ZTE agrees to 'strictest' US Commerce settlement

Dwayne Harmon
June 11, 2018

Chinese tech giant ZTE Corp.'s chairman promised no further compliance violations and apologized to customers in a letter Friday for disruptions caused by its violation of US export controls, a newspaper reported.

Under the new agreement, ZTE will have to pay a $1 billion fine and replace its entire board of directors and senior leadership.

Commerce Secretary Wilbur Ross told CNBC this morning that the USA has struck a deal to lift sanctions on the electronics giant.

"The preliminary deal includes a $1 billion fine against ZTE plus $400 million in escrow to cover any future violations, sources said, adding that the terms were in line with Reuters reporting on the usa demands on Friday".

"The settlement on ZTE does not significantly impact the probability that the US will impose tariffs on China", said Eurasia Group analysts in a report. ZTE's failure to comply with these terms triggered the suspended denial order that prohibits American companies from doing business with the Shenzhen-based company, plunging it into crisis.

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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.

The decision amounted to a death sentence to ZTE, which relies on US parts and which announced that it was halting operations. The company already has a USA court-appointed monitor. Hopefully this time ZTE respects the wishes of the US government to not sell to banned countries and ultimately this may lead to China and the USA finally coming to a real agreement on the larger on-going trade discussion. Since then, the company appears to have signed a preliminary agreement that would see them pay a larger fine and then have the ban lifted. "When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks".

Chinese anti-monopoly regulators have withheld approval of Qualcomm Inc.'s proposed acquisition of NXP Semiconductors, which some commentators say is being used as leverage against Washington. His administration has imposed tariffs on steel and aluminum that are targeted at Beijing, and has threatened to raise barriers on other Chinese-made products.

US goods exported to China past year totaled $130 billion while Chinese imports to the USA totaled $506 billion.

ZTE, which sources up to 30 per cent of its components from the U.S., paused its operations as a result and claimed its survival was at risk.

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