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China's ZTE clears hurdle to lifting ban



(Reuters) – The United States said on Wednesday that it signed an agreement with ZTE Corp. ( 000063.SZ ) that it paves the way for the Chinese tech company to resume operations after a near three-month ban on doing business with American suppliers.

FILE PHOTO: The logo of ZTE Corp. is located on Beijing's ZTE Beijing Research and Development Center. June 1
3, 2018. REUTERS / Jason Lee

2 telecommunications equipment maker wants $ 400 million in an escrow account, the U.S. Commerce Department said in a statement announcing that an escrow agreement had been signed.

ZTE to cease major operations, which has been committed to an escalating trade dispute, has become a source of friction between Washington and Beijing.

ZTE did not immediately respond to a request for comment.

"Today's announcement marks the beginning of the end of this long-running saga," said Washington attorney Douglas Jacobson, who represents ZTE's suppliers.

The escrow agreement is part of a $ 1.4 trillion deal. suppliers, their components on their smartphones and networking gear.

ZTE broke an agreement reached after ZTE pleaded guilty in U.S. federal court last year for illegally shipping goods and technology to Iran, in violation of sanctions.

FILE PHOTO: The ZTE Corp. logo is located at the lobby of ZTE Beijing research and development center building in Beijing, China June 13, 2018. REUTERS / Jason Lee

The new settlement includes a $ 1 billion penalty ZTE paid to the US Treasury last month and the $ 400 million in the escrow account that the United States could seize if ZTE violates the latest settlement. The $ 1 billion penalty is in addition to nearly $ 900 million ZTE paid last year.

ZTE, which employs around 80,000 people, is expected to restart major operations. The reprieve for ZTE coincides with a new Trump administration threat of 10 percent tariffs on $ 200 billion of Chinese goods.

In its statement, the Commerce Department said the ZTE's action is a law enforcement matter unrelated to broader discussions of trade policy.

"The ZTE settlement represents the toughest penalty the department has ever considered," the Commerce Department said.

U.S. President Donald Trump tweeted in May that he had closed down ZTE and then let it reopen. Xi Jinping to give ZTE "a way to get back into business, almost." ZTE had said the ban is threatening its survival. White House trade adviser Peter Navarro said last month that Trump decided to buy ZTE to buy again. Parts and components as a personal favor to Xi to show good will for bigger efforts. U.S. Suppliers have been anxious to resume business since Commerce Secretary Wilbur Ross announces the settlement on June 7. ZTE paid over 200 U.S. companies more than $ 2.3 billion in 2017, including Qualcomm Inc ( QCOM.O ), Intel Corp. ( INTC.O ), Broadcom Inc ( AVGO.O ) and Texas Instruments Inc ( TXN.O ). Shares of smaller U.S. suppliers, which are more dependent on ZTE, including optical components makers Acacia Communications Inc ( ACIA.O ), Oclaro Inc ( OCLR.O ) and Lumentum Holdings Inc ( LITE.O ). ZTE's shares were suspended for almost two months after the ban was imposed and have lost about half their value.

The company received a limited one-month reprieve from the Commerce Department to maintain existing networks and equipment.

Under the new settlement, ZTE is required to change its board and management within 30 days. It wants to operate for the next 10 years under a suspended ban. The current ban could have lasted up to seven years.

In addition, the company selected by the Commerce Department. The department missed a 30-day deadline to report the "due diligence."

A controversial monitor appointed to a three-year term by a federal judge in Texas as part of last year's guilty plea already is in place.

ZTE, therefore, agreed to allow the U.S. government unfettered site visits to verify Components are being used as claimed by ZTE, and to post calculations of the U.S.. components in its products on its website in Chinese and English.

Members of the U. S. Senate last month urged Trump to reconsider the settlement, saying that ZTE posed "a significant threat" to national security.

The Senate paved the way for a showdown with Trump over the issue last month, when it passed an annual defense policy bill including an attempt to reverse the deal. The measure could be silent when Senate and House of Representatives meet in the coming weeks for a compromise version of the bill.

Chuck Schumer, the Senate's top Democrat, on Wednesday called the ZTE deal "awful" and said it would "undermine our national and economic security." He said he hopes his Republican colleagues in the House and Senate wants to "maintain the Senate's strong language in the defense bill. "

Reuters revealed on June 5 that ZTE had signed a preliminary agreement with the Commerce Department, along with the fine and other terms. So it broke news of the ban in April.

A U.S. Pat. Investigation into ZTE has been published in the United States of America. technology companies. (reut.rs/2GbpCmO)

Reporting by Karen Freifeld; edited by Lisa Shumaker and Leslie Adler


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