Caixin
May 23, 2018 04:24 AM
BUSINESS & TECH

Trump Proposes $1.3 Billion Fine, Management Changes for ZTE

ZTE could collapse if it fails to get the U.S. ban lifted within two months, source says. Photo: VCG
ZTE could collapse if it fails to get the U.S. ban lifted within two months, source says. Photo: VCG

U.S. President Donald Trump on Tuesday floated a plan to fine ZTE Corp. $1.3 billion and shake up its management as his administration considered rolling back more severe penalties that have crippled the Chinese telecommunications company.

Speaking to reporters at the White House about ongoing trade negotiations with China, Trump said there was no deal with Beijing on ZTE. In addition to the fine, Trump said ZTE should come under new management and name a new board of directors.

Media reported earlier Monday that Washington and Beijing had agreed on the broad framework of a deal to end a seven-year ban barring U.S. chipmakers and other suppliers from selling components to ZTE, which makes smartphones and telecommunications networking gear.

According to sources familiar with the discussions, China in return would eliminate tariffs on U.S. agricultural goods or agree to buy more U.S. farm products.

Trump faces opposition in Congress to easing trade sanctions on ZTE. The U.S. Commerce Department imposed the ban in April after finding that ZTE had broken an agreement after pleading guilty to illegally shipping U.S. goods and technology to Iran. Senate Democratic Leader Chuck Schumer earlier accused Trump of jeopardizing national security for trade concessions.

The ban has threatened the viability of China’s second-largest telecom equipment-maker by cutting off access to companies that supply 25% to 30% of its components. Suppliers include some of the biggest U.S. tech companies, including Alphabet Inc.’s Google, which licenses its Android operating system to ZTE, and chipmaker Qualcomm Inc.

ZTE last week said it suspended its main operations. A source close to ZTE told Caixin that the company could collapse if it were to fail to get the U.S. ban lifted within two months of when it was imposed.

The U.S. Department of Defense has also stopped selling ZTE’s mobile phones and modems in stores on its military bases, citing potential security risks.

National Security

U.S. Treasury Secretary Steven Mnuchin told lawmakers that the treatment of ZTE was not “a quid pro quo or anything else” related to trade, and said national security concerns would be taken into consideration.

“I can assure you that whatever changes or decisions that are made in Commerce will deal with the national security issues,” Mnuchin told a U.S. Senate appropriations subcommittee.

Republican and Democratic lawmakers said they were looking at ways to block any possible changes. “We will begin working on veto-proof congressional action,” Republican Senator Marco Rubio said on Twitter.

Lawmakers are considering several possible options and aim to act "soon," said Dick Durbin, the Senate's No. 2 Democrat.

The Senate Banking Committee voted 23-2 on Tuesday to adopt a measure that would make it harder for the president to modify penalties on Chinese telecommunications firms. It was added to legislation that would tighten oversight of foreign direct investment.

The Republican-controlled House of Representatives is weighing several possible changes to a defense-policy bill that would also keep up the pressure on ZTE. One proposal would block the sale of ZTE products and those of another Chinese company, Huawei Technologies, until national security officials certify they are safe.

Another proposal would require the director of national intelligence to consider the security implications of any changes to the ZTE ban, while a third would require reports on quid pro quo offers between the U.S. and Chinese governments over any possible plan.

Reuters/Caixin

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