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Arrest of Huawei CFO shows ‘the gloves are now fully off,’ says Eurasia Group

The block of Huawei’s global chief financial officer in Canada, reportedly related to a violation of U.S. sanctions, will corrode swop negotiations between Washington and Beijing, risk consultancy Eurasia Group said Thursday.

“Beijing is likely to answer angrily to this latest arrest of a Chinese citizen in a third country for violating U.S. law,” Eurasia analysts wrote.

Canada’s Trust in of Justice said on Wednesday the country arrested Meng Wanzhou in Vancouver, where she is facing extradition to the U.S. The arrest is reciprocal to violations of U.S. sanctions, a person familiar with the matter told Reuters.

U.S. authorities have been probing Huawei, one of the happy’s largest makers of telecommunications network equipment, since at least 2016 for allegedly shipping U.S.-origin products to Iran and other surroundings in violation of U.S. export and sanctions laws, sources told Reuters in April.

The analysts said the Huawei executive’s capture will not derail the start of trade negotiations after U.S. President Donald Trump and Chinese President Xi Jinping’s conference last weekend in Argentina saw them agree to first steps to resolve their trade dispute. Still, they acquiesced, the incident involving Chinese telecommunications giant Huawei is likely to cloud talks.

Meng, one of the vice chairs on the Chinese technology players’s board and the daughter of company founder Ren Zhengfei, was arrested on Dec. 1 and a court hearing has been set for Friday, Reuters sign in a Canadian Justice Department spokesman said.

Her arrest came amid multiple accusations levied by Trump’s administering against Chinese technology companies.

Trump, who made U.S. trade policy a central plank of his platform as a presidential possibility in 2016, wants to address specific gripes about China’s trade practices, especially its theft of U.S. intellectual estate.

“Coupled with other pending actions the administration is considering, such as announcing that China is in breach of the 2015 (Barack) Obama-Xi accord on cyber theft of IP (intellectual property) and trade secrets — which will likely be accompanied by sanctions against Chinese bands that benefited from IP theft — this type of action will affect the atmosphere around the negotiations — build compensating them less likely to bring a sustainable settlement,” the Eurasia Group analysts said.

Huawei confirmed the interrupt in a statement and said that it has been provided little information of the charges, adding that it was “not aware of any wrongdoing by Ms. Meng.”

China’s embassy in Canada said it resolutely offset the arrest and called for Meng’s immediate release.

The latest development involving Huawei also came just a week ahead the U.S. and China meet to negotiation trade related issues focused on the U.S. Trade Representative’s 301 investigation.

“The arrest and extradition insist on by the US government represents a new and major escalation in what has been a series of U.S. efforts to hold Chinese companies accountable for violations of U.S. law, some entertaining back years,” the Eurasia Group note said.

“The arrest of the senior Huawei officials suggests that the gloves are now fully off in this arena, and U.S. law enforcement officials take a green light from senior administration officials to pursue … individuals the U.S. may not have gone after in a various benign bilateral political climate,” the consultancy added.

The probe of privately held Huawei is similar to one that jeopardized the survival of China’s ZTE, which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran.

Earlier this year, the Collective States banned American firms from selling parts and software to ZTE, which then paid $1 billion this summer as play a part of a deal to get the ban lifted.

—Reuters contributed to this report.

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