ZTE signs US agreement in principle to pay US$1.4 billion to lift sanctions and go back into business

The deal includes a US$1 billion fine against ZTE plus US$400 million in escrow in the event of future violations, sources said; including the US$361 million already paid, the final total could be US1.4 billion

PUBLISHED : Wednesday, 06 June, 2018, 4:06am
UPDATED : Wednesday, 06 June, 2018, 4:36am

ZTE Corp has signed an agreement in principle that would lift a US Commerce Department ban on buying from US suppliers, allowing it to get back into business, according to sources familiar with the matter.

The Chinese telecommunications equipment maker ceased major operations in May and has been on life support since the seven-year ban was imposed in April, after it broke a 2017 agreement by illegally shipping goods to Iran and North Korea.

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Commerce Department spokesman James Rockas said on Tuesday that “no definitive agreement has been signed by both parties.”

The deal includes a US$1 billion fine against ZTE plus US$400 million in escrow in the event of future violations, sources said, adding that the terms were in line with Reuters reporting on the US demands on Friday.

The Commerce Department plans to amend its settlement agreement from last year and count the US$361 million ZTE paid as a part of that, allowing the US to claim a total penalty of as much as US$1.7 billion, sources said.

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ZTE signed the agreement in principle drawn up by the United States over the weekend, but the amended settlement agreement has not yet been signed, sources said.

As part of the deal, ZTE must also allow unfettered site visits to verify that US components are being used as claimed by the company, post calculations of the US components in its products on a public website, and replace its board and executive team in 30 days, sources said.

ZTE came under sanctions after it emerged that it had dealt with North Korea and Iran, but they were held off after the company agreed to several compromises, including punishing relevant staff.

However, they were reimposed when documents provided to the US Department of Commerce revealed that the company had gone back on its agreement.

The seven-year ban on dealing with US companies, from which it buys microchips and other equipment effectively shuttered the company. Around 25-30 per cent of components in ZTE’s equipment is estimated to come from US companies.

Since then, the sanctions have become an important part of the ongoing trade discussions between the US and China, with US President Donald Trump reportedly seeing them as a bargaining chip to sweeten talks with Beijing.

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China is heavily invested the fate of in ZTE, which is the country’s second-largest telecommunications manufacturer. Beijing also hopes to become a technological leader in fields such as AI and robotics with its Made in China 2025 programme, so ZTE’s fate has highlighted the country’s dependency on others.

However, the possibility that Trump might let ZTE off the hook has caused a stir among lawmakers on both sides of the aisle.