US reaches deal to rescue Chinese telecom company 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

The Trump administration reached a "definitive agreement" today with Chinese telecom giant ZTE that Commerce Secretary Wilbur Ross claims "imposes the most strict compliance that we've ever had on any company, American or foreign".

The deal stipulates that ZTE will overhaul its board of directors and executive team in 30 days.

Since then, President Trump and his friends have stepped in to help ZTE stay alive, even though there is bipartisan agreement that the U.S. shouldn't.

The US had previously blocked ZTE's access to US suppliers, saying the company had violated a sanctions settlement.

ZTE is a Chinese telecommunications manufacturer, founded in 1985, that makes cheap Android smartphones. This comes on top of the $361 million ZTE had already paid under the original settlement.

The probe found that ZTE had conspired to evade United States embargoes by buying United States components, incorporating them into ZTE equipment and illegally shipping them to Iran.

Resolution of the ZTE case may clear the way for progress in those trade talks. The company pleaded guilty in U.S. District Court in Texas a year ago.

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The company will pay a $1 billion fine and agree to establish and pay for an in-house compliance team staffed by USA experts, Ross told CNBC. That was a potential death blow to ZTE, which relies on USA technology for an estimated 25 to 30 percent of its components.

He noted that if the company does violate it again, in addition to the billion dollars they are paying the U.S. up front, it would have "to put $400 million into escrow". As a result, the Commerce Department enacted a seven-year sanction on ZTE, which was part of the initial guilty plea but suspended, pursuant to ZTE carrying out the other steps it promised.

But last month, President Trump tweeted that "too many jobs in China" were being lost because of the US action and that he had instructed the Commerce Department to find a solution. Nonetheless, Chinese trade officials have made reaching a deal on ZTE a major priority and news of the agreement may ease some of the tensions between the two countries. Specifically, Bloomberg reported that the USA might lift the export ban if Chinese regulators approve Qualcomm's $43 billion bid for NXP.

ZTE also did not immediately respond to requests for comment.

A US investigation into ZTE was launched after Reuters reported in 2012 the company had signed contracts to ship hardware and software worth millions of dollars to Iran from some of the best-known usa technology companies.

"The hope is accommodating China's concerns on ZTE will open the door to favorable decisions on Qualcomm and other deals", said Altbach.

Acacia Communications shares are up 4.9%.

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