Chinese telecom major ZTE Corporation has reportedly received temporary relief from US ban. The company has signed an agreement in principle that would lift a ban imposed by US Commerce Department on buying from US suppliers. The agreement will allow the second largest Chinese telecommunications equipment maker to get back into business.
ZTE ceased operations in the US after Commerce Department banned all US companies from selling hardware or software products for seven years. The ban was imposed in April for breaking a 2017 agreement reached after the Chinese company was caught shipping goods made in the US illegally to Iran and North Korea. According to Reuters, an agreement has been signed in principle but “no definitive agreement has been signed by both parties.”
The report adds that the preliminary deal includes a $1 billion fine against ZTE plus $400 million in the form of escrow to cover any future violations. The US Commerce Department is planning to amend its 2017 settlement agreement, and count the $361 million paid by ZTE as part of the agreement. This new terms would allow the US to collect a total penalty of $1.7 billion from ZTE.
As soon as the US Commerce Department imposed ban on US tech companies from selling their hardware and software products to ZTE for seven years, there was a looming question around its survival. ZTE’s existence was threatened to such an extent that Chinese President Xi Jinping had to intervene, and asked US to reconsider the ban.
ZTE has also agreed to replace its board and executive in 30 days to comply with US regulations. It will also be required to allow site visits to verify that US components are being used as claimed by the company.
US lifting the ban imposed in April comes amidst strong resistance in the US Congress where both Democrats and Republicans are accusing Trump of bowing to pressure from China. “By letting ZTE off the hook, the president who roared like a lion is governing like a lamb when it comes to China,” US Senate Democratic leader Chuck Schumer told Reuters.
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US companies are estimated to provide 25 to 30 percent of components in ZTE’s equipment which includes smartphones and gear needed to build its telecommunications network. The Chinese company conceded to illegally shipping US goods and technology to Iran in 2017. The company has agreed to dismiss four senior employees, and discipline 35 other staff either by reducing their bonuses or reprimanding them.
ZTE is estimated to have paid over $2.3 billion to US suppliers last year. As part of the new agreement, ZTE plans to retain another compliance contractor in addition to the three-year court appointed contractor imposed by the plea agreement.