$1.7b fine for China's ZTE to stay in business

To lift the ban on buying from US suppliers, ZTE will have to pay a fine, change its board and management, and provide security guarantees. The company has estimated losses of at least US$3.1 billion from the ban.
To lift the ban on buying from US suppliers, ZTE will have to pay a fine, change its board and management, and provide security guarantees. The company has estimated losses of at least US$3.1 billion from the ban.PHOTO: AGENCE FRANCE-PRESSE

But softening action on sanctions violations concerns US lawmakers

WASHINGTON • President Donald Trump said the United States would allow Chinese telecommunications-equipment maker ZTE Corp to remain in business after paying a US$1.3 billion (S$1.74 billion) fine, changing its management and board, and providing "high-level security guarantees".

In a tweet last Friday evening, Mr Trump confirmed a deal that his administration had outlined for members of Congress, according to two people familiar with the matter.

Lawmakers in both parties have expressed concern over his decision to soften an earlier US action against ZTE over violations of sanctions on Iran and North Korea.

Mr Trump took a jab at Democrats in his tweet, saying that Senate Minority Leader Chuck Schumer and former president Barack Obama "let phone company ZTE flourish with no security checks".

Under the deal for ZTE to resume operations, it will also hire American compliance officers to monitor its operations, according to the people, who spoke on condition of anonymity. Once ZTE complies, the Commerce Department will lift an order under which the company had been cut off from US suppliers for seven years, effectively shutting down its business.

A deal on ZTE has implications beyond the woes of the company. The US and China are engaged in high-stakes talks on steel trade and intellectual property rights under the looming threat of punitive tariffs.

Mr Trump said earlier that he ordered a reconsideration of penalties against ZTE as a favour to China's President Xi Jinping, as the company estimated losses of at least US$3.1 billion from the ban.

The plan is further inflaming tensions between the White House and Congress over trade policy in a week when Republicans blasted the administration for contemplating tariffs on auto imports.

"Yes, they have a deal in mind. It is a great deal... for #ZTE & China," Senator Marco Rubio, a Florida Republican, tweeted last Friday.

Mr Schumer said that "both parties in Congress should come together to stop this deal in its tracks".

The Senate last Thursday released a defence policy Bill containing a provision requiring Mr Trump, before making any ZTE deal, to certify with Congress that ZTE has not violated US law for the past year and is cooperating with US investigations.

"ZTE presents a national security threat to the United States - and nothing in this reported deal addresses that fundamental fact. If President Trump won't put our security before Chinese jobs, Congress will act on a bipartisan basis to stop him," said Maryland Democratic Senator Chris Van Hollen.

It is unclear if Congress can get the veto-proof majorities needed to block the President on ZTE.

Mr John Cornyn of Texas, the No. 2 Republican in the Senate, expressed support for placing compliance officers at ZTE.

"That would be remarkable," he told reporters. "Having somebody inside the company to observe what's going on would be very valuable."

ZTE ran into trouble in 2016 for violating US laws restricting the sale of American technology to Iran. An agreement last year called for the firm to pay as much as US$1.2 billion and penalise the workers involved, in what was the largest criminal fine for the Justice Department in an export control or sanctions case.

Last month, the Commerce Department said ZTE instead paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to US authorities. That led to the seven-year ban.

Commerce Secretary Wilbur Ross plans to visit Beijing on June 2-4, and China has made saving ZTE one of its priorities.

The Trump administration has pushed China to help cut the US$376 billion trade surplus with the US, with Beijing so far making only vague commitments to buy more US goods.

BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on May 27, 2018, with the headline '$1.7b fine for China's ZTE to stay in business'. Print Edition | Subscribe