BRUSSELS--The European Union's trade chief will ask for backing
this week from senior members of the bloc's executive arm to start
investigations into alleged unfair trade practices by Chinese
network equipment suppliers Huawei Technologies Co. and ZTE Corp.
(ZTCOY, 0763.HK, 000063.SZ), an EU official said, amid concern from
European companies that such a probe could prompt a backlash
against their interests in China.
The threat comes at a sensitive time for European
telecom-equipment suppliers, which are looking to increase their
business in China.
Europe's three major suppliers--Ericsson (ERIC), Alcatel-Lucent
SA (ALU, ALU.FR) and Nokia Siemens Networks, a joint venture
between Nokia Corp. (NOK, NOK1V.HE) and Siemens AG (SI,
SIE.XE)--are hoping to win significant business from Chinese
telecommunications operators as they embark on multibillion-dollar
spending programs to roll out high-speed wireless data
networks.
The European companies fear that a decision by the EU to start
the investigations could lead to retaliation against them by the
Chinese operators, which are controlled by the Chinese government,
leaving Huawei and ZTE with the bulk of this business.
Ulf Pehrsson, head of government and industry relations at
Ericsson, said the Swedish telecommunications company opposes
starting the investigation.
"We don't believe in this type of unilateral measure," Mr.
Pehrsson said. "Ericsson is supporting global rules that apply for
all industry players. The EU faces the risk of initiating a
negative spiral by targeting individual firms."
One person familiar with the debate said "the Europeans are
afraid that the state-owned enterprises in China are going to use a
case like this not to give the European firms as many
contracts."
The probe would be among the first ever started by the
commission without receiving a complaint from a European company.
Though EU law allows the commission to take such a step, it would
be treading into a politically sensitive area where some nations,
Sweden in particular, want the commission to back off.
According to the EU official, EU trade chief Karel De Gucht will
ask for support from the other members of the European Commission,
the EU's executive arm, to start the investigations at their weekly
meeting on Wednesday.
European officials are closely watching which firms get the
Chinese contracts as they decide whether to open the
investigations.
Mr. De Gucht hasn't yet decided whether to launch the probes,
the official said.
EU officials contend Huawei and ZTE have used hefty subsidies
from the Chinese government, such as cheap credit from state-owned
banks offered to the Chinese firms or their customers to buy the
equipment they make. These subsidies, officials believe, have been
used to sell their goods at unfairly low prices and snatch big
chunks of the EU market.
Chinese exports of base stations--a key component of wireless
networks--to the 27-nation EU have soared over the past five years,
while prices have plummeted.
Brussels and Beijing have held several rounds of negotiations on
the issue. Commission officials were looking for pledges from the
Chinese to sell their goods in Europe above a minimum price, but
meetings over the past year ended without a deal.
Huawei says it doesn't receive illegal subsidies and denies it
is controlled by the Chinese government. A credit agreement it
signed with the state-controlled China Development Bank nearly six
years ago for $30 billion isn't binding, said spokeswoman Tina
Tsai. The agreement is "common commercial practice and it complies
with all the international and commercial laws and regulations,"
Ms. Tsai said.
Mr. Pehrsson said international guidelines are needed for
export-financing offered by governments.
Launching a probe could hurt trade relations with China. Europe
is already moving to confront China over solar-panel equipment
imports, which accounted for about 7% of all Chinese exports to
Europe in 2011. Mr. De Gucht's office is planning tariffs of up to
68% on Chinese solar equipment, according to a copy of the plan
seen by The Wall Street Journal.
Those tariffs are set to come into effect by June 6.
The amount of money at stake in the push by Chinese
telecommunications operators to build high-speed wireless networks
is huge. China Mobile Ltd. (CHL, 0941.HK, K3PD.SG), the country's
largest telecommunications operator by subscribers, is planning to
spend nearly $7 billion on its next-generation network in 2013
alone. China Telecom and China Unicom, two other major operators,
also have billions in capital spending planned for this year,
though it is unclear how much will be devoted to building out new
high-speed networks.
Alcatel Lucent has already gotten a taste of this money from
China Mobile, winning part of a large-scale trial that is now in 13
cities. Alcatel Lucent declined to comment.
Nokia-Siemens and ZTE didn't respond to requests to comment.
-Sam Schechner contributed to this article.
Write to Matthew Dalton at matthew.dalton@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires