US lawmakers agree to pull back from ZTE ban, in victory for Donald Trump

US senators concede to weaker anti-ZTE legislation, although stronger scrutiny of foreign investment could pose a future obstacle to fellow Chinese firms

PUBLISHED : Wednesday, 25 July, 2018, 4:20am
UPDATED : Wednesday, 25 July, 2018, 7:34am

US lawmakers have reached a deal to not reinstate a ban on ZTE that crippled the Chinese telecommunications company for violating US business laws, in a victory for US President Donald Trump’s administration.

Some senators backed down from their attempt to reimpose the ban placed by the Commerce Department in April that prevented ZTE from buying any American components, effectively shuttering it, according to a conference report released on Tuesday.

A compromise amendment, which is part of the must-pass Defence Appropriation Bill, adopts the House of Representatives’ softer language, which stops the Pentagon from buying ZTE products on national security grounds.

While that part of the National Defence Authorisation Act (NDAA) works in China’s favour, another amendment included in the bill means some Chinese investors in the US may face higher obstacles, particularly if they are attempting to acquire or merge with companies developing advanced technologies.

The Foreign Investment Risk Review Modernisation Act (FIRRMA), a bill introduced by a bipartisan slate of senior lawmakers last year as a check on China’s efforts to acquire technologies that could be used to undermine US national security, will be part of NDAA.

The House and Senate agreement stresses the importance of replacing ZTE’s equipment and service contracts with “rural communications service providers, anchor institutions, and public safety organisations as soon as practicable”, but it no longer seeks to reimpose penalties on the company.

The deal marks the end of contentious efforts by some lawmakers to reimpose penalties that would have destroyed ZTE. Trump had ordered the lifting of the ban in what he said was part of his trade war negotiations with China.

The company, which is the second largest telecoms equipment maker in China, was originally sanctioned for repeatedly violating US trade laws by selling products to US-sanctioned North Korea and Iran.

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The US first imposed the penalties in early 2017, but a settlement kept the ban from going into effect after ZTE agreed to punish those responsible for covering up its sales to Iran and pay a penalty of more than US$1 billion.

In April this year, the Department of Commerce reactivated sanctions against ZTE, contending that the company had lied when it said it had taken measures against the employees who ran the Iran unit.

The seven-year ban on ZTE’s purchase of American electronics parts, most notably from chip maker Qualcomm, led the company to close the majority of its operations in May.

Trump, in what he called a favour to Chinese President Xi Jinping, directed the Commerce Department get ZTE back into business. In return, ZTE agreed to penalties totalling US$1.4 billion, a new board of managers and a compliance office overseen by US-approved staff. Earlier this month, ZTE resumed business.

The back-pedalling had met with resistance from some lawmakers, who argued that the payments did not address what they considered national security concerns.

The Senate had passed a bipartisan amendment in June to undo Trump’s settlement. It also would have banned the US businesses and the government from using the products and services from ZTE and Huawei Technologies or any entity controlled by China.

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Last Friday, in a slew of tweets and statements, legislators expressed anger over the softening of the ZTE measures, saying some lawmakers capitulated.

Senate Minority Leader Chuck Schumer said that Trump had “once again made President Xi and the Chinese government the big winners and the American worker and our national security the big losers”.

Republican Senator Marco Rubio tweeted: “This is how #China influences our government policies. They spent a small fortune lobbying congress to drop restrictions on #ZTE & it worked. Long term China is a bigger threat to America’s security than Russia, when are we going to take it seriously?”

FIRRMA is meant to address concerns Rubio and other lawmakers have expressed about China’s military capabilities.

The legislation gives the Committee on Foreign Investment in the United States (CFIUS), an inter-agency body controlled by the US Treasury, more time and funding to examine transactions that give foreign companies control of “dual use” technologies, such as lasers and encryption, which could have military applications.

FIRRMA expands transactions CFIUS has the authority to examine, from those giving a Chinese entity majority control to lower equity thresholds, joint ventures, and any other structure designed to evade CFIUS scrutiny, such as those done through shell companies.

The change also gives CFIUS the authority to terminate transactions without the consent of the US president, which was required previously, and to undo deals retroactively.

The defence bill is expected be voted on by the House this week, followed by a vote by the Senate, before being sent to Trump for his signature.