Trump floats management changes instead of sanctions for
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[May 23, 2018]
By Jeff Mason and Patricia Zengerle
WASHINGTON (Reuters) - U.S. President
Donald Trump on Tuesday floated a plan to fine ZTE Corp <000063.SZ>
<0763.HK> and shake up its management as his administration considered
rolling back more severe penalties that have crippled the Chinese
Trump's proposal ran into immediate resistance in Congress, where
Republicans and Democrats accused the president of bending to pressure
from Beijing to ease up on a company that has admitted to violating
sanctions on Iran.
Their reaction could complicate Trump's efforts to win concessions from
China that would narrow a $335 billion annual trade gap.
Speaking at the White House, Trump said U.S. technology companies have
been hurt by an April Commerce Department decision that prohibits them
from selling components to China's second-largest telecommunications
equipment maker. ZTE shut down most of its production after the ruling
"They can pay a big price without necessarily damaging all of these
American companies," Trump said.
Trump said ZTE may instead face a fine of up to $1.3 billion, new
management and a new board of directors, though it was not clear whether
he had the legal authority to impose new financial penalties.
That drew a quick response from Republicans and Democrats in Congress.
Some 26 senators, including the chamber's top Democrat, Chuck Schumer,
and No. 2 Republican, John Cornyn, urged the administration in a letter
to keep penalties in place for "serial and pre-meditated violators of
U.S. law, such as ZTE."
The Senate Banking Committee also voted 23-2 to make it harder for the
president to modify penalties on Chinese telecommunications firms,
drawing the support of liberal Democrats like Chris Van Hollen and
conservative Republicans like Tom Cotton.
The Republican-controlled House of Representatives is weighing a
proposal that would block the sale of ZTE products and those of another
Chinese company, Huawei Technologies [HWT.UL], until national security
officials certify they are safe. It would be added to a defense-policy
bill that Congress typically passes each year.
Congress last year passed a law that required the administration to
impose new sanctions on Russia, though similar action this year could be
more difficult as the November elections draw near.
According to sources familiar with the discussions, a proposed trade
deal with China would lift a seven-year ban that prevents U.S.
chipmakers and other companies from selling components to ZTE, which
makes smartphones and telecommunications networking gear.
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Senate Minority Leader Chuck Schumer (D-NY) speaks to members of the
media during a news conference at the U.S. Capitol in Washington,
U.S., May 22, 2018. REUTERS/Leah Millis
In return, China would eliminate tariffs on U.S. agriculture or agree to buy
more farm products from the United States.
The U.S. Commerce Department imposed the ban in April after it determined that
ZTE had broken an agreement after it pleaded guilty to shipping U.S. goods and
technology to Iran.
The ban has threatened the viability of ZTE by cutting off access to companies
that supply 25 percent to 30 percent of its components. Suppliers include some
of the biggest U.S. tech companies, including Alphabet Inc's <GOOGL.O> Google,
which licenses its Android operating system to ZTE, and chipmaker Qualcomm Inc <QCOM.O>.
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.
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 it would
not undermine national security.
"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
Republican Senator Marco Rubio said he thought China had gotten the upper hand
in recent negotiations on trade and North Korea denuclearization.
"China knows there are those in the administration that desperately want a
deal," he said.
One sanctions expert questioned whether Trump has the legal authority to impose
new fines on ZTE, which agreed last year to pay $1.19 billion, including $890
million in fines and penalties, and an additional penalty of $300 million that
could still be imposed.
"It looks like this is going to be a case where they'll have some minor tweaks
and declare a victory and move onto the next case," said Washington lawyer
Douglas Jacobson, who represents ZTE suppliers.
(Additional reporting by Karen Freifeld, Diane Bartz, Amanda Becker, Richard
Cowan, Susan Heavey, Doina Chiacu and David Lawder in Washington and Michael
Martina in Beijing; Writing by Andy Sullivan; Editing by Chris Sanders, Paul
Simao and Lisa Shumaker)
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