Bills
| 3.23.22

Should Sanctions Against ZTE Be Reinstated if it Violates its Settlement With the Federal Gov’t? (S. 335)

Do you support or oppose this bill?

What is S. 335?

(Updated September 6, 2019)

This bill, the ZTE Enforcement Review and Oversight (ZERO) Act, would ensure that Chinese telecom company ZTE complies with all the conditions of its deal with the Trump administration to lift a previously imposed seven-year ban on exports of U.S. components to it. If the Commerce Secretary can’t regularly certify ZTE’s full compliance with its deal and relevant U.S. export controls and sanctions laws to Congress, last year’s original “crippling punishments” would be reinstated against the company, and ZTE would be required to immediately repay the $400 million currently held in escrow with the Dept. of Commerce as part of its settlement agreement.

Argument in favor

ZTE has repeatedly acted in bad faith, and it’s important to ensure that there are consequences for the company if it does so again. By maintaining the threat of crippling sanctions, this bill would help ensure ZTE complies with the agreement it reached with the Commerce Dept.

Argument opposed

The Commerce Dept. is already responsible for ensuring ZTE’s compliance with the terms of its settlement. If ZTE violates the terms of its agreement, the Commerce Dept., led by the Commerce Secretary, can and will recommend the appropriate consequences at that time.

Impact

Telecommunications; trade sanctions; Commerce Secretary; and ZTE.

Cost of S. 335

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Marco Rubio (R-FL) reintroduced this bill from the 115th Congress to enforce Chinese state-directed telecommunications firm ZTE’s compliance with all probationary conditions from a July 2018 deal with the Commerce Dept.:

“I am proud to reintroduce this bipartisan bill to hold the Chinese state-directed telecoms company, ZTE, accountable for repeated violations of U.S. exports controls and sanctions laws. China’s communist government continues to threaten our national security interests through state-directed actors and, while it was a mistake to strike a ‘deal’ with ZTE in the first place, this bill would ensure ZTE is held accountable if and when it cheats again.”

Last Congress, Sen. Rubio originally introduced this bill to ensure that the ban against ZTE is reimposed if the Commerce Dept. can’t regularly certify ZTE’s full compliance with the deal and relevant U.S. export controls and sanctions laws.

This bill has six bipartisan Senate cosponsors, including four Democrats and two Republicans, in the 116th Congress. Last Congress, Sen. Rubio introduced it with the support of seven bipartisan Senate cosponsors, including four Democrats and three Republicans, and it didn’t receive a committee vote.

Sen. Tom Cotton (R-AR) has introduced a similar bill, the Telecommunications Denial Order Enforcement Act (S.152), which would reimpose the Commerce Dept.’s ban on ZTE imports into the U.S. in addition to imposing the same ban on Huawei, another Chinese telecommunications company whose chief financial officer was arrested in December 2018 for violating U.S. sanctions. Sen. Cotton’s bill has the support of five bipartisan Senate cosponsors, including three Democrats and two Republicans, in the 116th Congress. A House version (H.R.602) has also been reintroduced by Rep. Mike Gallagher (R-WI) in the current Congress with the support of three bipartisan House cosponsors, including two Republicans and one Democrat. Last Congress, the House version of this bill (H.R.7255), sponsored by Rep. Gallagher and one cosponsor, Rep. Ruben Gallego (D-AZ), didn’t receive a committee vote.

When he reintroduced the Telecommunications Denial Order Enforcement Act (H.R.602/S.152) in the 116th Congress, Rep. Gallagher said:

“Chinese telecommunications firms like Huawei represent a growing threat to American national security. As state-directed enterprises, they ultimately report to the Chinese Communist Party and will be employed where and whenever possible to undermine American interests and those of our allies. This bipartisan legislation sets a simple standard: if a Chinese telecommunications firm is found to have violated U.S. sanctions moving forward, it will be subject to the same severe punishment originally imposed on ZTE.”


Of Note: ZTE — China’s second-largest telecommunications equipment maker — was first fined in early 2017 for selling millions of dollars’ worth of hardware and software from U.S. technology companies to Iran and North Korea, two nations under U.S. sanctions who should not be able to receive U.S.-based companies’ products. ZTE eventually agreed to pay $1.4 billion in fines and escrow funds, appoint a new board of directors and install compliance oversight managers chosen by the U.S. After it met these conditions, the ban was lifted. The only punishment specified in case of future violations was the loss of the $400 million in escrow. However, after ZTE violated its settlement in 2018 by illegally shipping telecom equipment to Iran and North Korea, the Commerce Department rescinded its export privileges, resulting in ZTE’s effective closure, which the company called “unfair.”

ZTE’s export privileges were restored when the White House intervened in ZTE’s favor after Chinese President Xi Jinping intervened on the company’s behalf and the Chinese government argued that the ZTE ban would cost Chinese jobs. In July 2018, the Commerce Dept. reached a deal with ZTE to lift a seven-year ban against ZTE parts and components’ import into the U.S. The deal’s conditions included high-level security guarantees, a change of management and board at ZTE, a requirement to purchase U.S. parts, and a $1.3 billion fine. The Commerce Dept. had instituted the ban after ZTE failed to comply with an earlier agreement, but President Trump directed Commerce to find a way to lift the ban. After the deal was announced, Sen. Rubio expressed opposition to the deal, saying:

“ZTE should be put out of business. There is no ‘deal’ with a state-directed company that the Chinese government and Communist Party uses to spy and steal from us where Americans come out winning. We must put American jobs and national security first, which is why I have urged NDAA conferees to ensure the bipartisan provision to reinstate penalties against ZTE is included in the final bill.”

In December 2018, ZTE was accused of misconduct again, this time for helping the Venezuelan government build a “fatherland card” to track its citizens through a national ID card. U.S. senators suspect that some of the data centers ZTE helped create used Dell equipment, which should not have been sold to Venezuela under the U.S. embargo against that country.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / wonry)