China's ZTE Reportedly Strikes Preliminary Deal To Lift U.S. Ban

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Moreover, the U.S. Commerce Department is expected to count the $361 million ZTE paid a year ago as part of a settlement agreement, which will allow the government to claim no less than $1.7 billion in penalties.

"If they do violate it again, in addition to the billion dollars they are paying us up front, we had them put $400 million in escrow", he said. This settlement is in response to the U.S. Commerce Department's Bureau of Industry and Security (BIS) denial order that was imposed as a result of ZTE violating its March 2017 settlement agreement.

The company will pay a $1 billion fine and agree to establish and pay for an in-house compliance team staffed by USA experts, Ross told CNBC. A Commerce Department spokesman said that "no definitive agreement has been signed by both parties".

Back in April, the United States government announced a complete and total ban of any U.S. components manufacturers from selling to Chinese telecom and handset giant, ZTE (HKG:0763). The agreement calls for a 10-year suspended ban that can be activated if ZTE commits new trade violations. The resolution of the ZTE case may clear the way for the U.S.to make progress in its high-stakes trade talks with China.

ZTE also wanted to be more present in the American smartphone market, but the April shutdown had complicated that plan.

ZTE has promised to replace its board and executive team as part of the deal. "They will pay for those people but the people will report to the new chairman", Ross said in the interview.

ZTE had agreed to dismiss four senior employees and discipline 35 others either by reducing their bonuses or reprimanding them, according to senior Commerce Department officials.

According to the Hong Kong-based English-language daily, "The reprimand and forfeiture of bonuses were part of the original settlement that ZTE had reached with the USA government".

The sanctions imposed in April crippled ZTE's production, but U.S. President Donald Trump announced on May 13 that he and Chinese President Xi Jinping were working on a way to get ZTE back into business. The company will also have to keep a team of "compliance coordinators" for the next 10 years, which will be selected by the DoC.

"We will closely monitor ZTE's behavior", said Ross in the release.

The decision to lift the ban has faced sharp criticism from U.S. politicians, including from some Republicans, who view the telecoms company as a national security risk. The two countries have threatened to impose tariffs on up to $200 billion worth of each other's products in a dispute over China's tactics to supplant US technological supremacy, including demands that USA companies hand over trade secrets in exchange for access to the Chinese market.

The announcement boosted shares in United States component makers including Acacia Communications, Oclaro and Lumentum Holdings.

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