Supply Chain

U.S. reverses ZTE ban

shutterstock ID:  640599397 By kb-photodesign 

After an unusual personal intervention by President Donald Trump, the Commerce Department has rescinded export restriction aimed at Chinese telecom manufacturer ZTE.

ZTE was banned from buying from U.S. firms by Commerce in March, because the company did not comply with a settlement and a fine imposed by the U.S. in the wake of allegations that ZTE was doing business with sanctioned countries North Korea and Iran.

The export ban had the potential to cripple ZTE, because it relies on U.S. supplier Qualcomm for computer chips and ships handsets with Google's Android operating system.

Instead of the ban, ZTE now will pay $1 billion on top of $892 million in penalties it has already paid to the U.S. under a March 2017 agreement, and put $400 million in an escrow account, bringing ZTE's penalty total to $2.29 billion. Additionally, ZTE is adopting a new compliance system with U.S. oversight for 10 years, with U.S. officials embedded in the company.

"Today, [Bureau of Industry and Security at Commerce] is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures," Commerce Secretary Wilbur Ross said in a June 7 statement.

The policy shift came about after a presidential tweet in May promising a review of the harsh sanctions.

The move was unusual, former Commerce official Kevin Wolf told the Financial Times. "I'm highly confident that a [U.S.] president has never intervened in a law-enforcement matter like this before," Wolf told the newspaper. "It's so outside the way the rules were set up."

On Capitol Hill, Senate Minority Leader Chuck Schumer (D-N.Y.) objected to the do-over for ZTE, even given the increased financial penalties.

"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," Schumer said in a statement.

Republicans on the House Homeland Security Committee rebuffed a move by Democrats on June 6 to put ZTE under additional scrutiny.

Rep. Bennie Thompson (D-Miss.), ranking member on the committee, offered a Resolution of Inquiry at a legislative markup session directing the Department of Homeland Security to reveal any information about cybersecurity threats posed by ZTE.

"Without aggressive oversight, we may never know what actually informed the President's May 13th Twitter directive that the Commerce Department help ZTE 'get back into business fast' when the Defense Department, the Intelligence Community, and our allies have all issued stark warnings and cautions about ZTE," Thompson said in a statement.

The resolution failed on a vote of 16 to 11.

Committee Chairman Rep. Michael McCaul (R-Texas) said the resolution was "outdated and redundant" in part due to existing bans on ZTE products in government acquisition, and a ban on their sale at military base stores.

About the Author

Adam Mazmanian is executive editor of FCW.

Before joining the editing team, Mazmanian was an FCW staff writer covering Congress, government-wide technology policy and the Department of Veterans Affairs. Prior to joining FCW, Mazmanian was technology correspondent for National Journal and served in a variety of editorial roles at B2B news service SmartBrief. Mazmanian has contributed reviews and articles to the Washington Post, the Washington City Paper, Newsday, New York Press, Architect Magazine and other publications.

Click here for previous articles by Mazmanian. Connect with him on Twitter at @thisismaz.


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