Chinese smartphone giant ZTE to pay $1bn fine in US

The Trump administration is putting the finishing touches on a deal with ZTE. Bloomberg’s Jodi Schneider reports

The US has reached a deal with Chinese tech firm ZTE that will remove the ban on the company buying parts from US suppliers, Commerce Secretary Wilbur Ross has said.

ZTE's survival has been a topic of discussion in high-level US-China trade talks.

ZTE said it would be forced to go out of business if its supply of optical components from companies such as Acacia, Finisar and NeoPhotonics dried up.

USA lawmakers immediately attacked the agreement, citing intelligence warnings that ZTE poses a national security threat.

In March 2017, ZTE agreed to pay a record fine of $1.2 billion to the United States for violating sanctions on Iran and North Korea. It will also allow unfettered site visits to verify that U.S. components are being used correctly, and post calculations of USA parts in its products on a public website.

The company will also need to put $400 million into escrow, money that will be reserved in case ZTE violates the new agreement.

The sanctions that the Trump administration had imposed on ZTE - and today's settlement - reflect those longer-term concerns and highlight not just the companies' dependence on the US for advanced technology but also the attraction of their less expensive mobile phones for American consumers.

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

ZTE will pay a $1.4 billion fine, according to Ross.

ZTE did not immediately respond to requests for comment.

Ross also said that a compliance team picked by the USA will be embedded at ZTE and that the Chinese company must change its board and executive team in 30 days. In addition, the company will accept US compliance officers to monitor its activities, according to Ross. They must also post calculations of the usage of USA -made components on a public website. "But it will do nothing to keep us safe from corporate & national security espionage".

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USA intelligence agencies have concluded that ZTE poses a "significant" national security threat.

Fox News foreign policy analyst Kiron Skinner and Wall Street Journal editorial page writer Jillian Melchior on how the Trump administration reached a deal with Chinese company ZTE.

Senate Majority Leader Charles E. Schumer called for Congress to reverse the decision, which is unlikely.

Earlier, Wilbur Ross stated that the USA was looking at alternatives to the debilitating sanctions threatening the survival of ZTE. At that time, the US discovered documents that showed how ZTE established new entities to sell USA technologies to Iran.

ZTE was found to have shipped its sophisticated telecommunications equipment to both countries, which the State Department lists as supporters of terrorism, and to have repeatedly lied to USA investigators about its actions. The gear maker pleaded guilty a year ago in federal court in Texas for conspiring to violate USA sanctions to Iran.

Shenzhen-based ZTE has a subsidiary in Richardson, Texas. Building and maintaining a 5G network in the US may create 3 million jobs and provide a $500 billion boost to GDP, according to a 2016 Accenture report.

Commerce Secretary Wilbur Ross says the U.S. has struck a deal with ZTE to end sanctions.

There are also some political ramifications to this deal - which are outside the scope of AnandTech's purview - but as the New York Times notes, many see this as part of a larger peace offering in ensuring a new trade deal between the United States and China.

One of the USA companies caught in the worldwide crossfire is Qualcomm Inc, whose products account for the lion's share of chips inside ZTE smartphones.

Shares in NXP Semiconductors NV rose 3.8 per cent in early trading in NY after news of the ZTE deal was announced.

Thursday's agreement was "a prerequisite for making broader progress", DeBusk said.

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