Senate Amendment May Not Be Enough to Block Trump’s ZTE Deal

Trade experts say it could be relatively easy for the White House to circumvent a provision in the NDAA aimed at preventing President Trump from lifting sanctions on the Chinese firm.

AP Photo/Manu Fernandez
June 18, 2018, 8 p.m.

Monday night’s successful passage of the National Defense Authorization Act chalks up a big win for the bipartisan group of senators looking to block President Trump’s plan to lift crippling Commerce Department sanctions against ZTE.

But even as an NDAA provision with that aim goes to conference and the administration works to soften or strike it, several international trade experts say the amendment’s current language may not be strong enough to prevent a determined White House from riding to the Chinese telecom company’s rescue.

“It would be pretty easy for the White House to get around it on the current facts, as we know them,” said Timothy O’Toole, a sanctions specialist and lawyer at Miller & Chevalier.

The Senate’s ZTE amendment purports to “stop [the administration] in their tracks,” according to a June 7 press release from the office of Democratic Sen. Chris Van Hollen. The provision—which is spearheaded by Van Hollen but supported by many Republicans, including Sens. Tom Cotton and Marco Rubio—would require the Trump administration to certify to Congress that ZTE “has not, for a period of one year, conducted activities in violation of the laws of the United States” before it can lift the denial order or otherwise modify sanctions.

The measure would also require the White House to certify that ZTE is cooperating with all federal investigations into its activity. And it could be applied retroactively, meaning that any move by the White House to lift the sanctions before the passage of the NDAA would theoretically be reversed once the bill became law.

But without any new information on illegal activity recently undertaken by ZTE, it’s far from clear that the amendment is the slam dunk some lawmakers suggest. Highlighting the one-year time limit on ZTE’s illegal activity, several trade lawyers reached by National Journal said that the Commerce Department should be able to certify ZTE’s compliance almost immediately after the signing of the NDAA—if not before.

“I think that Congress is trying to make their point; they’ve come up with some language that looks tough,” said Douglas Jacobson, the managing partner at trade-law firm Jacobson Burton Kelley, which counts some of ZTE’s suppliers among its clients. “But when you really kind of peel away the onion and start looking at it, it can be overcome.”

ZTE’s troubles with the U.S. government go back years, with lawmakers from both parties claiming that the firm’s U.S. operations were a national security risk. But it wasn’t until April that the company came under existential threat. At that time, the Commerce Department’s Bureau of Industry and Security found that the company violated a settlement agreement with the government by failing to claw back pay from executives involved in illegal deals with Iran and North Korea—and then lying about it.

Commerce slapped ZTE with a seven-year “denial order” to prevent the company from doing business with U.S. firms. It was a virtual death sentence, given ZTE’s reliance on American computer chips and other hardware.

But last month Trump unexpectedly pledged to lift ZTE’s penalty, apparently as part of a broader trade deal with the Chinese government. The White House subsequently reached a deal with the company to scrap the denial order in exchange for a $1 billion fine and the embedding of a U.S.-approved compliance team into the firm.

While the Senate is now hoping to block that deal from moving forward, experts are uncertain that the amendment’s year-long time frame will accomplish that goal.

Commerce’s original complaint against ZTE alleged that the last time the company actively lied to investigators was in a letter dated July 20, 2017. While multiple experts said it’s debatable whether lying in itself constitutes an “activity,” what’s clear is that the NDAA is unlikely to cross the president’s desk before July 20, 2018.

“I think there’s a very good argument that the executive could certify by July 20,” said Stewart Baker, a trade and sanctions expert at Steptoe & Johnson and a former top national security official in the George W. Bush administration. “And there is at least some argument that they could certify before.”

A spokesperson for Van Hollen’s office rejected that premise, saying that Commerce investigators believe ZTE lied as late as March of 2018. “That means that the president cannot suspend or modify the denial order until at least one year from its original issuance (April of 2019),” the spokesperson wrote in an email.

There is evidence in Commerce’s April denial order to indicate that the agency may believe that ZTE, by failing to correct its lie until March of 2018, was continually lying to investigators up to that point. But some trade lawyers still dispute the spokesperson’s claim.

“The fact that the denial order was issued in April—[ZTE] didn’t engage in a false statement on that date,” Jacobson said. “They violated U.S. law on the date that they violated U.S. law. So I think their interpretation of their own amendment is not legally and factually correct.”

Several experts noted that senators could have given their amendment more teeth by extending the time frame from which ZTE could not have conducted activities violating U.S. law to two or three years. None could say for certain why lawmakers chose to limit the scope to one year.

“I would not be surprised if there was just a failure to count up the days and go back and check the record to see at what point ZTE had begun to cure the violations,” Baker said.

Certification of compliance will have to be done by the Bureau of Industry and Security, which typically takes a hard-line approach to violators like ZTE. But with the White House carefully watching the case, experts expect there will be tremendous pressure on investigators to clear the Chinese firm. “I think it definitely winds up in the secretary’s office,” said Scott Miller, a trade expert at the Center for Strategic and International Studies.

And if Commerce investigators do sign off on the certification—which several experts said could be done even before the NDAA becomes law—Miller said Congress will likely have to take the executive branch to court should lawmakers object.

That’s unlikely to end well for Congress, O’Toole argued, particularly since parts of the ZTE amendment raise constitutional questions surrounding prohibitions on retroactivity and Congress singling out specific companies for punishment.

“It’s going to be very difficult to rein in the executive branch when it’s acting within its normal sphere of influence, and Congress is limited by some constitutional constraints and by the fact that, for the most part, the prosecution power is the executive’s and not Congress’s,” O’Toole said.

“The executive branch is going to be the one that is ultimately finding the facts,” he added. “And to the extent that there’s a dispute over the facts between the executive and the legislative branch, the executive’s going to win.”

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