China's ZTE signed preliminary agreement to lift U.S. ban

Ivan Schwartz
June 10, 2018

After facing a near-certain death earlier this year when Commerce Secretary Wilbur Ross imposed crippling sanctions on the company for violating an agreement with the US government, a deal brokered in part by President Donald Trump has saved the Chinese company.

The agreement includes a $1 billion penalty for ZTE and another $400 million in trust to cover future possible violations.

Before April 16, a settlement with Washington keeping the ban from going into effect had been in place since March 2017, after ZTE agreed to punish those responsible for covering up its sales to Iran and pay about two-thirds of a US$1.2 billion penalty. The legislation would restore penalties on ZTE for violating USA sanctions against Iran and North Korea and block US government agencies from purchasing equipment or services from ZTE or its bigger Chinese rival, Huawei Technologies.

Finally, while no agreement has been officially inked, the sources in the Reuters article did say ZTE has finished all of its signatures and that the usa just needs to finalize the deal. The dispute stemmed from a US decision to block sales of American-made components ZTE needs to manufacture its products for seven years, until 2025.

In addition to the fine, a compliance team chosen by the USA will be embedded at ZTE and the Chinese company must change its board and executive team.

US Commerce Secretary Wilbur Ross, who is now in Beijing for trade talks with China and told CNBC that a deal worth $1.4 billion had been struck. Furthermore the company will have to completely clean house on its executive team and board of directors, replacing all of the members in both of those groups.

"We executed a definitive agreement with ZTE", Ross told CNBC Thursday.

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According to the Hong Kong-based English-language daily, "The reprimand and forfeiture of bonuses were part of the original settlement that ZTE had reached with the United States government". The company announced it was shutting down just weeks after the ban was announced.

ZTE had agreed to dismiss four senior employees and discipline 35 others either by reducing their bonuses or reprimanding them, according to senior Commerce Department officials.

The Trump administration has walked a fine line, stressing that any ZTE deal is separate from ongoing trade negotiations with China.

China's President Xi Jinping asked the USA to reconsider that punishment, which forced ZTE, the world's fourth-largest mobile phone maker and a major employer in China, to suspend major operations.

Wilbur Ross unveiled details of the deal in an interview for United States television channel CNBC on Thursday, saying that ZTE had agreed to pay out $1.4 billion (€1.18 billion) in return for the lifting of a ban that prevented it buying vital USA components. The company has also agreed to a decade of inspections to ensure compliance with US export control laws. And the company will be required to host and pay for a US-selected compliance team that will oversee the company's compliance over the term of the agreement. 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.

To date, total penalties have already reached about $2.29 billion.

Other reports by GizPress

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