ZTE Crackdown Measures Advance in Congress, Pressuring Trump

(Bloomberg) -- Congress is increasing pressure on President Donald Trump not to weaken sanctions on ZTE Corp., the Chinese telecommunications equipment maker accused of violating trade-sanction agreements and posing a threat to U.S. national security.

The most expansive measure under consideration is a House appropriations bill with language aimed at blocking Trump from lifting sanctions. Other proposals under consideration would require the president to certify that lifting sanctions wouldn’t hurt U.S. security and would bar the Defense Department from renewing contracts with vendors that work with the Chinese company.

ZTE became a flash point in U.S.-China relations after the administration crippled the company by cutting it off from U.S. suppliers for allegedly violating terms of a 2017 sanctions settlement and then lying about it. The U.S. alleges that the state-linked enterprise is abetting the transfer of U.S. technology to China’s military.

The proposed legislation illustrates growing congressional opposition to Trump’s reconsideration of penalties against ZTE as a favor to the country’s president, Xi Jinping, after the company estimated losses of at least $3.1 billion from a U.S. technology ban.

Trump has said he would “envision” a revised penalty for the company over sanctions violations, including a requirement that it appoint a new board of directors and a “very large fine” of perhaps $1.3 billion.

‘Get This Right’

On Wednesday, Secretary of State Mike Pompeo told the House Foreign Affairs Committee that the administration would devise a plan that would reduce the risks to the U.S. posed by ZTE. “We’re going to get this right,” he said.

The president’s moves to void the export controls prompted 27 senators led by John Cornyn of Texas, the Senate’s No. 2 Republican, and Minority Leader Chuck Schumer of New York, to write to the Trump administration Tuesday imploring the president "to reject any proposal to soften restrictions on the transfer to China of U.S.-made military technologies and advanced dual-use technologies, including semiconductors.” House Homeland Security Chairman Michael McCaul, a Texas Republican, followed up with a similar letter Wednesday.

A group of GOP senators met privately early Wednesday evening with Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross. Afterward Cornyn said he was "reassured" that the administration is keeping national security concerns about ZTE separate from trade negotiations. Cornyn said he still expects an amendment restricting the administration’s options on ZTE to be part of a Senate defense bill unless senators remove it.

Senate Foreign Relations Chairman Bob Corker of Tennessee said after the meeting he’s "more comfortable" with the administration’s actions on ZTE. Mnuchin and Ross declined to comment.

Earlier Wednesday, Senator Marco Rubio, a Florida Republican, took to the chamber’s floor to excoriate Trump’s new deal.

"China is not a developing country. It is the second largest economy in the world," Rubio said. "It will soon be the largest economy in the world, and yet we continue to let them cheat and steal."

The legislative efforts against ZTE are backed by powerful Republicans and are being attached to legislation needed to keep government departments running, increasing their chances of being enacted. The Senate language is softer than the House because it requires a report rather then expressly blocking Trump from lifting penalties against the company.

Final House-Senate versions of the bills won’t be ready for Trump’s signature until later this year and lawmakers could withdraw the language if administration action pre-empts it.

Commerce Department Bill

Language aimed at blocking ZTE sanctions from being lifted is part of an annual Commerce Department spending bill, needed to keep the department open after Oct. 1, that was approved by the House Appropriations Committee last week. That bill is expected on the House floor before August.

“It has a shot,” said GOP Representative Tom Cole of Oklahoma when asked about the Commerce spending bill language becoming law. “Just like with Russia sanctions, I think Congress is a little more hawkish than the president."

In the Senate, the Banking Committee approved a bill with language that would require Trump to certify to Congress that U.S. security isn’t jeopardized before lifting civil penalties against ZTE. Cornyn wants that bill added to the Senate’s annual defense policy bill being considered this week in the Armed Services Committee, making it very likely to become law.

"The president can’t just run off and trade away important national security protections to provide China with more jobs,” said Senator Chris Van Hollen, a Maryland Democrat, who drafted the ZTE language in the bill.

The House defense bill would ban government agencies from using technology made by ZTE. House Armed Services Committee Chairman Mac Thornberry said last week that he didn’t see any “growing movement” in the House to remove that ban.

‘Question of Security’ 

“It is not a question to me of economics, it is a question of security,” Thornberry said.

The bill would also prohibit the Defense Department from renewing contracts with vendors that work with the Chinese company.

The House amended the bill Wednesday to ban the government use of Chinese-made video surveillance equipment. In addition to ZTE, the ban would apply to several other Chinese companies, including Hytera Communications Corp., Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co.

A separate, much broader amendment that would have blocked all imports of technology by ZTE and China’s largest mobile and telecommunications company, Huawei Technologies Co., was blocked by House leadership and won’t get a floor vote.

--With assistance from Steven T. Dennis.

To contact the reporters on this story: Erik Wasson in Washington at ewasson@bloomberg.net;Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Justin Blum, Laurie Asséo

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