ZTE signs preliminary agreement to lift USA ban

China's ZTE said it ceased major operations last month due to the ban
China's ZTE said it ceased major operations last month due to the ban

08 June, 2018

Mr. Ross said the compliance team would be staffed by Chinese-speaking USA agents and would report to ZTE's new management as well as the Commerce Department. US President Donald Trump came under criticism for announcing last month that he would reverse the ban, with some lawmakers warning that payments do not address security concerns over Chinese telecommunications equipment. The company relies on US -made components for many of its products, and also sells many of those products to USA customers.

What might "happen" is that ZTE will pay a US$1 billion fine, plus $400 million in escrow, an asset held by a third-party, to cover any future violations, according to a Reuters report.

Both Republicans and Democrats criticized Trump's willingness to make a deal on ZTE.

Total US penalties imposed on ZTE now amount to $2.3 billion, according to the Commerce Department.

Ross told CNBC the ZTE deal was an enforcement matter that was unrelated to the trade talks, which he has led.

Senate Democratic leader Chuck Schumer called the agreement "a 180-degree turn away from the president's promise to be tough on China". The Pentagon earlier this month ordered retail outlets on USA military bases to remove from the shelves smartphones made by the two companies. ZTE also needs to change its board and executive team in the next 30 days.

The company paid $892 million in fines, with an additional $300 million suspended to encourage compliance with the settlement.

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USA senators said they plan legislation to roll back the agreement.

US companies such as Acacia and Lumentum had been barred from selling devices to ZTE, China's second-biggest telecom gear maker behind Huawei. "No decision has been reached by both sides as of now", Kudlow told reporters.

This week there were several reports that the USA and China had reached the broad outlines of a deal during Ross's recent trip to Beijing.

ZTE says it does business with telecom providers, governments and corporate network clients in more than 160 countries.

US chipmaker Qualcomm has been trying to buy NXP Semiconductors of the Netherlands, but given the company's global reach, the deal had to be approved by numerous countries' antitrust regulators, including China's. Building and maintaining a 5G network in the US may create 3 million jobs and provide a $500 billion boost to GDP, according to a 2016 Accenture report. Oclaro got 18% of its business from ZTE a year ago, while 30% of Acacia's total revenue was from ZTE.

Thursday's agreement was "a prerequisite for making broader progress", DeBusk said.

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