World Crisis Online

President Barack Obama will have to decide whether Huawei must unwind a $2m patent deal after a classified national security review failed to approve the transaction, the Chinese telecom equipment maker said.

Huawei said that it was offered an opportunity by the Committee on Foreign Investment, the secretive executive branch panel that vets deals on national security grounds, to withdraw from the regulatory review and sell patents it acquired from a company called 3Leaf last May.

But in a highly unusual move, Huawei said it believed that voluntarily selling the assets would do “significant damage” to its brand and its reputation, and that it believed an appropriate decision would be made. That means the decision will, under law, now fall directly to Mr Obama, who has the sole authority to issue a decision following a 15-day review of the panel’s findings.

Legal experts say the move by Huawei is virtually unprecedented. In almost every other case, when a company has been quietly advised to walk away from a deal, it has done so. Most attorneys who work in the field say that Mr Obama would most likely heed the opinion of the Cfius panel, which is comprised of top intelligence, defence and economic officials in his administration.

The decision puts Mr Obama in a difficult political position following the state visit by Hu Jintao, the Chinese president, to the United States in January. More than halfway through his term, the president has never had to rule on a Cfius case.

Huawei said it believed that Cfius had been “bothered and challenged by” the fact that the company failed to alert the panel to the deal before it was already closed. It said the circumstances of the deal made it difficult for the Cfius panel to craft a security-related arrangement that would satisfy the panel.

The decision represents a gamble by the Chinese company, which was already forced to abandon a deal in 2008 because of national security concerns. The decision raises significant doubt about the company’s future growth prospects and ability to win big US telecommunications contracts given the US government’s now obvious doubts about the company.

“Huawei has great respect for and trusts the fairness and impartiality of the US government and American due process. Whatever the final determination on the 3Leaf case, Huawei looks forward to expanding our already substantial business in the US,” Huawei said.

The Treasury, which chairs the Cfius panel, declined to comment.