U.S. Cuts Deal With Sanctioned Chinese Tech Company ZTE

Mae Love
June 10, 2018

The U.S. has reached a deal with Chinese telecom giant ZTE, but the company will have to pay up and make some major business changes, according to Commerce Secretary Wilbur Ross.

ZTE has agreed to a $1 billion penalty, in addition to $892 million it has already paid in penalties.

The US slapped sanctions on Chinese government-controlled in ZTE in April for selling goods to North Korea and Iran. On Tuesday, Commerce Department spokesman James Rockas confirmed that "no definitive agreement [had] been signed by both parties".

The decision amounted to a death sentence to ZTE, which relies on US parts and which announced that it was halting operations. ZTE will have to pay a $1 billion penalty, change its board and executive team within 30 days, and accept to embed a "compliance team" from the US government within its organization. The U.S.is maintaining its 10-year export ban on ZTE, but the ban is indefinitely suspended and is likely to remain suspended if ZTE complies with the U.S. trade laws.

ZTE could not be reached for comment by either Reuters or the Post.

Over the weekend, ZTE signed the agreement in principle drawn up by the United States, but the amended settlement agreement has not been signed, sources said.

ZTE has promised to replace its board and executive team as part of the deal.

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Ross touted the deal as a victory, saying the administration's previous strict actions accomplished its goal in that it "brought ... a $17 billion company to its knees more or less put them out of business" and that the new agreement is "something I think even more effective".

The agreement also follows a reported offer by Beijing to ramp up purchases of American goods and thereby drive down the yawning trade deficit between the world's two largest economies - moving part-way towards meeting a key demand of US President Donald Trump in ongoing trade talks.

The decision to lift the ban has faced sharp criticism from United States politicians, including from some Republicans, who view the telecoms company as a national security risk.

ZTE must hire a new compliance team selected by the U.S. Commerce Department for a 10-year term.

One of the USA companies caught in the crossfire is Qualcomm Inc QCOM.O , whose products account for the lion's share of chips inside ZTE smartphones.

"ZTE made false statements to the US Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation", Ross said in April, when his department reactivated the sanctions. They will simply monitor the compliance of the company with the US export control laws.

Senate Minority Leader Chuck Schumer of NY said, "There is absolutely no good reason that ZTE should get a second chance and this decision marks a 180-degree turn away from the president's promise to be tough on China". Qualcomm and Intel count ZTE as a customer, as do smaller component makers Oclaro and Acacia, both of which saw their stock prices drop sharply when the ZTE export ban was announced. It also has to pay a $1 billion fine and hold another $400 million in escrow.

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