US strikes deal to end tough sanctions on China's ZTE

VIDEO: REUTERS
Chinese telecommunications giant ZTE reportedly agreed to pay a US$1 billion (S$1.33 billion) fine and allow the US to more closely inspect the company.
Chinese telecommunications giant ZTE reportedly agreed to pay a US$1 billion (S$1.33 billion) fine and allow the US to more closely inspect the company.PHOTO: AFP

WASHINGTON (NYTIMES) - Commerce Secretary Wilbur Ross said on Thursday (June 7) that the United States had reached a deal to end tough US sanctions on the Chinese telecommunications giant ZTE, a company that was accused of posing a national security threat.

Mr Ross, speaking to the broadcaster CNBC, said that ZTE had agreed to pay a US$1 billion (S$1.33 billion) fine and allow the US to more closely inspect the company by effectively having a hand-picked compliance team embedded inside it.

ZTE has been at the centre of a wide-ranging and complex trade dispute between Washington and Beijing, and its survival has been used as a bargaining chip between the two sides as each imposed tariffs and restrictions on the other's products and services.

The Trump administration told lawmakers last month that it had reached a deal to keep the company alive.

"At about 6am this morning, we executed a definitive agreement with ZTE," Mr Ross said in an interview on the programme Squawk Box. "And that brings to a conclusion this phase of the development with them."

"This is a pretty strict settlement," he added.

"We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people," Mr Ross said. He went on to say that ZTE would pay a US$1 billion fine, as well as US$400 million in escrow to cover "any future violations". The company will also be required to change its board of directors and executive team within 30 days.

"We still retain the power to shut them down again," Mr Ross said.

ZTE had been banned from buying US technology components for seven years, a penalty that industry analysts said would put it out of business within weeks because of its reliance on the US for parts. The punishment was tied to violations of US sanctions against Iran and North Korea.

Over recent weeks, the Trump administration has held talks with officials in Beijing to save the telecom company. Penalties imposed by the administration have left ZTE on the verge of collapse, a potential embarrassment for China.

Last month, President Donald Trump ordered the Commerce Department to reconsider the company's punishment after what he said was a personal request from President Xi Jinping of China. In return, the White House has been pushing for trade concessions from Beijing, including more purchases of US agriculture and energy products.

The White House's sudden change of heart regarding ZTE has enraged Washington lawmakers, who say that pardoning the Chinese company runs counter to national security interests.

"Their technology is a national security threat, according to our defence and law enforcement authorities," Senator Chuck Schumer, the minority leader, said at the Capitol on Wednesday (June 6).

"Why on earth is the Trump administration considering relaxing penalties on such a bad actor?"

But it is unclear what, if anything, they could do to stop the deal. The executive branch retains broad control over tariff policies, but as part of upcoming defence legislation, Congress is considering restricting any deal to let ZTE off the hook.