Trump is ‘reopening’ ZTE with US$1.3 billion fine and management changes – but US lawmakers aren’t happy

Trump is demanding management changes, ‘high-level security guarantees’ and other conditions

PUBLISHED : Saturday, 26 May, 2018, 12:59am
UPDATED : Saturday, 26 May, 2018, 10:41am

US President Donald Trump has announced that he will “let [ZTE] reopen” provided the Chinese telecom company pays a fine, and consents to staffing changes and other restrictions.

In tweets on Friday night, Trump said: “I closed [ZTE] down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine.”

He also complained about political opponents, saying “[Democrat] Senator [Chuck] Schumer and Obama Administration let phone company ZTE flourish with no security checks.

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“Dems do nothing but complain and obstruct. They made only bad deals (Iran) and their so-called Trade Deals are the laughing stock of the world!”

Trump’s plan is likely to upset many in the US Senate who are opposed to the removal of a seven-year ban on the company, which was placed after it lied about implementing reform measures imposed by the US Commerce Department for breaking sanctions on Iran.

Earlier on Friday, insiders told Bloomberg and The New York Times that the deal, brokered by the US Department of Commerce, would demand the company pay a “substantial” fine, accept American-selected compliance officers into its offices and change its management team.

If ZTE accepts, the government will lift an order banning US companies like the technology hardware firm Qualcomm from doing business with ZTE for seven years – an order that had prevented ZTE from buying microchips and other components and crippled its operation.

US lawmakers on both sides of the aisle have expressed discontent with the idea.

Senator Marco Rubio, Republican of Florida, tweeted earlier on Friday: “Yes they have a deal in mind. It is a great deal ... for #ZTE & China. #China crushes US companies with no mercy & they use these telecomm companies to spy & steal from us. Many hoped this time would be different. Now congress will need to act.”

Senator Chuck Schumer, the Senate Minority Leader and a New York Democrat, was similarly sceptical, saying that “both parties in Congress should come together to stop this deal in its tracks”.

ZTE estimates US ban to cost at least US$3 billion

On Friday morning, Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross briefed Republican senators on the plans and asked them tone down public criticism and give the administration room to negotiate the matter.

After the briefing, John Cornyn of Texas, the No. 2 Republican in the Senate, expressed support for placing compliance officers at ZTE. “That would be pretty remarkable,” he said. “Having somebody inside the company to observe what’s going on would be very valuable.”

There has been growing opposition to a possible ZTE deal throughout this week. On Thursday, the House passed a bill – which will next move to the Senate – that would ban US government employees from using ZTE products and stop the Defence Department from dealing with the company’s vendors.

One of the law’s provisions also requires Trump, before making any ZTE deal, to certify to Congress that the Chinese company hasn’t violated US laws for the past year and is cooperating with US investigations.

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“ZTE presents a national security threat to the United States – and nothing in this reported deal addresses that fundamental fact,” said Senator Chris Van Hollen, Democrat of Maryland and author of the Senate provision.

“If President Trump won’t put our security before Chinese jobs, Congress will act on a bipartisan basis to stop him.”

On Thursday, Ross told CNBC that the US government was considering lifting the ban, saying: “If we do decide to go forward with an alternative, what it literally would involve would be implanting people of our choosing into the company to constitute a compliance unit.”

Ross is scheduled to visit China next week for another round of trade talks between the world’s two largest economies.

Trump ‘reconsiders ZTE penalties as favour’ to Xi

A ZTE deal could help with high-stakes talks between the US and China, which see the steel trade and intellectual property rights under the looming threat of punitive tariffs.

US-traded shares of NXP Semiconductors NV rose after the announcement, as signs of better US-China relations bode well for Chinese approval of Qualcomm’s purchase of the Dutch chip maker.

The ban was placed on ZTE after its employees sold “hundreds of millions of [US] dollars’” worth of routers, microprocessors and servers to Iranian entities in violation of the US’s Export Administration Act of 1979.

Washington had agreed to hold back on sanctions in March 2017, provided that ZTE punish those responsible for covering up the Iran sales and pay around two-thirds of a US$1.2 billion fine.

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ZTE told the Commerce Department that it had punished those responsible, but when paperwork proving this was requested, the department determined that ZTE had not followed through, resulting in the institution of the full sanctions.

Additional reporting by Reuters.