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US Fines China's ZTE $1 Billion, Imposes Strict Compliance Measures

08 June 2018

The fine comes on top of the roughly $1 billion ZTE has already paid for selling equipment to North Korea and Iran in violation of USA sanctions.

Secretary of Commerce Wilbur Ross announced that ZTE will pay a $1 billion penalty up front and deposit $400 million in an escrow account.

"We think this settlement, which brought the company - a $17 billion company - it its knees, more or less put them out of business, now they're accepting having the compliance team come in, whole new management, whole new board, should serve as a very strong deterrent not only for them but for other potential for bad actors", Ross said.

Trump barged into the ZTE case last month by tweeting that he was working with President Xi Jinping to put ZTE "back in business, fast" and save tens of thousands of Chinese jobs.

Eric Altbach, a former deputy assistant U.S. Trade Representative who spent years negotiating with the Chinese, said the U.S. may have agreed to go easier on ZTE in exchange for China approving an American company's acquisition of a Chinese firm.

On Tuesday, it was reported that ZTE, the fourth-largest smartphone maker in the U.S. by market share, had agreed in principle to a settlement that would lift the seven-year Commerce Department ban preventing United States companies from doing business with it.

It would also ban the USA government from using grants or loans to subsidize Huawei, ZTE or any subsidiaries or affiliates.

Shares in NXP Semiconductors NV rose 4.9 percent in NY after news of the ZTE deal was announced.

US senators said they plan legislation to roll back the agreement. At that time, the USA discovered documents that showed how ZTE established new entities to sell US technologies to Iran.

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

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According to Reuters, ZTE has signed a preliminary agreement that will lift the ban on usa companies providing ZTE with goods.

"I closed it down then let it reopen with high-level security guarantees, change of management and board, must purchase USA parts and pay a $1.3 Billion fine", Trump wrote on Twitter on May 25.

Last year, ZTE paid over $2.3 billion to U.S. suppliers, a senior ZTE official told Reuters last month. The company has 20 US offices or research centers and has sponsored five National Basketball Association teams.

There was no immediate comment from the Chinese government on the ZTE agreement.

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

"I assure you with 100 percent confidence that #ZTE is a much greater national security threat than steel from Argentina or Europe", Republican U.S. Senator Marco Rubio tweeted with the hashtag #VeryBadDeal.

Trump argues that bilateral trade deficits reflect bad deals for the US that need to be rewritten.

USA officials say China last weekend offered to buy an additional $70 billion in U.S. goods to cut the trade deficit - on condition that Trump call off the planned tech-sector tariffs.

Qualcomm Chief Executive Officer Steven Mollenkopf said on Thursday he hoped the ZTE agreement would pave the way for the NXP approval. NeoPhotonics (NPTN) rose 1.6% to 7.15, while Oclaro (OCLR) climbed 1.4% to 9.18.

US Fines China's ZTE $1 Billion, Imposes Strict Compliance Measures