Welcome to a world where U.S. sanctions policy is defined and announced via Twitter. The latest example is President Trump signaling that he may back down from a U.S. ban on business with certain Chinese-owned technology companies.
On Sunday morning, President Trump tweeted that he and President Xi of China “are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast.”
“Too many jobs in China lost. Commerce Department has been instructed to get it done!”
What that means exactly was not immediately clear.
The President’s message was almost instantaneously rebuked by Sen. Marco Rubio (R.-Fla.), also via Twitter: “I hope this isn’t the beginning of backing down to China. While Chinese companies have unrestricted access to U.S. market and protection of our laws many U.S. companies have been ruined after #China blocked market access or stole their intellectual property.”
“Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat. You should care more about our national security than Chinese jobs,” tweeted Rep. Adam Schiff (D-Calif.).
In March 2017, ZTE agreed to pay a combined civil and criminal penalty of $1.19 billion for violating sanctions laws by sending U.S.-origin items to Iran. The plea agreement also required ZTE to submit to a three-year period of corporate probation, during which time an independent corporate compliance monitor would review and report on ZTE’s export compliance program.
Last month, in response to its violation of the terms in the Justice Department settlement, the Department of Commerce’s Bureau of Industry and Security imposed a “denial of export privileges” against Zhongxing Telecommunications Equipment Corp. of Shenzhen, China and ZTE Kangxun Telecommunications of Hi-New Shenzhen, China. Secretary of Commerce Wilbur Ross announced the decision on April 18.
The government’s action meant that American companies were prohibited from selling parts and software to ZTE for seven years.
These orders were issued by the Bureau of Industry and Security, denying the export privileges of a company or individual. A denial of export privileges prohibits a person from participating in any way in any transaction subject to the order. It is unlawful for other businesses and individuals to participate in any way in an export transaction subject to the restrictions placed on a denied person.
The Department of Commerce said it had determined ZTE made false statements to BIS in 2016, during settlement negotiations, and 2017, during the probationary period, related to senior employee disciplinary actions the company said it was taking or had already taken. “ZTE’s false statements only were reported to the U.S. Government after BIS requested information and documentation showing that employee discipline had occurred,” the Commerce Dept. says.
“ZTE made false statements to the U.S. government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation,” the agency added. These false statements, it alleged, covered up the fact that ZTE paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand.
In March, the U.S. government also prohibited the acquisition of Qualcomm, a leading manufacturer of the chip sets found in nearly all smartphones, by Broadcom, a semi-conductor company domiciled in Singapore. The $117 billion, $82 per share takeover bid would have been one of the largest ever in the technology space.
The mandate came after a review by the Committee on Foreign Investment in the United States (CFIUS).
The role of CFIUS is to review certain types of foreign transactions to determine if there is: a threat to impair U.S. national security; a foreign investor present which is controlled by a foreign government, such as a state-owned enterprise; and something that can affect homeland security or result in control of any critical infrastructure that might impair national security.
For the Qualcomm deal, the involvement of CFIUS has more to do with extrapolation and projection than direct Chinese involvement or security concerns. “Having a well-known and trusted company hold the dominant role that Qualcomm does in the U.S. telecommunications infrastructure provides significant confidence in the integrity of such infrastructure as it relates to national security,” it wrote in correspondence demanding the delay of a board vote to consider the merger.
CFIUS explained why its sights were set on a company based in Singapore. “Reduction in Qualcomm’s long-term technological competitiveness and influence in standard setting would significantly impact U.S. national security,” it said. “This is in large part because a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process.”
“Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the U.S,” CFIUS added.