ZTE Signs Preliminary Agreement With Commerce Department To Lift US Ban

ZTE Signs Preliminary Agreement With Commerce Department To Lift US Ban

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

Ross said the USA will install its "own compliance people" to monitor the company and shareholders will bring in new management and board.

Under the deal, ZTE will change its board and management within 30 days, pay the $1 billion fine and put an additional $400 million in escrow.

The fine announced today comes on top of $892 million ZTE has already paid for breaking US sanctions by selling equipment to North Korea and Iran.

ZTE pleaded guilty a year ago to conspiring to evade US embargoes by buying USA components, incorporating them into ZTE equipment and illegally shipping them to Iran, paying almost $900 million in fines.

The deal includes a $1 billion penalty against ZTE, and a compliance team, chosen by the U.S., will be embedded at the company, Commerce Secretary Wilbur Ross told CNBC Thursday morning.

The conflict added to strains over President Donald Trump's threat to hike tariffs on up to $50 billion of Chinese goods in response to complaints Beijing steals or pressures foreign companies to hand over technology.

"ZTE is essentially on probation", said Amanda DeBusk, chair of the worldwide trade and government regulation practice at Dechert LLP and a former Commerce official. "It's unprecedented to have US agents as monitors ... ZTE is a repeat offender".

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Commerce had imposed a seven-year ban on ZTE doing business in the U.S.in April as part of a package of penalties levied after the company sold American-made products to Iran, a violation of USA sanctions.

The ban forced ZTE, which relies on USA components, to halt operations and would have ended most of its business.

One of the USA companies caught in the crossfire is Qualcomm Inc QCOM.O , whose products account for the lion's share of chips inside ZTE smartphones. 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. He later tweeted that the ZTE talks were "part of a larger trade deal" being negotiated with China.

Trump has drawn criticism from members of Congress for going easy on the Chinese company.

Shares in NXP Semiconductors NV rose 3.8 percent in early trading in NY after news of the ZTE deal was announced.

ZTE's survival has been a topic of discussion in high-level US-China trade talks.

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

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 USA government". The move was described as a "death sentence" by the company, which employs 70,000 people in China. "It certainly got their attention".

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