ZTE Export Ban Rescinded
The Commerce Department has abandoned its seven-year ban on exports to Chinese telecom giant ZTE, instead levying a second $1 billion penalty for violating sanctions on North Korea and Iran, Commerce Secretary Wilbur Ross said in an interview on CNBC June 7. Previously, ZTE paid all but $300 million of a $1.19 billion fine, but Commerce said the company didn't follow through with its promises to discipline employees responsible for the illegal exports, and lied to the Bureau of Industry and Security.
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Ross said the new punishment is "even more effective" than the ban, which was effectively a death penalty, because ZTE relies on American semiconductors for its products. In addition to the fine, ZTE will have to employ compliance officers who will report to BIS, and it will replace its management and board. "If they do violate it again, in addition to the billion dollars they are paying us up front, we had them put $400 million in escrow. The total deal is $1.4 billion. That money will be forfeited if they violate anything, whether lying or sanctions or anything else. And we still retain the power to shut them down again," Ross said. The Commerce Department said in a news release that "this is the first time BIS has achieved such stringent compliance measures in any case."
Senate Minority Leader Chuck Schumer, D-N.Y., blasted the deal. "President Trump should be aiming his trade fire at China, but instead he inexplicably aims it at allies like Canada, Mexico and Europe. When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks," he said in a statement. "There is absolutely no good reason that ZTE should get a second chance, and this decision marks a 180 degree turn away from the president’s promise to be tough on China. It’s up to Congress now to act to reverse the deal."
Congress has discussed ways to prevent the Commerce Department from rescinding the ban. The Senate Banking Committee passed an amendment (see 1805220071) to a bill on foreign investment that would keep the ban in place for at least a year, and allow a removal only after proof was offered to Congress that the company is cooperating. In the House, there has been talk of telling the Commerce Department it cannot spend money on changing the penalty, but no action has been taken yet.