Published: Fri, June 08, 2018
Markets | By Terence Owen

ZTE Escapes US Ban, Will Pay New $1 Billion Fine

ZTE Escapes US Ban, Will Pay New $1 Billion Fine

U.S. Secretary of Commerce Wilbur Ross confirmed to CNBC that the U.S. government has reached an agreement with ZTE to lift the crippling supply ban imposed on April 16. ZTE, the fourth-largest smartphone maker in the United States by market share, "buys a big percentage of individual parts from USA companies". In March 2017, ZTE agreed to pay that fine and also to a seven-year suspended denial of export privileges, which would go into effect if ZTE broke the agreement during that time.

According to Reuters, the preliminary deal includes a $1 billion fine against ZTE plus $400 million in escrow for any future violations, sources said.

Amanda DeBusk, chair of the global trade and government regulation practice at Dechert LLP and a former Commerce official, said the deal puts ZTE on probation: "It's unprecedented to have US agents as monitors".

The immediate ramifications of this deal are that although ZTE is becoming cash-poorer, this will allow them to resume day-to-day business operations and get the business moving again. In exchange, ZTE would have to pay a total of $1.7 billion in penalties, according to the the report.

Senate Democratic leader Chuck Schumer called the agreement "a 180-degree turn away from the president's promise to be tough on China".

The terms outlined by Reuters are similar to the those Trump outlined in a May 25 tweet, saying that ZTE might reopen "with high level security guarantees, change of management and board, [and it] must purchase us parts and pay a $1.3 Billion fine".

One of the USA companies caught in the crossfire is Qualcomm Inc, whose products account for the lion's share of chips inside ZTE smartphones.

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ZTE did not immediately respond to requests for comment.

Reuters reports that "ZTE promised to replace its board and executive team in 30 days". That's in addition to the $1 billion fine paid a year ago.

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

But then in May, US president Trump had an apparent change of heart; despite election promises of prioritizing US jobs, Trump publicly anxious that ZTE's near-bankruptcy was causing there to be "too many jobs in China lost".

"ZTE is a state-controlled telecommunications company that poses significant espionage risks, which this agreement appears to do little to address", U.S. Senator Mark Warner, the top Democrat on the Intelligence Committee, said in a statement. Its R&D centers are in China, the U.S., Europe, Japan and Canada. Specifically, Bloomberg reported that the USA might lift the export ban if Chinese regulators approve Qualcomm's $43 billion bid for NXP. "So this change is appropriate to bring the punishment back in line with what was originally intended", as USA official told Breitbart News.

"It doesn't really move the ball forward on the deeper structural issues in U.S".

The suppliers include Qualcomm, Broadcom, and Intel Corp, as well as smaller optical component makers Acacia Communications Incand Oclaro. Both companies' share prices rose Thursday, with NXP up more than 6 percent in midday trading.

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