Huawei charges complicate outlook for US-China trade talks

Washington

THE US has escalated its attacks on China's Huawei Technologies, right before high-level talks on a broader trade dispute, risking muddying the waters as top commerce negotiator Liu He arrives in Washington.

Donald Trump's administration will press Mr Liu's team to prove that they can keep their promises in the talks focused on US demands for structural changes to China's economy and Beijing's pledge to buy more American goods.

Indictments announced against Huawei, China's biggest telecom company, could throw a spanner into the mood for the meetings. US prosecutors accuse the company of stealing trade secrets and committing bank fraud. The case against Huawei contains a bigger message for world leaders thinking of using its equipment in 5G networks: Don't trust China.

The charges attack Huawei's credibility just as it tries to convince the world it is not an espionage tool for Beijing. It has denied the charges; China called them "unreasonable".

The stakes are extremely high, both for Huawei and the broader trade talks. It is just a month until an agreed truce on trade ends. The US might say the Huawei issue is unrelated, but Beijing is unlikely to agree.

In a sign of the importance the White House is placing on the talks, President Donald Trump is expected to meet China's top trade negotiator, said Treasury Secretary Steven Mnuchin on Monday in Washington.

The round of talks on Wednesday and Thursday will cover US demands for structural changes to China's economy and Beijing's pledge to buy more American goods.

Travelling with Chinese Vice-Premier Liu He, the nation's top trade negotiator, are People's Bank of China (PBOC) governor Yi Gang and Vice-Finance Minister Liao Min, the state Xinhua News Agency reported on Tuesday.

But before the meetings even start, any expectation for big progress was complicated by growing tension between the two countries over Huawei Technologies Co. US prosecutors on Monday filed criminal charges against the company, accusing it of stealing trade secrets and committing bank fraud.

The Huawei case and the US' demands in the trade talks, taking place on different tracks, strike at the same objective: ensuring China plays by global trade rules and abides by laws as it emerges as a technology power.

US Commerce Secretary Wilbur Ross, referring to the Huawei indictments, said Monday that the trade talks and legal case are separate matters.

One of the key issues at the trade negotiations will be enforcement of China's agreements, Mr Mnuchin told reporters in a briefing. "We expect when we get a deal, that that deal will be enforced. The details of how we do that are very complicated."

Chinese policies on intellectual property and forced technology transfers will also be important topics at the table, he said. The US delegation will be led by US Trade Representative Robert Lighthizer and will include Mr Mnuchin, Mr Ross, assistant to the President for economic policy Larry Kudlow and assistant to the President for trade and manufacturing policy Peter Navarro.

Mr Trump and Mr Xi have given their officials until March 1 to reach a lasting truce to a trade war that has hurt the world's largest economies. The two sides will discuss "structural changes" to China's economic system and Chinese pledges to buy more US goods and services, said the White House.

Mr Mnuchin said: "My expectation is that we will make significant progress." The negotiation comes at a tense time for US-China relations.

In a 13-count indictment in Brooklyn, New York, the US government accused Huawei, two affiliated companies and its chief financial officer of fraud and conspiracy in connection with deals in Iran. A 10-count indictment in Washington state accused the company of stealing trade secrets from T-Mobile USA Inc and offering bonuses to employees who succeeded in getting technology from rivals.

The Trump administration hasn't succeeded in convincing the Chinese that charges against Huawei and trade negotiations are unrelated, said Matt Gold, a former deputy assistant trade representative. The tactic could backfire, he said on Bloomberg TV.

"President Trump has made a big mistake by allowing the Chinese to draw the conclusion that the two are related. It makes it more difficult for us to negotiate trade when the Chinese feel we are enforcing our export laws to gain leverage for a trade negotiation," he said.

Huawei has been the target of a broad US crackdown over allegations it has stolen trade secrets, violated sanctions against Iran and sold equipment that could be used by China's Communist Party for spying. BLOOMBERG