The Trump administration has agreed to relax its punishment of Chinese telecom company ZTE, Commerce Secretary Wilbur Ross said Thursday.
The company will pay a $1 billion fine and fund a new in-house compliance team staffed by U.S. experts, Ross told CNBC.
The move eases a seven-year ban on ZTE buying American parts, which Commerce levied in April. At the time, the Chinese government complained that the action could put the company, a major employer and star of the Chinese technology industry, out of business.
“We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people, but the people will report to the new chairman,” Ross said. “This is a pretty strict settlement. The strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls.”
The Commerce Department action came after President Trump tweeted last month that he planned to help ZTE because “too many jobs in China” would otherwise be lost. The president’s extraordinary intervention in an enforcement matter drew widespread criticism on Capitol Hill from members of both parties.
Reaction Thursday was no warmer.
“China is eating our lunch, and this president is serving it up to them,” House Minority Leader Nancy Pelosi (D-Calif.) said Thursday
Senate Minority Leader Charles E. Schumer (D-N.Y.) called for Congress to reverse the decision, which is unlikely. A proposal by Sen. Chris Van Hollen (D-Md.) to bar such forgiveness for Chinese telecom companies is not retroactive and thus would not cover the ZTE deal, according to an analysis by Cowen Research Group.
Under the 23-page definitive agreement announced by Ross, ZTE also is required to change its entire board of directors and executive team within 30 days.
The government will hold $400 million of ZTE’s money in escrow as a hedge against future violations by the company, which last year settled criminal and civil charges in connection with its violation of U.S. sanctions on Iran and North Korea.
ZTE was found to have shipped its sophisticated telecommunications equipment to both countries, which the State Department lists as supporters of terrorism, and to have repeatedly lied to U.S. investigators about its actions.
The company paid $892 million in fines, with an additional $300 million suspended to encourage compliance with the settlement. The $400 million escrow likely includes those suspended funds, according to Doug Jacobson, a Washington, D.C., trade attorney.
He said the new agreement expands provisions in last year’s settlement, which provided for an independent compliance monitor to oversee the company’s activities.
Carlos Gutierrez, who was commerce secretary under President George W. Bush, said the change in the U.S. penalty likely averted a worsening in relations with China. Since the original U.S. penalty would have put ZTE out of business, Chinese authorities would have retaliated against a prominent U.S. company, he said.
“I think where we ended up on ZTE is in a better place,” said Gutierrez, who has been critical of other Trump administration trade policies. “The Chinese public was up in arms because they believed the U.S. was destroying ZTE.”
But Jacobson questioned the president’s decision to intervene. “This is an extremely dangerous precedent to intertwine law enforcement matters with other trade and foreign policy issues,” he said. “This is unprecedented — to have another government go to the U.S. government and have the president agree to make a change in exchange for something else.”
Ross insisted Thursday that the ZTE matter was “quite separate and apart” from ongoing trade talks with China. But the president has repeatedly spoken of the enforcement matter as part of efforts to overhaul the U.S. commercial relationship with China. To satisfy Trump’s demand for a reduction in the $375 billion in goods U.S. trade deficit with China, the government in Beijing has reportedly offered to buy up to $70 billion more each year in U.S. products.
That offer is conditioned on the president dropping his threat to impose tariffs on up to $150 billion in Chinese imports.
Eric Altbach, a former deputy assistant U.S. trade representative who spent years negotiating with the Chinese, said the United States may have agreed to go easier on ZTE in exchange for China approving an American company’s acquisition of a Chinese firm.
U.S. chipmaker Qualcomm has been trying to buy NXP Semiconductors of the Netherlands, but given the company’s global reach, the deal had to be approved by numerous countries’ antitrust regulators, including China’s. The Chinese government has delayed the deal as trade frictions intensified.
With the ZTE matter resolved, the deal may advance. Both companies’ share prices rose Thursday, with NXP up more than 6 percent in midday trading.
“The hope is accommodating China’s concerns on ZTE will open the door to favorable decisions on Qualcomm and other deals,” said Altbach.
But some analysts said that trading lenience on ZTE for Chinese agreement to buy more American products would leave major issues unresolved.
“It doesn’t really move the ball forward on the deeper structural issues in U.S.-China technology and trade,” said Samm Sacks, a senior fellow in the Center for Strategic and International Studies’ technology program.
The Trump administration has complained about a range of Chinese industrial policies that it says disadvantages U.S. companies, including compulsory licensing arrangements and rampant theft of trade secrets.
Amid mounting trade tension between the United States and China, lawmakers have grown increasingly critical of the national security threat from telecom companies such as ZTE and Huawei. The Pentagonin May ordered retail outlets on U.S. military bases to remove from the shelves smartphones made by the two companies.
There was no immediate comment from the Chinese government on the ZTE agreement. Mei Xinyu, a researcher with a Ministry of Commerce think tank, said a deal would ease tensions. But the Chinese worry that Trump will not stick to any agreement.
“How can the United States convince China that a trade agreement with them is of value, rather than a waste of paper that the Americans can scrap unilaterally?” Mei said. “Personally I hope the trade war ends well, but I can’t help but worry about the U.S. changeable mind.”
The Chinese Commerce Ministry said Thursday that some progress was made in talks that ended last weekend.
“There were discussions regarding specific areas of cooperation, including in-depth talks on agriculture and energy. China is willing to increase imports from the U.S.,” Commerce Ministry spokesman Gao Feng told a weekly news conference.
But he declined to confirm reports that China had offered to increase agriculture and energy imports by $70 billion, as Reuters news agency has reported.
Denyer reported from Beijing. Shirley Feng in Beijing contributed to this report.