Washington and Beijing have reached a deal to ease sanctions that brought Chinese smartphone maker ZTE Corp (中興通訊) to the brink of collapse, the US said on Thursday — a possible indication of progress in fraught trade talks between the world’s two largest economies.
US Secretary of Commerce Wilbur Ross, who announced the deal, repeated that there was no connection between the two processes.
However, the ZTE settlement comes just days after Beijing reportedly offered to ramp up purchases of US goods to help cut the yawning trade imbalance with Washington — moving partway toward meeting a major demand of US President Donald Trump.
The defusing of tensions with Beijing is good news for Trump, who is preparing to face outraged allies at this week’s G7 summit in Canada, where the EU and Canada plan to voice their strenuous objections to US steel and metal tariffs.
Not all was rosy: US lawmakers threatened legal action against the ZTE deal, saying that the telecom posed an “espionage risk” to the US in addition to having violated the country’s sanctions against Iran and North Korea.
The deal was tough and would keep ZTE on a short leash, Ross told TV channel CNBC.
“This is a pretty strict settlement — the strictest and largest settlement fine that has ever been brought by the commerce department against any violator of export controls,” he said.
In April, Washington banned the sale of crucial US components to the company after finding it had repeatedly lied and failed to take action against workers responsible for the sanctions violations.
PENALTIES
The company was fined US$1.2 billion last year, but under the deal announced on Thursday, ZTE would pay an additional US$1 billion penalty and put another US$400 million in escrow to cover possible future violations.
ZTE would also be required to change its entire board of directors and hire outside legal compliance specialists who would report to the commerce department for 10 years.
In return, Washington would strike the firm from a sanctions list.
Republican and Democratic lawmakers threatened to take congressional action that could block or alter the deal, calling ZTE a threat to US national security.
“There is absolutely no good reason that ZTE should get a second chance and this decision marks a 180-degree turn away from the president’s promise to be tough on China,” US Senate minority leader Chuck Schumer said in a statement. “It’s up to Congress now to act to reverse the deal.”
“After today’s decision to give #ZTE a pass, we have introduced a bipartisan amendment to restore penalties on ZTE,” Republican US Senator Marco Rubio said.
The clash raised the prospect that Trump’s own Republican party could work to undermine key planks of his trade agenda.
Despite the settlement, there was no sign Trump had veered from plans this month to impose as much as US$50 billion in tariffs on Chinese imports to punish Beijing for its alleged theft of US technology and know-how.
UNRELATED
Washington and Beijing have pursued a halting series of trade talks, with Trump demanding a US$200 billion reduction in its trade deficit with China.
Ross said the ZTE deal was an enforcement matter unrelated to the trade talks, which he has led.
“It happens that I have been involved with the other negotiations with China, but that’s quite separate,” he said.
However, Ross’ denial appeared to conflict with Trump’s own public statements.
In a tweet posted on May 14, Trump said that the ZTE deal was “reflective of the larger trade deal we are negotiating with China.”
US officials said that China last weekend offered to buy an additional US$70 billion in US goods to cut the trade deficit, on condition that Trump call off the planned technology sector tariffs.
The ZTE offer suggests that Beijing has made concessions to Trump on trade, but it remains unclear whether these are of equal value, Center for Strategic and International Studies trade expert William Reinsch said.
Beijing’s reported offer to buy US$70 billion in goods is “peanuts” compared with the US$200 billion cut in the US trade deficit with China that Trump has demanded, Reinsch said.
“It’s hard to believe there’s no linkage, but Ross clearly left Beijing without anything last weekend,” he said. “I think there’s another shoe to drop.”
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