Commerce Department Will Re-Evaluate Export Ban for ZTE
Characterizing the seven-year ban on exports to Chinese telecom giant ZTE as "our initial thought," Commerce Secretary Wilbur Ross said officials will examine alternative punishments. "We will be doing that very, very promptly," he said at a question-and-answer session with journalists. His remarks on May 14 came a day after President Donald Trump tweeted: "President Xi [Jinping] 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!"
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Commerce's Bureau of Industry and Security had earlier levied a $1.19 billion fine on ZTE, though $300 million of it was suspended, because ZTE sold equipment to Iran and North Korea, in violation of U.S. sanctions. Ross noted that they also were not truthful with U.S. investigators, during settlement negotiations or in the verification period of the last year (see 1805030031).
Doug Jacobson, an export sanctions control attorney with Jacobson Burton Kelley in Washington, has followed the ZTE case for six years, as he represents some U.S. companies that sell to ZTE. A full ban "is obviously the most extreme punishment, and it’s reserved for use in a very small number of cases," he said. "The one thing I’ve learned as a defense lawyer in this area, they [BIS officials] don’t like being lied to, they don’t like being deceived, and that’s what led to the penalty in the first place. BIS has a long memory."
The agency, in announcing the ban, already explained why it didn't turn to monetary penalties instead of a ban. "If the $892 million monetary penalty paid pursuant to the March 23, 2017 order, criminal plea agreement, and settlement agreement with the Department of the Treasury did not induce ZTE to ensure it was engaging with the U.S. government truthfully, an additional monetary penalty of up to roughly a third that amount ($300 million) is unlikely to lead to the company's reform," the document said.
Jacobson said he found Trump's tweet "completely shocking," and that in his 25 years in export control work, he'd never seen a president intervene in an enforcement case. "No. 1, it undermines the law enforcement community," he said. He wondered how BIS can reverse itself, after it issued such a strongly worded enforcement action. "How does that work with their ability to enforce the law in the future?" Trump's support for lifting the ban is particularly ironic, Jacobson said, given that last week he re-imposed sanctions on Iran -- the exact sanctions ZTE flouted.
Ross, even though he said the department is re-evaluating, tried to argue that Commerce officials are resisting linking trade concessions and the ZTE ban. "It also wouldn’t surprise me if [Chinese officials] bring up ZTE [at negotiations], but our position has been that is an enforcement action, separate from trade," he said. A report in The Wall Street Journal said that China has offered to stop retaliation on sorghum and other agricultural products and to stop new agricultural inspections in exchange for an end to the ZTE ban.
Immediately after his tweet on ZTE, Trump tweeted: "China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!"
Ross said of the upcoming negotiations to avoid tariffs on $150 billion in Chinese goods: "It’s difficult to handicap the outcome, but it’s my hope the strong personal relationship between President Trump and President Xi will facilitate an agreement."
After Ross's speech, Trump returned to ZTE, tweeting: " ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi."
Jacobson said it's hard to imagine what BIS could do that would not look like a complete pass for violating sanctions and misleading investigators. "They’re already subject to monitoring," he said, and a shorter ban would not help ZTE, because more than 30 percent of its inputs are from U.S. suppliers, and it cannot switch to Taiwan or other players fast enough to stay in business.
"It’s a legal process, it’s become a political process," Jacobson said, which is ominous for future actions. What if another country imposed tariffs or non-tariff barriers as blackmail to get a ban reversed? "It undermines the entire credibility of the enforcement process. I’m sure that’s what they’re all thinking," he said.
The Chinese Ministry of Foreign Affairs hailed Trump's tweet at a press conference May 14. "We highly appreciate these positive remarks on the ZTE issue, and we are currently in close communication with them on how exactly to implement it," a spokesman said.
Both Democrats and Republicans in Congress attacked the president's tweet on ZTE. "GM Lordstown has lost 2,700 jobs over the last 18 months & hasn’t earned a single tweet from POTUS," Rep. Tim Ryan, D-Ohio, tweeted. Sen. Marco Rubio, R-Fla., tweeted: "I hope this isn’t the beginning of backing down to China."