U.S. Strikes Deal to Help China's ZTE, Commerce Secretary Says

Alicia Cross
June 9, 2018

The U.S. blocked ZTE's access to U.S. suppliers in April, saying the company violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations.

The sources requested anonymity because they were not authorized to publicly discuss the matter.

The US has reached an agreement to lift sanctions on Chinese telecom equipment maker ZTE, Commerce Secretary Wilbur Ross said Thursday. "It's unprecedented to have US agents as monitors ..." The resolution of the ZTE case may clear the way for the U.S.to make progress in its high-stakes trade talks with China. It also has to pay a $1 billion fine and hold another $400 million in escrow.

The management changes must be completed within 30 days. The Trump administration had previously announced that it was banning USA companies from selling ZTE components for seven years, components critical to its entire product line.

Trump has indicated he views the handling of ZTE as part of his administration's broader effort to renegotiate trade conditions with China. "Congress should move in a bipartisan fashion to block this deal right away". The U.S. responded to this information with a denial order which made it illegal for U.S. companies to do business with ZTE.

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

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ZTE is based in Shenzhen, close to Hong Kong, and was founded in 1985. While it did fire the four employees, the company admitted to making false statements about the others, handing out full bonuses. Now ZTE has got to pay a $1 billion fine and submit to US oversight. FBI Director Chris Wray said the proliferation of ZTE phones in the US provides "the capacity to maliciously modify or steal information". The Pentagon earlier this month ordered retail outlets on USA military bases to remove from the shelves smartphones made by the two companies.

The compliance team will report jointly to the new ZTE chairman and the US Commerce Department.

ZTE ceased major operations earlier this year because of the ban.

Last year, ZTE paid over $2.3 billion to US suppliers, a senior ZTE official told Reuters last month. Shares of Qualcomm Inc QCOM.O rose 2 per cent to US$61.255, while NXP jumped 6.2 per cent to US$121.60.

Critics like senator Marco Rubio have criticized the Trump administration's willingness to cut a deal with ZTE, saying it undercuts United States national security.

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