The Trump administration has reached a deal that will put Chinese telecommunications giant ZTE back in business by rolling back severe sanctions put in place last month by the Commerce Department, according to a source familiar with the matter.
The move to settle with the Chinese company removes a major barrier to U.S.-China trade talks as Beijing opposed a penalty that would have shuttered the firm by prohibiting U.S. suppliers from doing business with ZTE for seven years.
It also comes a week before Commerce Secretary Wilbur Ross is scheduled to travel to Beijing to continue efforts to negotiate a trade truce between the two countries.
Commerce notified officials on Capitol Hill of a deal, which will have ZTE pay a bigger fine, hire American compliance officers and replace the firm’s current management team, the source said.
Once those terms are met, the U.S. will lift a denial order, allowing ZTE to start doing business with American companies again, the source said.
President Donald Trump appeared to confirm the outlines of the deal on Twitter on Friday evening when he said that he had shut down the company but “let it reopen” after a series of changes.
“I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine,” Trump tweeted.
He also blamed Democrats for letting ZTE “flourish with no security checks.” The Obama administration had flagged the company for violating U.S. sanctions law but created a temporary license that allowed it to continue doing business with U.S. suppliers, which the Trump administration also extended last year.
News of a deal brought quick condemnation from lawmakers on both sides of the aisle. Many on Capitol Hill view the action as a sign of weakness against China, especially as the administration tries to take Beijing to task over policies it says have robbed U.S. companies of sensitive technology.
“Yes they have a deal in mind. It is a great deal… for #ZTE & China,” Sen. Marco Rubio (R-Fla.) tweeted. “#China crushes U.S. companies with no mercy & they use these telecomm companies to spy & steal from us. Many hoped this time would be different. Now congress will need to act.”
Senate Minority Leader Chuck Schumer said the deal as reported “would be helping make China great again.“
“Both parties in Congress should come together to stop this deal in its tracks,” he said in a statement Friday.
The Senate Banking Committee approved an amendment Tuesday that would bar the president from modifying any civil penalties against “Chinese telecommunications companies” unless he could certify that the company has not violated U.S. law in the past year and is fully cooperating with an investigation. That action follows a similar measure approved by a House panel last week.
The deal between the administration and ZTE largely follows elements shared publicly by Trump and other senior officials this week.
”What I envision is a very large fine of more than a billion dollars,” Trump told reporters at the White House on Tuesday. “Could be a billion-three. I envision a new management, a new board and very, very strict security rules. And I also envision that they will have to buy a big percentage of their parts and equipment from American companies.”
ZTE had already been hit with $1.19 billion in fines announced last year, following a two-year Obama administration investigation. The company was initially penalized for violating U.S. sanctions on Iran and North Korea by supplying those countries with telecommunications equipment containing U.S. parts.
Ross announced the seven-year ban would be put in place after ZTE violated the terms of deal that suspended the denial order in exchange for the company following a strict compliance plan.
That — to the Trump administration’s apparent surprise — prompted the company a few weeks later to announce it was ceasing major business operations.
Then, in a further stunning development, Trump tweeted that he had talked to Chinese President Xi Jinping about the issue and had instructed the Commerce Department to look into easing the ban on ZTE to save Chinese jobs.
The matter is also complicated by national security concerns. Intelligence leaders have been warning for months that the Chinese government was leveraging domestic companies with footprints abroad like ZTE to spy on other countries. Earlier this month, FBI Director Christopher Wray said during congressional testimony that he did not want foreign companies like ZTE gaining access to the U.S. telecommunications network.
That drama was taking place against the backdrop of Trump’s threat to impose duties on $50 billion to $150 billion worth of Chinese exports to pressure Beijing to do more to stop intellectual property theft, and China’s vow to strike back if those duties were imposed.
Heading into high-level trade talks between the two countries earlier this month, news reports said that China would agree to drop its retaliation on about $3 billion worth of U.S. agricultural exports if the U.S. eased off on sanctions on ZTE. Beijing originally threatened the retaliation in early April, after Trump imposed new tariffs on steel and aluminum products.
A joint statement released after the meeting was silent on the ZTE issue, and Beijing has not lifted its retaliatory duties on U.S. farm products, nor has the United States lifted its new tariffs on Chinese steel and aluminum. But as part of the preliminary deal announced last Saturday, Ross is expected to go to China in early June to negotiate long-term contracts for sales of U.S. farm goods and energy products.
On Tuesday, Trump reiterated that he had asked the Commerce Department to look at easing current penalties on ZTE as a favor to Xi. But he insisted his administration would not go easy on the company.
Treasury Secretary Steven Mnuchin and other administration officials have insisted there was nothing unusual about Xi asking Trump to review the penalty because Trump often phones world leaders to ask them to do favors for U.S. firms.
“The president asked myself and the Commerce secretary to look into it. He didn’t dictate any terms. He just asked us to look into it,” Mnuchin said earlier this week during an interview on CNBC. Any changes to ZTE’s penalty are not part of the broader trade negotiations going on between the two countries, he added.
“The [Commerce Department’s] intent was not to put the company out of business. It was an enforcement issue,” Mnuchin said.
ZTE reported having nearly 75,000 employees last year.
American firms are also closely tied to ZTE’s fortunes. About 65 percent of ZTE phones use chips made by American company Qualcomm, according to Canalys, a tech market analysis firm. Stocks of several of ZTE’s U.S. suppliers fell after Commerce took action last month.Reports of a deal to rescue ZTE were first reported by The New York Times.