The relations between the United States and China have never been ideal but in the last few years they have strained a bit too much. Both US and China are major economies and it is unlikely for two important economies to not have good trade relations among them but US and China have been taking frequent actions against each other. US has been concerned about the confidentiality of their data being compromised due to trade among US and Chinese firms. As per the regulations in the Asian country, it is mandatory for any organization registered inside the Chinese land to provide the Beijing government with any information they have access to for purposes of national security. Such regulations make it valid for the US to take measures to protect their sovereignty.
In 2019, Huawei and about 68 other organizations were put on the ‘Entity List’. The entity list is a trade blacklist which prohibits companies based in the United States from having trading relations from the listed organizations. Recently, the Department of Commerce of the United States issued a $300 million dollar fine to Seagate, a US based technological company for supplying Huawei with hard drives. The DOC claimed that this export violated their terms set for companies in the entity list.
Yesterday's historic action would not be possible without the deep commitment to justice and tireless work of our agents and analysts, who are contributing to the wider effort of protecting our national security.
— Deputy Secretary Don Graves (@DepSecGraves) April 20, 2023
Why Huawei was put on the list?
The administration of the United States listed the company in the Entity List because they suspected that Huawei’s technology could be put to use by the Beijing government for malicious purposes against the United States. They suspect the company of having ties with the Xi Jinping led government. Earlier, the United States had also issued ban on the use of Huawei products inside of government offices. After Huawei was put on the Entity List, it became mandatory for US based companies to procure a license from the government before conducting any business with the brand. The move had a significant impact on Huawei’s business, as the company relies heavily on US suppliers for components and technology.
The Chinese electronics brand has claimed that all speculations of the government are baseless and this is just a step they took to gain trade superiority over China. In recent years, the company has been trying to reduce its dependency on the United States and has created its own operating system. They have further stated that they function independently and are not affiliated with the government of their home country.
After restrictions were put on the Chinese electronics giant, other firms which used to export their products to Huawei stopped their business with the Chinese firm. Seagate, however, kept exporting hard drives to Huawei which led to the $300 million dollar fine. According to the DOC, the company exported hardware worth over 1.1 billion dollars to Huawei between August 2020 and September 2021 without obtaining a permit. As per reports, the fine imposed on the firm is by far the largest in the history of Bureau of Industry and Security.
Terms of the fine:
The fine of 300 billion dollars is to be paid by the US based brand in installments of 15 million dollars every four months for the next 5 years. A multi-year audit and a five year suspended denial order have also been issued in case the company is not able to pay up any installment of the fine or complete the requirements of their financial investigation.
The US based brand has accepted to pay the fine. They have also consented to the terms that accompany their 300 million dollar fine. Although, it would be a huge loss for the company, Seagate Chief Executive has said that they feel it is in the best interest of the company, its customers and its shareholders. As per reports the fine is over twice the profits they earned on their hard disks but they have still decided to sign the agreement with the BIS. It is probable that there could have been more serious consequences against the firm if they did not agree to this agreement and went to the court as it was a clear violation of US laws. However, the company has claimed that they were under the impression that they followed all laws pertaining to export of products.