2018年CRI US ban on ZTE a rush: expert

“The action is not just about punishing ZTE; it’s also about punishing other US companies, because you ban the exports which the United States is looking for right now to China, and China has a certainly large telecommunication 1 market. All the businesses, all the products that could be sold to ZTE, they will have a great impact on American companies in terms of their export volume.  I think that’s a little bit rush and could backfire on American companies.”

--Fred Teng, President of the America-China Public Affairs Institute

Chinese telecom equipment maker 2 ZTE is on-record saying it will not accept a ban on US sales to the company, calling the decision "unfair."

It's a response to the US Commerce Department's activation 3 of denial of export privileges against ZTE Corporation for its alleged 4 violations 6 of Export Administration Regulations.

A statement from ZTE is describing the US announcement as "unacceptable," saying the US side is imposing 7 the most severe penalty against ZTE even before the completion of an investigation 8.

The Shenzhen-based company says its determined 9 to take all judicial 10 measures to safeguard its legal rights and interests, but says it is still hoping to solve the issue through talks with the US Commerce Department.

For more on this, CRI's New York Correspondent Qian Shanming caught up with Fred Teng, President of the America-China Public Affairs Institute, an independent research organization focused on U.S.-China affairs based in New York.

Q: “Fred, nice to have you on our program. US Department of Commerce on Monday announced activation of denial of export privileges against ZTE. But ZTE made a statement on Friday to lash 11 out the US government’s move, calling the decision extremely unfair. We know that US’s sanction on ZTE allegedly has its legal grounding, but do you think this case is a good manifestive manipulation by those higher up in the value chain?”

A: “Well I think whenever something like this happened; there are a lot of competing interests involved. Some of them are United States and some even international. They all want to have this US market. So as a result they might want to discredit 12 others and then create this. As far as legal grounding goes, there certainly was a document signed last year, which is (between) ZTE and US Department of Commerce. In terms of execution or this activation of denial, I think it’s up to both sides’ legal representative to sort out this issue. ZTE does not think it’s fair to them and they of course can file their complaint. However sometimes it’s difficult because US department of Commerce is a US government agency, but it doesn’t mean they will always win. We saw the action during President Obama administration that they denied Sanyi in terms of their acquisition and as a result they lost money. And they filed a lawsuit 13 and they won the lawsuit. So I think the best way is to go through that legal process and try to win in that way.”

Q: “What lessons do you think ZTE could learn here especially concerning its self-innovation?”

A: “Well for my personal view, this action is a little bit rushed because it’s not just about punishing ZTE; it’s also about punishing the other US companies. Because if you ban the exports which the United States is looking for right now to China, and China has a certainly large telecommunication market, you ban the export, it only, certainly… when ZTE lost the supplier, immediately it will have an impact on them, maybe for three months maybe for six months, but eventually they will find a replacement 14 supplier to continue their businesses because they are a large company. But in the meantime all the businesses, all the products that could be sold to ZTE, they will have a great impact on these companies in terms of their export volume. So American companies will lose a lot of their businesses. Also a total ban doesn’t make sense, because if you want to ban one or two equipment because of the security and sensitivity, that’s OK. But technology, there is low-tech, medium-tech, high-tech 15, so that means a company cannot sell even a simple screw or a simple plastic holder 16 and something like that because they cannot sell to ZTE. So I think that’s a little bit rush and could be backfire on American companies by itself. As for ZTE I think the lessons leant is that certainly when you went into an agreement with a US agency, you need to have a legal force to support behind you; secondly 17 is a compliance 18, meaning when you sign something, you need to make sure to abide 19 by it. You need to work with other party, making sure these agreements are both agreed. So that’s I think is another issue. Certainly also that issue about self-innovation, I think sooner or later this will force China, not just ZTE, but Chinese telecom industry to accelerate their own innovation to be able to produce by their own, so that they don’t have the rely on foreign supplier to stock their production.”

Q: “You've mentioned that ZTE has quite many cooperative partners in the US like Microsoft and Qualcomm. So how would this seven-year ban on ZTE affect the company’s US suppliers and partners?”

A: “Well that would definitely hurt the US companies in terms of source of their customer base. ZTE is one of the top four, five largest telecom equipment suppliers in the world. If Microsoft is not able to work with them; Qualcomm not able to have this customer, I think this would certainly impact their earnings 20 as well as the jobs related to their productions.”

Q: “So what sort of impact (like) today’s ZTE’s case would have on Chinese companies here in the US both in short term and in long term?”

A: “I think ZTE case is another one of these cases that bring a shock to many companies. Because usually when a country feels other companies have violation 5, it is not such a severe punishment. Whether it’s US companies working in China or anywhere in the world, there usually would be some penalties but they would allow them to go on because that’s the wise choice because you don’t want to stop the trade and commerce from going on. But this sudden seven-year ban on all the supply is very drastic, so I think it certainly would alert other companies, not just Chinese companies, in terms of their doing businesses in the United States; because their doing businesses in the United States is really just a commercial issue, but (when) it’s related to the political issues, companies of other countries might think twice because it’s just too complicated.” 

Q: "Do you think the US's latest move would further deteriorate 21 the trade relations between the US and China, since there's escalating 22 tension between US and China over trade and technology at the moment?"

A: "This happened two month ago. This is a huge issue and it still will be an issue. But with the last two rounds of the tariff 23, sanctions against each other, this becomes just another one of the tension. But now people are a little bit immune to it because they are seeing this issue, and hopefully these tensions, these sanctions can be resolved, because it seems like the US and China might be starting a negotiation 24. So hopefully this could be reduced away down the road with different negotiations 25 in terms of the terms. So I think certainly this will escalate 26 but hopefully every company will be treated this way."

Q: "Do you think ZTE's dilemma 27 would propel government, industrial leaders, and relevant tech enterprise to adjust their policies and development strategies in the high-tech sector 28?"

A: "Yes, the high-tech development is really the way for the future of all countries including China. They all understand that. And they use that to improve the quality of life. So this is something they cannot stop do. Because you look at China, if you look at China right now, they actually use these technologies where they take our orders or the financial transactions to also do things based on technology. So this would definitely alert because the Chinese, the industry leaders, the enterprises, they never see the United States exercising such drastic move against one company."

Q: "You've just mentioned the US move against ZTE would have impact on other overseas companies in the US not necessarily from China but also across the world. They would question the consistency 29 and stability of the US policies upon the overseas companies here in the US. Do you have any more details put in this aspect?"

A: "From my perspective, the US always proposes free trade. Free trade itself is good. And I certainly agree with that. I think free trade is that we should be free of policies. Let trading be trading and let commerce be commerce. But now because of geopolitics, we have to stop other companies from doing business with this county or that country. I think this is not only the ZTE or the tech industry. Certainly the banking 30 sector has also been sanctioned or penalized 31 because of the business they do globally. I think that any country or any company want to be a global player. They have to do business all over the world. And every country has its own law, its own regulation. So it's very difficult for all the countries in the world to only abide by the US regulation and US law because they have to do business with different cultures and different languages. So I think that this is something eventually… it might backfire with the United States using such a strong technique."

Q: "But we know that US has been advocating over the years but under the Trump 32 administration scenes are changing. He's drawing back from a lot of international obligations. And for this round of tensions, the administration has triggered against China. What are the voices from the industries and communities in the US toward the administration's latest moves?"

A: "Government leadership, especially the highest government leadership - that has impact on the people. And because of the current administration, in terms of the direction they are taking, we see changes even some of the friendliest friends have voiced criticism and so forth 33. And this is just not in the United States alone but I think in this world and in the history, it really proved that free trade and global partnership 34 always win over isolation 35, even though isolation may sound good to a domestic audience. But at the end of the day, it is really working with everyone in creating a bigger pie; and say this is my pie and you don't get to eat it - you won't win the day."