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ZTE Not Part Of China Trade Talks, Will Not Be Let Off ‘Scot-Free’ If Export Ban Is Lifted, Kudlow Says

Andrew Feinberg

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WASHINGTON, May 21, 2018 — Finding a way to allow Chinese telecommunications equipment maker ZTE back into US markets is not part of the Trump administration's ongoing trade talks with China and any solution will still punish the company for past actions, National Economic Council Director Larry Kudlow said Monday.

Kudlow described ZTE as "part of the landscape" and explained that it was an enforcement issue and not a trade issue before stressing that allowing the company to resume buying American-made electronic components would not mean leniency.

“If anybody thinks that any changes are going to let them off scot-free, they are wrong,” Kudlow said while speaking to reporters outside the west wing of the White House.

ZTE became an issue in US-China relations last month after the Commerce Department’s Bureau of Industry and Security issued an order denying ZTE the ability to export American-made products for seven years.

The ban was a response to misconduct by ZTE executives

In March, ZTE executives agreed to settle the sanctions violations by paying a $1.19 billion fine and accepting a suspended seven-year export ban to automatically take effect if it was found that the company violated any aspect of the settlement agreement or committed any more violations of American Export Administration Regulations.

Because the two major components in most mobile phones — Google’s Android operating system and radio chips made by San Diego, California-based Qualcomm — are made in the United States,  an export ban is a potential death sentence for the company.

But the Commerce Department imposed the ban after investigators discovered that company executives had made false statements and obstructed justice during negotiations to settle charges against the Shenzen, China-based company, formally known as the Zhongxing Telecommunications Equipment Corporation, for violating sanctions by selling telecom equipment to Iran and North Korea.

The Chinese company will still be subject to 'large fines'

Kudlow emphasized that any deal with Beijing that allows ZTE to once again purchase American-made components needed for mobile phones will involve “large fines” and “huge compliance.

"My sense is you might be looking at some changes around the edges, but I don’t know,” Kudlow added before explaining that any decision will be up to Commerce Secretary Wilbur Ross.

Chinese telecom equipment makers like ZTE and Huawei have also long been considered security risks by the American defense and intelligence establishments, which fear that the Chinese government-owned companies insert backdoor that could be used for espionage into their equipment.

As a result, the Pentagon recently banned the sale of Huawei and ZTE phones in the subsidized retail stores located on military bases known as Post Exchanges, and the Federal Communications Commission also issued an order prohibiting Universal Service Fund dollars from being spent on gear from either manufacturer.

Still, Kudlow reiterated that the Trump administration is "aware of all that," implying that even if the effort to find a solution -- which he said stemmed from a request from Chinese President Xi Jinping — is successful, it would not mean ignoring any of the government's concerns.

“We are aware of security issues, sanctions issues, technology theft issues, et cetera,” he said.

(Creative Commons Image: Chinese President Xi Jinping and his wife with President Donald Trump and Melania Trump at their Mar-a-Lago estate)

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