Sunday, 21 October, 2018

USA reaches new settlement with China's ZTE

ZTE has been banned from purchasing sensitive technology from the US over its illegal sales to Iran and North Korea Report Tentative ZTE Deal with U.S. Could Bring Fine to $1.7B AFP 5 Jun 2018Washington DC
| 10 June, 2018, 11:19

Ross told CNBC the accord will force ZTE, which employs almost 75,000 workers, to pay a $1 billion fine for violating the USA ban on trade with North Korea and Iran, put another $400 million in escrow, and within 30 days replace its entire management and board.

In the ongoing ZTE saga and the company's battle with the U.S. Department of Commerce, ZTE will pay an additional $1 billion fine to the U.S. and has agreed to other terms in order to resume business with U.S. companies.

After a personal plea from Chinese President Xi Jinping to help the company get back into business, President Donald Trump said last month that the initial fine on ZTE would lead to "too many jobs in China lost" and that he would direct his Commerce Secretary to "get it done".

Some officials involved with the negotiations have said they were unrelated to the ongoing trade talks between the US and China, but others have suggested that ZTE was a bargaining chip for the USA and that China could make other concessions now that ZTE has won a reprieve.

In April, the Commerce Department blocked ZTE from importing American components for seven years, having concluded that it had deceived US regulators after it settled charges last year of violating sanctions that were imposed against Iran and North Korea.

China-based ZTE has reportedly signed an agreement in principle that would lift a U.S. Commerce Department ban on the company which barred it from buying from U.S. suppliers.


In addition to the more than $1.8 billion in combined fines, ZTE will be required to retain a team of specially assigned compliance coordinators answerable to BIS for a period of 10 years. The Chinese authorities' involvement, on the backdrop of ongoing trade negotiations with the US, have saved ZTE from almost-certain death.

That was a serious problem for ZTE because the company is heavily dependent on United States components for its smartphone business.

The new agreement also requires ZTE to replace its board of directors and senior leadership. The government will suspend the 10-year ban but it can activate the ban if there are any violations. Last year, the company was already fined $1.2 billion for violating U.S. sanctions.

According to a Commerce Department filing from April, ZTE never reprimanded its 35 lower-level employees, and worse, it made false statements to the Department about its compliance. This compromise would allow the company to once again use US -made components in their products-although at a large cost.

Reviving ZTE has been a personal focus for President Trump, whose government is in the middle of broader trade negotiations with the Chinese government. "They will pay for those people", Mr. Ross said. ZTE reached an agreement to turn over $1.19 billion and punish executives involved in the scheme, but in April the USA determined that the company hadn't lived up to its promises.

Earlier, Wilbur Ross stated that the USA was looking at alternatives to the debilitating sanctions threatening the survival of ZTE.

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