise Canada must accept full responsibility for the serious consequences caused.”

People’s Daily by the ruling Communist Party in China printed:

“Only if the Canadian side corrects its mistake and immediately stops infringing upon the lawful, legitimate rights of a Chinese citizen and gives a proper accounting to the Chinese people can it avoid paying a heavy price for this.”

Diplomatic Implications

Canadian Prime Minister Justin Trudeau has denied any political motives behind the arrest. However, the arrest and continued detention remain a diplomatic issue of an extremely sensitive nature. He said:

“We respect the independence of our judicial processes. Further to that, I have not had any direct or indirect conversations with any of my international counterparts on this.”

All over the world, governments are concerned about the role of Huawei in furthering the diplomatic interests of the Chinese government. There are official concerns that Huawei exists as a proxy to the Chinese government and collects information useful to them. However, Huawei has officially negated the accusations and stated that it has no link with the Chinese government. Other than paying legal taxes to China, Huawei insists there is nothing more to it. However, the founder Ren Zhengfei joined the Communist Party in 1978 and critics are well aware.

Senator Ted Cruz tweeted:

Huawei is a Communist Party spy agency thinly vieled as a telecom company. Its surveillance networks span the globe & its clients are rogue regimes such as Iran, Syria, North Korea & Cuba. The arrest of Huawei’s CFO Wanzhou Meng in Canada is both an opportunity & a challenge.

— Senator Ted Cruz (@SenTedCruz) December 6, 2018

Sanctions

Several countries have responded with sanctions. Both the US and Australia have excluded Huawei from their next-generation mobile networks. The US has been on a mission to convince other countries, including Germany and especially its allies, to break ties with Huawei. For the next generation 5G networks, the sanctions in New Zealand mirror those in Australia. The countries would not allow Huawei to be a part of their plan for 5G. Although the UK government has not yet officially excluded Huawei from their 5G plans, one British telecommunication company called BT has announced that it will do so. Allies have also been pressuring Canada to join them in barring Huawei from 5G development. Both Italy and Germany are on the brink of introducing a ban on Huawei products for 5G as well.

The response in China has been massive. International and US media might try and downplay the arrest, but officials confirm that the issue is as serious as the Chinese arresting Apple or Facebook CEO. The situation, in its overall essence, can, therefore, implode into a difficult era for the ongoing Sino-US trade war.