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Commerce Department announces deal with ZTE

Commerce Department announces deal with ZTE
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The Commerce Department on Thursday announced that it had reached a deal to lift penalties on Chinese telecommunications firm ZTE.

The deal to revive ZTE, which violated U.S sanctions and is considered a national security threat by U.S. officials, comes after President TrumpDonald John TrumpDemocrats slide in battle for Senate Trump believes Kushner relationship with Saudi crown prince a liability: report Christine Blasey Ford to be honored by Palo Alto City Council MORE pledged to loosen restrictions that had effectively shut down the company.

“The purpose of this settlement is to modify ZTE’s behavior while setting a new precedent for monitoring to assure compliance with U.S. law,” the Commerce Department said in a statement.

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Commerce Secretary Wilbur Ross called the new sanctions “the largest penalty [the department's Bureau of Industry and Security] has ever levied” and said they impose “unprecedented compliance measures” on ZTE

Ross first announced the deal in an early Thursday morning interview.

“At about 6 a.m. this morning, we executed a definitive agreement with ZTE. And that brings to a conclusion this phase of the development with them,” Ross said in an interview on CNBC’s "Squawk Box.”

The Commerce Department will impose a $1 billion penalty against the telecommunications giant and that a U.S.-selected compliance team will be embedded in the firm. The team will stay at ZTE for 10 years and report to U.S. officials on the company's conduct.

“We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people but the people will report to the new chairman,” Ross said.

The deal will also require the company to change its board of directors and executive leadership within the next 30 days.

Reuters reported Wednesday that the Trump administration had reached a preliminary deal to lift a ban on American companies selling to ZTE. The deal announced Thursday allows the Commerce Department to reimpose that ban within 10 years if ZTE violates the terms of the agreement.

The Commerce Department had imposed the ban after the company violated sanctions on Iran and North Korea.

The Defense Department had also banned the sale of ZTE phones and products near U.S. military bases over fears that the company’s technology could be used by the Chinese government for espionage.

Ross added that the new deal “should serve as a very good deterrent not only for them, but for other potential bad actors.” 

President Trump had previously suggested that the U.S. had reached an agreement to lift the ban on the Chinese company. The telecommunications giant shut down operations in May following the Commerce Department–imposed ban.

Trump’s push to loosen the ZTE penalties provoked bipartisan concern in Congress. Lawmakers in both chambers moved to restrict Trump’s ability to salvage the Chinese telecom giant.

The Senate’s annual defense spending bill would bar the Pentagon from buying or using telecommunications equipment or services made by ZTE Corp. or Huawei Technologies.

The bill also bans the president from lifting penalties on a Chinese telecom company that has violated export controls or sanctions until he certifies to Congress that the firm now complies with U.S. law.

That provision was added to the defense bill as part of a bipartisan proposal to boost the federal government’s power to block foreign acquisitions of U.S. firms. A Senate panel approved the amendment targeting ZTE and other Chinese telecom companies in May with a 23-2 vote.

The House’s annual defense spending bill also seeks to ban the federal government from using ZTE technology.

Both bills could take months to pass Congress and will be subject to broad negotiations that could alter the measures.

ZTE has hired a team of powerful Washington lobbyists to fight the penalties.

Trump could also veto a bill that limits his options on ZTE as lawmakers wage other battles to restrain the president's broad trade authority.

Sen. Chris Van HollenChristopher (Chris) Van HollenDem senator: 'Shameful' seeing Trump serve as 'mouthpiece' for Saudi leaders Overnight Defense: Trump says 'rogue killers' could be behind missing journalist | Sends Pompeo to meet Saudi king | Saudis may claim Khashoggi killed by accident | Ex-VA chief talks White House 'chaos' | Most F-35s cleared for flight Democrats torch Trump for floating 'rogue killers' to blame for missing journalist MORE (D-Md.), who sponsored the Senate defense bill’s rebuke to ZTE, said Wednesday that there’s enough bipartisan support to override a Trump veto. Doing so requires the support of two-thirds of the House and Senate.

“This is still unacceptable, because they're letting ZTE off the hook for multiple flagrant violations of U.S. sanctions law,” Van Hollen told The Hill.

“It's a big mistake and I think we've got strong bipartisan support to overturn it."

Updated at 9:55 a.m.