Trump Administration Plans to Revive ZTE, Prompting Backlash

Posted May 25, 2018 10:57 p.m. EDT
Updated May 25, 2018 10:59 p.m. EDT

WASHINGTON — The Trump administration told lawmakers it had reached a deal that would keep Chinese telecom firm ZTE alive, a person familiar with the matter said, a move that could clear the way for further trade talks with China but at the risk of provoking a backlash in Congress.

Under the agreement brokered by the Commerce Department, ZTE would pay a substantial fine, hire American compliance officers to be placed at the firm and make changes to its current management team.

In return, the Commerce Department would lift a denial order that is preventing the company from buying U.S. products, the person said. The Commerce Department did not respond to requests for comment.

President Donald Trump confirmed the news late Friday evening on Twitter, as he criticized Sen. Chuck Schumer, D-N.Y., the Democratic leader, and the previous administration for their dealings with the company.

“Senator Schumer and Obama Administration let phone company ZTE flourish with no security checks,” he wrote. “I closed it 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.”

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

The deal would allow ZTE to once again begin doing business with U.S. companies, including Qualcomm, the chipmaker based in San Diego that is a primary ZTE supplier. The Chinese company was recently banned from buying American technology components for seven years as punishment for violating U.S. sanctions against Iran and North Korea, a penalty that industry analysts say threatened to put the company out of business within weeks.

The collapse of ZTE would be an embarrassing outcome for China and the company’s fate has become a hurdle in trade negotiations between the two countries. President Donald Trump directed the Commerce Department to re-examine ZTE’s penalty based on a personal request from President Xi Jinping of China, setting off a fierce pushback from some of Trump’s national security advisers as well as lawmakers from both parties.

Trump, however, has appeared unmoved by those concerns and has been pushing to reach some type of trade resolution with China, which has so far proved elusive. The administration wants to cut a deal on ZTE in exchange for trade concessions from China, including purchases of American agriculture and energy products, people familiar with the discussions said. Wilbur Ross, the commerce secretary, is scheduled to travel to China on June 2 to begin another round of the talks with top Chinese officials.

Such an agreement is likely to face fierce resistance on Capitol Hill. Top lawmakers — including Sen. Chuck Schumer, D-N.Y., and Sen. Marco Rubio, R-Fla. — have urged the administration not to bend on ZTE, which they consider a law enforcement and national security issue.

“ZTE presents a national security threat to the United States — and nothing in this reported deal addresses that fundamental fact,” Sen. Chris Van Hollen, D-Md., said in a statement. “If President Trump won’t put our security before Chinese jobs, Congress will act on a bipartisan basis to stop him.”

Lawmakers, including Van Hollen, have rolled out a variety of measures aimed at clipping the administration’s authority to ease penalties on ZTE and have publicly criticized the administration’s consideration of a deal.

On Thursday, the House passed a bill that would prevent the administration from easing restrictions on ZTE and on Tuesday, the Senate Banking Committee approved a similar amendment that would prevent the president from modifying penalties on Chinese telecom companies that had violated U.S. law in the past year. A group of 27 bipartisan senators also sent administration officials a letter last week warning them not to “compromise lawful U.S. enforcement actions against serial and premeditated violators of U.S. law, such as ZTE.”

“Yes they have a deal in mind,” Rubio said in a tweet on Friday. “It is a great deal... for #ZTE & China.”

“Now congress will need to act,” he added. The telecom company’s fate has consumed top administration officials, who have tried to defuse lawmakers’ concerns about a deal while responding to Trump’s entreaties to “get it done.” On Wednesday afternoon, Ross and Treasury Secretary Steven Mnuchin traveled to Capitol Hill to brief a group of Senate Republicans, including Rubio, John Cornyn of Texas and Bob Corker of Tennessee, on their plans for ZTE. Ross and Mnuchin sought to assure the lawmakers that they were planning on harsh penalties for ZTE, and appealed to Republicans to dampen their public criticism so a deal could be reached, a person briefed on the discussions said.

“If the administration goes through with this reported deal, President Trump would be helping make China great again,” Schumer said in a statement Friday. “Simply a fine and changing board members would not protect America’s economic or national security, and would be a huge victory for President Xi, and a dramatic retreat by President Trump.”

Defense officials have also been concerned about the Chinese telecom firm and its products, which they believe may be vulnerable to Chinese espionage or disruption. In early May, a spokesman for the Department of Defense said the Pentagon was stopping the sale of phones made by ZTE and a Chinese competitor, Huawei, in stores on U.S. military bases around the world because of security concerns.

The Chinese telecommunications firm has been on the brink of shutting down, following penalties imposed by the Commerce Department in April that severed important links in its supply chain.

ZTE agreed to a $1.19 billion fine and other penalties in March 2017, after it was found to have violated U.S. sanctions by selling products with American-made parts to Iran and North Korea. In April, the Commerce Department said it had found that ZTE had also made false statements relating to disciplining senior officials, and announced a seven-year ban on the company’s purchases of U.S. products.

That ban has crippled the Chinese firm and threatened to put tens of thousands of Chinese employees of the company out of work. The Chinese government had made clear that lifting ZTE’s penalty would be a condition for continuing with trade talks, and that if the penalty was not lifted, U.S. companies operating in China might face further retaliation, people briefed on the discussions said.

Trump administration officials have said repeatedly in the last week that ZTE is a law enforcement issue, and that it is being considered independently from trade negotiations with China. But trade experts say that the administration’s actions and the president’s own statements indicate that ZTE’s fate has become inextricably linked to Trump’s goal of reaching a trade deal with China. On Thursday, Ross said that the administration was considering installing a compliance team inside ZTE. “We’re developing a matrix of things and while we haven’t come quite to a final decision yet, we think there may very well be an alternative that will be quite punitive to them, but really modify behavior,” Ross said on CNBC.