Trump pledges to help Chinese smartphone maker ZTE get back on its feet

Chinese telecommunications giant ZTE announced that it was ceasing operations following a ban imposed by the U.S. Department of Commerce — and President Donald Trump wants to help solve the issue his administration helped create.
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Chinese telecommunications giant ZTE announced in an exchange filing on May 9 that it was ceasing operations following a ban imposed by the U.S. Department of Commerce — and now President Donald Trump wants to help solve the issue his administration has helped create. Trump tweeted on Mother’s Day to show his concern over lost Chinese jobs at ZTE, and professed his interest in working with the Chinese.

“Too many jobs in China lost. Commerce Department has been instructed to get it done!” Trump wrote.

The troubles at ZTE began last year with a massive fine for working around U.S. sanctions that prevented sales to Iran and North Korea. They compounded last month, when the U.S. Department of Commerce announced a ban preventing American companies from selling components to ZTE, which is known for creating smartphones, telecommunications gear, and other mobile gadgets. American-made microchips and software, notably the Android operating system, are essential to making those products. Since then, ZTE has raised concerns about the company’s survival, and has faced further security-related problems in the United Kingdom.

High-tech geopolitics

The news reveals the degree to which today’s whiz-bang technology gadgets and gear can be influenced by geopolitics. Trade sanctions, manufacturing jobs, and security concerns have become key factors in which products are available to modern consumers and how much they cost. Similar issues mean your next washing machine will be more expensive, and tariffs on high-end goods may lead to rising television prices as well.

As the trade wars have escalated between the U.S. and key partners such as China, companies have been forced to respond. ZTE filed a request with the U.S. Commerce Department’s Bureau of Industry and Security for a suspension of the ban recently, Reuters reported. ZTE has not said when the request was made, but it was mentioned in a Sunday, May 13 filing statement made at the Shenzhen stock exchange. The full details of the request have not been disclosed, but the statement did say the company provided additional materials upon the request of the Commerce Department.

In addition to this ban, the company faces several other issues related to U.S. trade. Earlier this week, it was announced that Huawei and ZTE phones had been banned from military stores.

Taking steps

In response to the crisis, ZTE claimed it was taking steps to rectify the internal problems that led to the ban, and sought a solution. In a statement given to the Hong Kong Stock exchange, ZTE said it has “taken steps and is taking steps to comply with the denial order. The company is making active communications with relevant parties and seeking a solution.”

The actions include a committee focusing on compliance, overseen by ZTE’s CEO and experts in the matter, along with additional training for staff. ZTE said it has learned from “past experiences on export control compliance.”

The Department of Commerce’s ban makes it illegal for U.S. companies to sell any products and services to the company; but how did it reach this stage?

Last year, ZTE agreed to settle with the United States government for $892 million for violating laws that prohibit the sale of American technology to Iran and North Korea. Between 2010 and 2016, the company shipped $32 million worth of equipment to Iran that included U.S. components without authorization. The Chinese mobile giant then lied to investigators when it declared the dealings had stopped.

In addition to the fine, the company was subject to a seven-year, $300 million suspended penalty if the company violated the settlement, bringing the total penalty to about $1.2 billion. Not only did ZTE agree to participate in routine monitoring and auditing, but it was also placed on a list of companies U.S. suppliers are banned from doing business with absent government approval.

Upon pleading guilty to conspiracy to unlawful export, obstruction of justice, and making false statements to federal investigators, it appeared ZTE was committed to positive change. In a statement released amid the events, ZTE’s chief export compliance officer — U.S. lawyer Matt Bell — said the company would restructure its legal department as well as institute new policies, training, and automated tools to keep up with regulations.

False statements

Part of the agreement included letting go of four of the firm’s senior employees and disciplining 35 others by reducing their bonuses or reprimanding them, Reuters notes. But according to the Department of Commerce, ZTE rewarded its employees for the illegal conduct instead.

While the company disclosed it fired its four employees, it did not disclose that the rest of its staff received full bonuses rather than letters of reprimand. The company’s false statements were reported to the U.S. government after the Bureau of Industry and Security requested documentation showing proof that employee discipline had occurred.

The Department of Commerce determined ZTE made false statements to the Bureau of Industry and Security specifically in 2016 and 2017. The statements had been in relation to disciplinary actions the company claimed it had taken or was planning on taking toward its senior employees.

“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,” U.S. Secretary of Commerce Wilbur Ross said in a statement.

Updated on May 14: Donald Trump has offered to help ZTE, which said it has ceased its main business operations due to U.S. ban.

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