As was widely expected, a group of senators have successfully attached an amendment that would effectively kill the Trump administration’s deal with Chinese telecoms firm ZTE to a “must-pass” defense authorization bill, according to Axios– the latest sign that the movement to kill the deal is gaining momentum, even among Republicans who rarely oppose the president. The measure has found support among a bipartisan group of Senators who claim that the ZTE deal poses potential national security problems, according to Democratic Sen. Chris Van Hollen, who introduced the amendment alongside Republican Sen. Tom Cotton. In addition, Van Hollen maintains that the ZTE deal is “genuinely a bad deal” that must be overturned.
The amendment to kill the deal, which was first unveiled last Thursday shortly after Commerce Secretary Wilbur Ross announced the administration had worked out a deal to save ZTE, would reimpose the White House’s original ban on ZTE buying components from US firms (what some have described as a “death sentence” for the company). Still, the bill as amendment has a long way to go to make it out of the Senate, let alone the House, where it will likely face more intense opposition.
The White House announced the initial ban on ZTE buying parts from US firms in April, after the company was found to have violated a settlement originally imposed over ZTE’s sales to Iran in defiance of US sanctions. As part of the original settlement, ZTE had agreed to fire certain senior managers and withhold bonuses from others. But the company didn’t follow through with either promise.
Van Hollen told Axios that the administration has resisted Congress’s push to make the ZTE penalty permanent almost since the beginning. After discovering that Van Hollen and others were planning a bill to make ZTE’s punishment permanent, the administration “wanted to flout Congress’s intent and decided to put its foot down on the accelerator” and announced its deal before the original amendment could be brought to a vote. President Trump first declared his intention to help save ZTE late last month with a tweet about “too many jobs in China lost.” Still, since Trump’s inauguration, only a handful of Republicans have voted against his agenda.
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
But lawmakers aren’t the only ones who are skeptical of ZTE. For years, defense officials have accused the telecoms giant and other Chinese firms of manufacturing equipment that could be used to spy on Americans, according to the Wall Street Journal.
“China is using its telecommunications companies as means to conduct espionage,” said Sen. John Cornyn (R., Texas). “We need to solve the larger puzzle of trade and national security in addition to the enforcement action for the violation of sanctions.”
Meanwhile, Commerce Secretary Wilbur Ross insisted the Trump administration’s treatment of ZTE isn’t part of a broader quid pro quo meant to achieve a better trade deal with China. Instead, Trump and his allies have insisted it was a gesture of goodwill to thank China for helping organize the Singapore summit with North Korea. Peter Navarro, a White House trade advisor, described the ZTE deal as a tough deal that would allow the company a last chance – but not without substantial cost.
“The president did this as a personal favor to the president of China as a way of showing some goodwill for bigger efforts, such as the one here in Singapore,” Mr. Navarro said on Fox News Sunday. “But it will be three strikes you’re out for ZTE. And everybody understands that within this administration. So they’re on notice.”
Per terms of the settlement, ZTE would pay a penalty of $1.3 billion (plus place another $400 million in escrow to be seized should the company again fail to hold up its end of the bargain). The company would also be forced to accept – and pay for – a team of compliance officers that will be led by a “special independent compliance coordinator” who will report jointly to ZTE’s CEO, its board and the Commerce Department. The company will be forced to pay for the monitors for ten years. The company will also be required replace its entire board of directors and senior leadership team. In exchange, ZTE will resume buying products from US firms.
But if the measure does pass, we imagine it will set back the behind-the-scenes trade negotiations with China, despite Ross’s insistence that the ZTE deal was “quite separate” from all that. Meanwhile, ZTE shares are set to begin trading in Hong Kong on Wednesday after a nearly two-month suspension, according to WSJ.
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