Washington Insider -- Tuesday

The ZTE Deal

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Lawmakers Concerned over US Auto Import Investigation

Several lawmakers express concern on potential U.S. auto import duties. Senate Majority Leader Mitch McConnell, R-Ky., was interviewed Thursday on Fox News. Asked by Bret Baier about the possible implementation of tariffs on auto imports under Section 232, McConnell said he was “particularly worried” about the negative impact on American agriculture.

Other GOP senators expressed unease about the president's threat of tariffs on imported automobiles. Senate Finance Chairman Orrin Hatch, R-Utah, said labeled the investigation as "deeply misguided" and said he shared the concerns voiced at a lunch by GOP senators.

Sen. Cory Gardner, R-Colo., said that many GOP senators were concerned that tariffs on imported cars could trigger retaliatory tariffs and other actions by trading partners aimed not only US-made automobiles, but potentially at other goods. “It is being discussed,” Gardner said. He said tariffs would “backfire on those you are really trying to help” and would “raise the cost of goods and make it more difficult for American consumers.”

Changes Coming for H-2A, E-Verify

The Trump administration is working on a proposed rule to streamline the H-2A farmworker visa program while providing new incentives for agribusiness and farmers to use the E-Verify system to check the legal status of employees.

USDA and the Departments of Labor, State and Homeland Security are working together on the topic. In a conference call with agricultural groups, officials said the goal was to finalize the changes in time for the 2020 growing season, with USDA the center spot for farms to apply for H-2A workers.

The Western Growers Association said they backed changes to the H-2A program, they were concerned about E-Verify becoming part of the plan. "Changes to H-2A should be made to improve the system for the use of all, and any implication that necessary reforms would be limited to those that use E-Verify is concerning," the group said, urging Congress to take action on immigration legislation.

In Fiscal Year (FY) 2017, more than 200,000 workers came into the U.S. via the H-2A program.

Washington Insider: The ZTE Deal

The Trump administration told lawmakers late last week it had reached a deal that would keep the Chinese telecom firm ZTE alive, a move that could clear the way for further trade talks with China, the New York Times said. It also thinks the move could “provoke anger in Congress.”

Under the agreement brokered by the Commerce Department, ZTE would pay a substantial fine, hire American compliance officers to be placed at the firm and make changes to its current management team.

In return, the Commerce Department would lift a so-called denial order that is preventing the company from buying American products, the Times said.

President Trump confirmed the news late Friday evening. The deal would allow ZTE to once again begin doing business with American companies, after it was recently banned from buying American technology components for seven years as punishment for violating U.S. sanctions against Iran and North Korea, a penalty that industry analysts say threatened to put the company out of business within weeks.

The collapse of ZTE would be an embarrassing outcome for China, and the company’s fate has become a hurdle in trade negotiations between the two countries. President Trump directed the Commerce Department to re-examine ZTE’s penalty based on a personal request from President Xi Jinping of China. This was reported to have set off a fierce pushback from some of Trump’s national security advisers, as well as lawmakers from both parties.

Trump, however, has appeared unmoved by those concerns, the Times said. “The administration has been seeking to cut a deal on ZTE in exchange for trade concessions, including purchases of American agriculture and energy products.”

Wilbur Ross, the commerce secretary, is scheduled to travel to China on June 2 to begin another round of the talks with top Chinese officials.

Such a deal is likely to face fierce resistance on Capitol Hill, the Times said. Top lawmakers, including Mr. Schumer, D-N.Y., and Senator Marco Rubio, R-Fla., have urged the administration not to bend on ZTE, which they consider a law enforcement and national security issue.

“ZTE presents a national security threat to the United States — and nothing in this reported deal addresses that fundamental fact,” Sen. Chris Van Hollen, D-Md. “If President Trump won’t put our security before Chinese jobs, Congress will act on a bipartisan basis to stop him.”

On Thursday, the House passed a bill that would prevent the administration from easing restrictions on ZTE, and on Tuesday, the Senate Banking Committee approved a similar amendment that would prevent the president from modifying penalties on Chinese telecom companies that had violated American law in the past year.

A group of 27 bipartisan senators also sent administration officials a letter last week warning them not to “compromise lawful U.S. enforcement actions against serial and premeditated violators of U.S. law, such as ZTE.”

“Yes they have a deal in mind,” Rubio said in a tweet on Friday. “It is a great deal... for #ZTE & China. Now congress will need to act,” he added.

The telecom company’s fate has consumed top administration officials, who have tried to defuse lawmakers’ concerns about a deal while responding to Trump’s entreaties to “get it done.” Last week, Ross and Steven Mnuchin, the secretary of treasury, briefed a group of Senate Republicans, including Mr. Rubio, John Cornyn, R-Texas, and Bob Corker, R-Tenn., on their plans for ZTE. Mr. Ross and Mnuchin sought to assure the lawmakers that they were planning on harsh penalties for ZTE, and appealed to Republicans to dampen their public criticism so a deal could be reached, a person briefed on the discussions said.

Schumer argued on Friday that “simply a fine and changing board members would not protect America’s economic or national security, and would be a huge victory for President Xi, and a dramatic retreat by President Trump.”

Defense officials have also been concerned about the Chinese telecom firm and its products, which they believe may be vulnerable to Chinese espionage or disruption. In early May, a spokesman for the Department of Defense said the Pentagon was stopping the sale of phones made by ZTE and a Chinese competitor, Huawei, in stores on American military bases around the world because of security concerns.

The Chinese telecommunications firm has been on the brink of shutting down, following penalties imposed by the Commerce Department. It also agreed to a $1.19 billion fine and other penalties in March 2017, after it was found to have violated American sanctions. In April, the Commerce Department said it had had also made false statements relating to disciplining senior officials, and announced a seven-year ban on the company’s purchases of American products.

That ban has crippled the Chinese firm and threatened to put tens of thousands of Chinese employees of the company out of work. The Chinese government had made clear that lifting ZTE’s penalty would be a condition for continuing with trade talks, and that if the penalty was not lifted, American companies operating in China might face further retaliation, people briefed on the discussions said.

Trump administration officials have said repeatedly in the last week that ZTE is a law enforcement issue and that it is being considered independently from trade negotiations with China. But trade experts say that the administration’s actions and the president’s own statements indicate that ZTE’s fate has become inextricably linked to Trump’s goal of reaching a trade deal with China.

So, we will see. China seems to be setting a high price on U.S. access to its markets, one that likely will affect trade interests in the United States — and the debate over U.S. farm policy, a fight producers should watch closely as it emerges, Washington Insider believes.

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