Flextronics detains Huawei property; may lead to inclusion on Beijing's entity list

Source:Global Times Published: 2019/7/25 19:10:08

US firm breaks Chinese laws, may lead to inclusion on Beijing's entity list

Huawei smartphones are displayed at a Huawei store in Beijing. File photo: VCG

US original equipment manufacturer Flextronics which seized part of Huawei's property in China is likely to be put on China's unreliable entity list because such a practice has violated domestic laws, Chinese analysts said on Thursday. 

Flextronics privately detained materials and equipment belonging to Huawei worth more than 700 million yuan ($102 million) for more than one month after the Trump administration put the Chinese company on a blacklist in May, a source close to the matter told the Global Times.

After Huawei was placed on the US Entity List on May 16, which bars US companies from selling products and services to it without permission, Flextronics, a partner of Huawei for many years, halted its cooperation with the Chinese company in the global markets. 

Responding to a question about a Global Times report on Flextronics' seizure of Huawei's equipment, an official of China's Ministry of Commerce (MOFCOM) said on Thursday that "China's unreliable entity list is in the process of being drawn up," without directly addressing the question. 

According to the source, Huawei sent dozens of trucks to collect its materials and equipment, which was worth more than 400 million yuan, from Flextronics's Zhuhai factory in South China's Guangdong Province on May 17.

But the Zhuhai factory said it had just received instructions from its executives, saying that Flextronics could not release the Huawei-owned materials and equipment due to the relevant laws and regulations of US export controls, said the source.

Apart from the items at the factory, another 300 million yuan worth of materials and equipment were located in Flextronics' foreign factories. Those products belonged to the network device department of Huawei, according to the source.

Flextronics' private seizure brought large losses to Huawei as it had to purchase new materials and equipment for its clients, the source said. In mid-June, Flextronics finally agreed to gradually return Huawei's property.

But the precondition was that these items would be transferred to a "third party" that is not affiliated with Huawei and its 68 affiliates on the Entity List, and the costs should be paid by Huawei, said the source.

Since the US company's wholly owned subsidiary - Flextronics Manufacturing (Zhuhai) Co and its factory - was registered in Zhuhai, it should be subject to China's territorial jurisdiction, which must not be overstepped, said Huo Zhengxin, a professor at the School of International Law of the China University of Political Science and Law.

Huo told the Global Times that Washington can require US companies to comply with US laws but US domestic administrative laws and regulations are invalid in China.

If Huawei signed a contract with Flextronics' company in Zhuhai, the use of US domestic laws to detain Huawei's materials in China at the very least constituted a violation of the territorial jurisdiction of Chinese laws and there was also the problem of default, according to Huo.

Experts said due to Flextronics' action against Huawei, the US company is likely to be considered for addition to China's unreliable entity list.

MOFCOM is considering its unreliable entity list, and US companies that ignore China's territorial jurisdiction to implement US domestic laws are among the entities being considered for addition to the list, Huo noted.

When asked about whether Flextronics' action would qualify it to be put on the unreliable entity list, MOFCOM spokesman Gao Feng said on Thursday that he is not familiar with this latest development of the case, but work on the list is progressing.

Both Huawei and Flextronics did not offer comment when reached by the Global Times.

Flextronics' factory in Changsha, Central China's Hunan Province, has reportedly stopped production, domestic news site caixin.com said on July 17. The reason for the halt was that Huawei had completely removed Flextronics from its supply chain, tech.ifeng.com said on July 18.

At one point, Huawei sent a lawyer's letter to Flextronics, saying that its behavior was serious and beyond the scope of normal contract disputes, the source said.

But Flextronics said in a lawyer's letter later sent to Huawei that under US export control laws, Flextronics has a legal obligation to review materials and equipment owned by Huawei, which experts said that the company acted as a "law enforcer" of the US government on Chinese territory.

Global Times

Newspaper headline: Flextronics detains Huawei property: source


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