China's biggest telecom equipment manufacturers received illegal government subsidies that put them at an advantage over other companies, the European Union will argue in an impending trade case against Huawei and ZTE.
According to the EU, the subsidies allowed the companies to sell their products below cost in EU states, giving them an unfair advantage over competitors. The EU has been gathering evidence for the case and could levy punitive tariffs against Huawei and ZTE should their accusations be proven.
Neither company has publicly commented as of yet.
China is second only to the US in trading volume with Europe, but its partnership with the EU is increasingly troubled. Karel De Gucht, the EU's trade commissioner, recently blamed China's tendency towards subsidies for leading to anti-competitive practices among Chinese companies.
Huawei recently filed a complaint with EU antitrust regulators against American wireless communications firm InterDigital for requiring "exploitative" and "discriminatory" fees related to its 3G mobile patents. The company claims that InterDigital's licensing fees violate EU policies related to standard-essential patents.