ZTE may have received a US reprieve, but China Mobile is next target

Congressional appropriations restrict Chinese telecoms, but stop short of the components ban that the Commerce Department had recommended

PUBLISHED : Tuesday, 03 July, 2018, 2:46am
UPDATED : Tuesday, 03 July, 2018, 4:19pm

When the US House of Representatives passed its defence appropriations bill on Thursday, it might have seemed that by addressing strong national security concerns, it took steps to sharply restrict involvement with Chinese telecommunications companies – including, on Monday, China Mobile.

In a sweeping 359-49 vote passing a bill for US$675 billion in defence spending, the House approved an amendment that prohibits two Chinese telecoms equipment manufacturers, ZTE Corp and Huawei Technologies, from selling any products or services to the Pentagon.

In fact, though, the bill may well have saved ZTE from harsher penalties that would have threatened the company’s existence – tougher actions that were gathering momentum in the Senate just a week earlier.

Trump administration moves to block China Mobile entering US market

Unlike the Senate bill, the House amendment excluded language prohibiting ZTE from buying components from American suppliers for seven years.

That was the sanction the US Department of Commerce first imposed in April, when it determined that Hong Kong-listed ZTE, China’s second largest telecoms equipment maker, repeatedly violated trade laws by selling products to North Korea and Iran, then violated the terms of a settlement it had agreed to in 2017. The ban led to ZTE shuttering its major operations within weeks.

“Once the amendment to reinstate the ZTE ban failed, we were a done deal as far as I am concerned,” Henrietta Treyz, director of economic policy research at investment consulting firm Veda Partners, said, referring to the House action.

“I feel very comfortable saying that the ZTE deal is done.”

ZTE may have gotten a reprieve in US, but China Mobile is next target

But US President Donald Trump’s offer to salvage ZTE might not be a precursor signalling favours for other Chinese companies. The Trump administration on Monday moved to block China Mobile from entering the US telecommunications market, saying the government-owned company would pose national security risks, similar to the warnings it has raised regarding ZTE.

A growing point of friction as a US-China trade war develops, the issue of what to do about ZTE threatened to swamp congressional support for Trump’s tactics concerning trade relations with China.

Trump early last month scuttled the Commerce Department penalties against ZTE, in a move he called a favour to Chinese President Xi Jinping.

The move against China Mobile shows the US government’s continuing security worries about state-owned Chinese businesses.

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“After significant engagement with China Mobile, concerns about increased risks to US law enforcement and national security interests were unable to be resolved,” said David J. Redl, assistant secretary for communications and information at the Commerce Department.

The Federal Communications Commission should deny China Mobile’s application, submitted in 2011, the National Telecommunications and Information Administration (NTIA) said in a filing. NTIA is a branch of the Commerce Department.

Trump’s ZTE intervention met with significant resistance from the Senate, with many members, Republican and Democrat alike, calling ZTE a national security threat.

ZTE appoints new chairman in another step toward lifting of US ban

Trump, in a meeting with Republican Senators last week, urged them not to undermine his deal, stressing that it was part of a broader geopolitical negotiating strategy with China. In a response to the passage of the Senate bill, the White House issued a statement that it strongly objected to the ZTE provision.

Since that meeting, the White House and a bipartisan group of senators have been negotiating to restrict ZTE’s business in certain areas to ensure national security while not cutting it off from its American suppliers.

The bill the House passed on Thursday strikes a middle ground between the positions the White House and the Senate have taken, and suggests the eventual compromise to be struck.

Last week, a bipartisan group of senators behind the campaign to reinstate the ban – Republicans Marco Rubio and Tom Cotton, Democrats Chris Van Hollen and Charles Schumer – sent a letter to the Commerce Department, asking for clarification on how the ban would affect American companies that use ZTE products.

“They’re basically admitting up front that they have backed away from their very restrictive amendment by saying ‘we want you to provide guidance to businesses to tell them how to act with ZTE, a tacit admission that they have backed down,” said Treyz.

The legislation is now headed to conference, to be reconciled by the House and the Senate before being sent to the president to sign.