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China technology

ZTE pays US$1 billion fine as US lawmakers pass amendment to reinstate ban

The wrangling over settlement with China’s second-largest telecom equipment maker has seen Republicans allying with Democrats to defy Trump

PUBLISHED : Tuesday, 19 June, 2018, 5:35pm
UPDATED : Wednesday, 20 June, 2018, 1:30am

ZTE Corp has paid the fine for violating US trade laws and is in the final stages of arranging an account for future penalties, according to people with knowledge of the matter.

The payment came as the US Senate passed an amendment to reinstate a ban that had crippled the second largest telecom equipment maker in China.

ZTE, which was on the brink of collapse after the US ban on buying American components, has made the required US$1 billion payment, said the people, who asked not to be named because the information is private.

The company is finalising details about the establishment of an escrow account for the US$400 million payment that will be held in the event of any future violation, and who will be responsible for the account, the people said.

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The settlements are crucial for ZTE to resume buying the US components essential to its products. The destiny of ZTE is also pivotal in the tense US-Chinese negotiations over trade.

The price of ZTE stock dived on Tuesday after American lawmakers approved an amendment in a defence bill that would restore stiff penalties, potentially upending a deal struck with US President Donald Trump that would allow it to resume business.

The company’s Hong Kong shares slid to their lowest level in two years, down 25 per cent to HK$9.85 (US$1.25), while its shares on China’s Shenzhen exchange fell by the 10 per cent daily limit.

Hong Kong’s Hang Seng Index fell over 800 points, or 2.8 per cent, and the Shanghai Composite Index closed 3.8 per cent lower on Tuesday.

ZTE was penalised in April after being accused of selling sensitive technologies to North Korea and Iran, and subsequently failing to follow through on remedies imposed by the US Department of Commerce.

Representatives at the Bureau of Industry and Security under the Commerce Department and ZTE didn’t respond to emails and calls seeking comment about the payment of the fine.

The escalating conflict in Washington adds to uncertainty for ZTE as well as to its American suppliers. It also complicates the broader trade talks between the two countries.

Democrat Senators Chuck Schumer of New York and Chris Van Hollen of Maryland, along with Republican Senators Tom Cotton of Arkansas and Marco Rubio of Florida, released a statement after the passage of the defence bill that included the ZTE amendment.

“We’re heartened that both parties made it clear that protecting American jobs and national security must come first when making deals with countries like China, which has a history of having little regard for either,” the statement said.

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The amendment still needs to be reconciled with the House of Representatives, as it approved the bill earlier without the amendment, and it also needs to be signed off by the President before it becomes law.

“It is vital that our colleagues in the House keep this bipartisan provision in the bill as it heads towards a conference,” the senators’ statement said.

On June 7, US Commerce Secretary Wilbur Ross announced the deal that would save ZTE from collapse. It included the total fine of US$1.4 billion as well as a new in-house compliance team staffed by the US.