Chinese firm ZTE reaches preliminary agreement with United States to restore business

Ivan Schwartz
June 7, 2018

The tentative deal we have learned about today via Reuters, calls out a $1billion fine for the original breach of the April 2017 agreement to not sell to North Korea and Iran plus an additional $400 million in escrow to cover any future violations.

In mid-April, the United States Department of Commerce slapped ZTE with a Denial Order over an issue it had with us sanctions in 2017. ZTE relies on US parts and the ban also hurt ZTE's USA suppliers.

That was a serious problem for ZTE because the company is heavily dependent on United States components for its smartphone business.

The deal also comes with requirements for ZTE's business operations. The U.S. position has been that the fine is a law enforcement action, which should not be included in the discussions around trade. The U.S. threatened sanctions, but ZTE promised to change its practices and punish the executives responsible for its misconduct.

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US President Donald Trump planned to meet with his trade advisers on Tuesday to discuss China's offer to import an extra $70 billion (roughly Rs. 4.7 lakh crores) of American goods over a year as a way to defuse a potential trade war between the world's two largest economies. In exchange, ZTE would have to pay a total of $1.7 billion in penalties, according to the the report.

A man walks past a building with the ZTE logos in Beijing in a photo taken last month. ZTE has reportedly not yet signed the amended deal, but that seems like it's only a matter of time. "Congress should move in a bipartisan fashion to block this deal right away".

However, some sources who corresponded with me say that the Chinese government has purposely held up the acquisition of NXP Semiconductors by Qualcomm while it negotiates a more positive outcome for ZTE. It has a small but rising share of the smartphone business in the US. The company relies on USA -made components for many of its products, and also sells many of those products to US customers.

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