Chinese phone maker ZTE saved from brink after deal with US

ZTE agrees to US demands

The Trump administration yesterday announced a deal to allow the telecommunications company to resume buying from USA companies, eliminating a key sticking point for the two nations in their talks on trade.

"This is a pretty strict settlement, the strictest and largest fine that has ever been brought by the Commerce Department against any violator of export controls", Ross said in an interview with CNBC.

ZTE has agreed to a $1 billion penalty, in addition to $892 million it has already paid in penalties.

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 government will suspend the 10-year ban but it can activate the ban if there are any violations.

As a result, ZTE was banned from using US -made components for 7 years starting from April 2017. However, a Commerce Department spokesman said that "no definitive agreement has been signed by both parties". The U.S. responded to this information with a denial order which made it illegal for U.S. companies to do business with ZTE. When U.S. regulators found that ZTE had not complied with the terms of the agreement, they cut off the firm from its U.S. parts suppliers. At the same time, it continued to ask the US government to lift the ban.

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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". Specifically, some observers are looking for China's Ministry of Commerce to finally approve Qualcomm's bid to purchase NXP.

The new agreement also requires ZTE to replace its board of directors and senior leadership.

Under the deal, ZTE must retain a compliance team selected by the Commerce Department for 10 years. "It's unprecedented to have US agents as monitors ..."

"The Chinese are well aware there's a new marshal in town", Ross said.

ZTE was originally posted on to the Denied Persons List in April 2018, when it was announced that the U.S. had banned the company from purchasing parts from USA companies, such as Alphabet's (NASDAQ:GOOG) Google and Qualcomm (NASDAQ:QCOM). Apparently, a part of the reason is that ZTE wants to replace a top executive with one from another company which the United States considers a potential threat, so we'll have to wait and see where things go from here...

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