Donald Trump floats large fine, management changes for China's ZTE

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US President Donald Trump on Tuesday floated a plan to fine ZTE Corp and shake up its management as his administration considered rolling back more severe penalties that have crippled the Chinese telecommunications company.
Mnuchin (above right, at the hearing) testified that the US didn't mean to "put ZTE out of business" by penalising it. PHOTO: AFP

WASHINGTON (REUTERS) - US President Donald Trump on Tuesday (May 22) floated a plan to fine ZTE and shake up its management as his administration considered rolling back more severe penalties that have crippled the Chinese telecommunications company.

Trump's proposal ran into immediate resistance in Congress, where Republicans and Democrats accused the president of bending to pressure from Beijing to ease up on a company that has admitted to violating sanctions on Iran.

Their reaction could complicate Trump's efforts to win concessions from China that would narrow a US$335 billion (S$450 billion) annual trade gap.

Speaking at the White House, Trump said US technology companies have been hurt by an April Commerce Department decision that prohibits them from selling components to China's second-largest telecommunications equipment maker. ZTE shut down most of its production after the ruling was announced.

"They can pay a big price without necessarily damaging all of these American companies," Trump said.

Trump said ZTE may instead face a fine of up to US$1.3 billion, new management and a new board of directors.

Before Trump spoke, Republicans and Democrats in Congress were already taking action to prevent him from easing pressure on ZTE.

The Senate Banking Committee voted 23-2 to make it harder for the President to modify penalties on Chinese telecommunications firms, and lawmakers said they were examining other possibilities.

"The proposed solution is like a wet noodle," said Senate Democratic Leader Chuck Schumer, who accused Trump of jeopardising national security for what he described as minor trade concessions.

According to sources familiar with the discussions, a proposed trade deal with China would lift a seven-year ban that prevents US chipmakers and other companies from selling components to ZTE, which makes smartphones and telecommunications networking gear.

In return, China would eliminate tariffs on US agriculture or agree to buy more farm products from the United States.

The US Commerce Department imposed the ban in April after it determined that ZTE had broken an agreement after it pleaded guilty to shipping US goods and technology to Iran.

The ban has threatened the viability of ZTE by cutting off access to companies that supply 25 per cent to 30 per cent of its components. Suppliers include some of the biggest US tech companies, including Alphabet's Google, which licenses its Android operating system to ZTE, and chipmaker Qualcomm.

The US Department of Defence has also stopped selling ZTE's mobile phones and modems in stores on its military bases, citing potential security risks.


US Treasury Secretary Steven Mnuchin told lawmakers that the treatment of ZTE was not "a quid pro quo or anything else" related to trade, and said national security concerns would be taken into consideration.

"I can assure you that whatever changes or decisions that are made in Commerce will deal with the national security issues," Mnuchin told a US Senate appropriations subcommittee.

Republican and Democratic lawmakers said they were looking at ways to block any possible changes.

"We will begin working on veto-proof congressional action," Republican Senator Marco Rubio said on Twitter.

The Republican-controlled House of Representatives is weighing several possible changes to a defence-policy Bill that would also keep up the pressure on ZTE. One proposal would block the sale of ZTE products and those of another Chinese company, Huawei Technologies, until national security officials certify they are safe.

Another proposal would require the director of national intelligence to consider the security implications of any changes to the ZTE ban, while a third would require reports on quid pro quo offers between the US and Chinese governments over any possible plan.

One sanctions expert questioned whether Trump has the legal authority to impose new fines on ZTE, which agreed last year to pay US$1.19 billion, including US$890 million in fines and penalties, and an additional penalty of US$300 million that could still be imposed.

"It looks like this is going to be a case where they'll have some minor tweaks and declare a victory and move onto the next case," said Washington lawyer Douglas Jacobson, who represents ZTE suppliers.

The US government's investigation into sanctions violations by ZTE followed reports by Reuters in 2012 that the company had signed contracts to ship millions of dollars' worth of hardware and software from some of the best known US technology companies to Iran's largest telecoms carrier.

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