US agrees to let ZTE back after it pays $1.3b fine

US Commerce Secretary Wilbur Ross said the deal with ZTE was the "strictest and largest settlement fine that has ever been brought by the Commerce Department". An agreement that allows the crippled company to reopen was seen as a key Chinese demand.
US Commerce Secretary Wilbur Ross said the deal with ZTE was the "strictest and largest settlement fine that has ever been brought by the Commerce Department". An agreement that allows the crippled company to reopen was seen as a key Chinese demand.PHOTO: BLOOMBERG
US Commerce Secretary Wilbur Ross said the deal with ZTE was the "strictest and largest settlement fine that has ever been brought by the Commerce Department". An agreement that allows the crippled company to reopen was seen as a key Chinese demand.
US Commerce Secretary Wilbur Ross said the deal with ZTE was the "strictest and largest settlement fine that has ever been brought by the Commerce Department". An agreement that allows the crippled company to reopen was seen as a key Chinese demand.PHOTO: AGENCE FRANCE-PRESSE

The Chinese telco must also overhaul its board of directors, among other conditions

WASHINGTON • The US has reached a deal that will allow ZTE Corp to get back in business after the Chinese telecommunications company pays a record fine and agrees to management changes, Commerce Secretary Wilbur Ross said yesterday.

"This is a pretty strict settlement. The strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls," he said in an interview on CNBC.

The US blocked ZTE's access to American suppliers in April, saying the company violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations.

The company announced it was shutting down just weeks after the ban was announced.

Mr Ross told CNBC the deal includes a US$1 billion (S$1.33 billion) fine levied on the Chinese firm and a requirement that it change its board of directors.

Mr Ross also said the plan calls for ZTE to create a US$400 million escrow account in case of future violations, and a requirement to overhaul the board of directors and executive team within 30 days.

He added that he did not think the arrangement would have any effect on tariff talks with China.

"We think this settlement, which brought the company, a US$17 billion company, to its knees, more or less put them out of business... should serve as a very strong deterrent not only for them, but for other potential bad actors," Mr Ross said.

The deal includes a suspended 10-year ban on buying US components that could be activated by any violations.

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

Mr Ross said the agreement calls for "embedding a compliance department" chosen by Washington to monitor company conduct.

An agreement that allows the crippled company to reopen was seen as a key Chinese demand as the world's two largest economies try to avoid a trade war. The US also needs China's help negotiating the denuclearisation of North Korea ahead of a June 12 summit between President Donald Trump and North Korea's Kim Jong Un.

Mr Trump has threatened to slap tariffs on at least US$50 billion in Chinese imports shortly after publishing a final list of targets on June 15. China has vowed to retaliate on everything from US soya beans to airplanes, and said it will abandon its commitments if the US follows through on its tariff threat.

"The Chinese are well aware there's a new marshal in town," Mr Ross said. "His name is Donald Trump and he has a very good shot."

Meanwhile, the US government is also looking at limiting Chinese investment, and will report by the end of this month how it plans to tighten scrutiny of that.

Treasury Secretary Steven Mnuchin wants to rely on legislation to tighten controls, instead of an executive move imposing sweeping new limits, according to three people familiar with the matter.

Several US lawmakers have warned against easing sanctions on ZTE, citing national security concerns. But President Trump last month said he was looking at options to prevent a shutdown of ZTE.

BLOOMBERG, AGENCE FRANCE-PRESSE, REUTERS

A version of this article appeared in the print edition of The Straits Times on June 08, 2018, with the headline 'US agrees to let ZTE back after it pays $1.3b fine'. Print Edition | Subscribe