U.S. Lifts Ban On China’s ZTE After $1.4B Penalty

by Bamidele Ogunberu Posted on July 14th, 2018

Washington, D.C., USA: Commerce Secretary Wilbur Ross on Friday announced that the U.S. has lifted a nearly three month long ban on China’s second largest telecommunications equipment maker, ZTE.

The ZTE deal began in April when the Commerce Department banned the sale of any American components to the company for seven years. The removal of the ban lets ZTE resume buying American made electronic components that are crucial to its products, saving it from almost certain closure. Trump has said the move is intended to help negotiations during the ongoing US-China trade war.

The ban was removed after ZTE paid the final tranche of a $1.4 billion penalty by placing $400 million in escrow at a U.S. bank, the Commerce department said on Friday. That sum comes in addition to $892 million in penalties the telecommunications-equipment maker has paid to the U.S. government after pleading guilty to violating sanctions, it said.

Ross said on Friday that “three interlocking elements – a suspended denial order, the US$400 million in escrow, and a compliance team selected by and answerable to the department – will allow the department to protect US national security”.

The compliance coordinators will report to the Commerce Department’s Bureau of Industry and Security for 10 years, according to the statement.

They will monitor ZTE’s compliance with US export control laws. The denial order, which is now suspended, can be activated in the event of additional violations during the 10-year probationary period.

Also on Friday, ZTE said it expected to record a net loss in the first half of the year because of the US$1 billion fine it paid last month to have the ban lifted.

ZTE reportedly said it would “set out with full confidence” after the U.S. lifted the ban.

ZTE last month took a major step forward in meeting the White House’s conditions by firing its entire board and appointing a new chairman. Its new management faces the challenge of rebuilding trust with phone companies and corporate customers. But the company is said to be facing at least $3 billion in total losses from a months-long moratorium that choked off the chips and other components needed to make its networking gear and smartphones.

Removing the ban on ZTE was a key Chinese government demand amid escalating tensions between the world’s two largest economies. While those talks have stalled since the last high-level meeting in June, the U.S. and China have indicated their willingness to go back to the negotiating table. Neither is saying exactly what that would take.

But both the ZTE deal and Trump’s wider trade policies have faced opposition from Congress members on both sides of the aisle – highlighting the gap between the White House’s thinking and that of the wider Republican Party, and pitting the president against his own side.

In his announcement on Friday, Commerce Secretary Wilbur Ross promised that the company would continue to face scrutiny by US authorities, who previously slapped down the sanctions after the company dealt with both Iran and North Korea.

“While we lifted the ban on ZTE, the department will remain vigilant as we closely monitor ZTE’s actions to ensure compliance with all US laws and regulations,” Ross said.

But opposition in Congress has not been mollified by Ross’s continued promises, or the US$1 billion fine levied on ZTE. Both the Senate and the House of Representatives have passed amendments in their versions of a defence appropriations bill to restore the ban, either in part or whole.

The two versions of the bills, including those amendments, are now being reconciled in committee, with a target deadline of the end of the month. The White House has previously said that it intends to intervene at this stage to encourage the wording to be changed to allow ZTE to operate.

On Thursday, a bipartisan group of six US senators made another effort to reinstate the ban, stating in a letter to the reconciling committee that ZTE, along with Huawei, another telecoms giant, “are beholden to the Chinese government and Communist Party, which provides the capacity for espionage and intellectual property theft, and therefore poses clear threats to the national security, people, and economy of the United States”.

ZTE executives asked to cut costs as it looks to resume operations

ZTE isn’t the only area in which the Trump administration’s actions have caused friction with the Republican Party: lawmakers have also been alarmed at its decision to widen his trade war to include traditional American allies and trading partners.

Republicans, who are traditionally proponents of free markets, have been particularly unsettled by Trump’s application of punitive tariffs against Canada, Mexico and the European Union, especially because he has invoked the so-called Section 232 authority to enact those tariffs unilaterally on the basis of national security concerns.

Senator Bob Corker, the Tennessee Republican who chairs the Foreign Relations Committee, said Thursday that “the US has significant trade challenges when it comes to China”, but that “we should focus on building coalitions to confront long-standing threats, such as Chinese theft of intellectual property, instead of imposing 232 tariffs on our friends”.

Corker, who is retiring when his term expires at the end of this year, is not alone. On Wednesday, the Senate voted overwhelmingly 88-to-11 on a non-binding procedural measure asserting “a role for Congress” when Trump imposes tariffs in the name of national security.

“Many members have been over to talk to the president about where this is headed,” Corker said.

“To my knowledge, not a single person is able to articulate where this is headed, nor what the plans are, nor what the strategy is. It seems to be a ‘wake up, ready, fire, aim’ strategy.”

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Bamidele Ogunberu

Bamidele Ogunberu

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