Bill to Stop Administration's ZTE Reprieve Contains Loophole

Despite repeated lobbying trips from Commerce Secretary Wilbur Ross, the Senate passed a version of the defense authorization bill June 18 that includes an amendment designed to retain the seven-year export ban on Chinese telecommunications equipment manufacturer ZTE. However, the way the amendment is written, the Commerce Department would retain the discretion to allow ZTE to continue importing semiconductors from U.S. sources.

The loophole is in language that says the administration cannot roll back an export ban unless it has been one year since a company broke the law, and the company is cooperating with remedies. The denial order issued in April -- and technically still in force -- said the last time ZTE made a false statement to the Bureau of Industry and Security was July 20, 2017 -- so that one-year deadline is just one month away.

"I have this very unpopular view that the language doesn't do anything," said Derek Scissors, a China expert at the American Enterprise Institute. "Why would you leave this vague like this? It's just a way to show we're tough on China." If the Senate really wanted to tie the administration's hands on ZTE, it could have said Commerce could not curtail the seven-year export ban, or at least not until the first year of the ban was up, he said.

Sen. Tom Cotton, R-Ark., the amendment's lead sponsor, confirmed in a brief hallway interview on Capitol Hill that it is up to the Commerce Department to interpret whether the last time ZTE broke the law was when it gave a false statement last July, or when Commerce discovered ZTE was not compliant in March 2017. "It will be a factual determination for the Department of Commerce; however, the forward-looking pieces of the amendment that I offered and were adopted last night are very important -- they don't just apply to ZTE, they apply to Huawei and other Chinese telecom companies, and they say that the federal government will not buy their goods, and will not loan or grant money to anyone who does. That will stop those companies from being a national security threat to the United States."

The administration will continue to try to convince members to strip the provision from the bill through the conference committee process. The vote in favor of the bill was 85-10. The bipartisan amendment was also led by Minority Leader Chuck Schumer, D-N.Y., and along with co-sponsors Sen. Marco Rubio, R-Fla., and Sen. Chris Van Hollen, D-Md., the sponsors issued a joint statement after the bill's passage: “We’re heartened that both parties made it clear that protecting American jobs and national security must come first when making deals with countries like China, which has a history of having little regard for either. It is vital that our colleagues in the House keep this bipartisan provision in the bill as it heads towards a conference.”

Scott Kennedy, a China expert at the Center for Strategic and International Studies, said the Senate's rebuke of the president's decision to roll back ZTE's death sentence influenced Donald Trump to ratchet up the number of goods from China subject to Section 301 tariffs. He said Trump wanted to show Congress, "I'm as tough and as extreme as anybody. You need to not tie my hands."

Scissors disagrees. He said the whole ZTE amendment is theater, and said maybe the fact that the White House is arguing it should not be part of the final defense bill is for the Chinese audience. He said it's even possible the White House asked Cotton to sponsor the amendment so the administration could say to Chinese leaders, "See how hard this is," and that they deserve more concessions elsewhere.