China and US agree ‘broad outline’ of settlement over ZTE ban, WSJ says

ZTE deal would include major changes to ZTE management, the board and potentially significant fines, according to the report

PUBLISHED : Tuesday, 22 May, 2018, 4:47pm
UPDATED : Tuesday, 22 May, 2018, 7:46pm

China and the US have agreed on the “broad outline” of a settlement to the seven-year ban on ZTE buying American technology, ending a punishment that threatened to put the company out of business, The Wall Street Journal reported.

The details are still being worked out but would include major changes to management, the board and potentially significant fines, the newspaper said Tuesday, citing unidentified people familiar with the matter. Larry Kudlow, President Donald Trump’s top economic adviser, said over the weekend that similar measures would be needed before the US would consider a reprieve.

A spokesperson for ZTE declined to comment on the WSJ report on Tuesday. At a regular foreign ministry briefing in Beijing, a government spokesman said that the joint China-US statement on economic and trade consultations issued at the weekend had covered the matter. The two countries have reached an important consensus on their trade relations and are working out the details, the spokesman said.

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The WSJ reported a week ago that any reprieve for ZTE would also involve Beijing removing tariffs on billions of dollars of US agricultural products, according to people in both countries briefed on the deal.

ZTE has been forced to halt major operations after the US slapped a ban on China’s second-largest maker of phone networking equipment for violating a settlement on breaching sanctions and then lying about it. Last week, Trump posted a tweet saying he was working with Chinese President Xi Jinping to help ZTE “get back into business, fast”. A person familiar with the company’s operations told the South China Morning Post on May 9 that the public may have underestimated the impact of the US denial order on ZTE’s business.

ZTE ceases ‘major operating activities’ as seven-year ban on selling it US technology shuts down most of its operations

While ZTE was being punished over the sales to Iran, the ban has become entwined in the trade dispute between the US and China. The Shenzhen-based company, which employs about 75,000 people, depends on US components, such as chips from Qualcomm, to build its smartphones.

US President Donald Trump claimed on Monday that China had agreed to buy “massive amounts” of American agricultural products – “practically as much as our farmers can produce” – as well as reducing trade barriers and tariffs. Despite the President’s comments on Twitter, few details have emerged about the agreement the world’s two largest economies reached to avoid an all-out trade war following talks in Washington last week.

On Saturday China was quick to deny claims that it had agreed to reduce the trade deficit between the sides by “at least” US$200 billion, saying that it had agreed to “substantially reduce” America’s trade deficit rather than discussing a specific figure.

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ZTE ran into trouble in 2016 for violating US laws restricting the sale of American technology to Iran. An 2017 agreement called for it to pay as much as US$1.2 billion and penalise the workers involved, in what was the largest criminal fine for the US Justice Department in an export control or sanctions case.

But in April, the Commerce Department said ZTE instead paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to US authorities. That led to the seven-year ban.