U.S. Agrees to Lift American Parts Ban on ZTE

The Chinese smartphone maker will pay a $1 billion penalty as part of a deal to end the sanctions that had threatened to cripple its operations.
Matthew HellerJune 7, 2018

The Trump administration has announced it will lift a ban on American companies supplying ZTE with components as part of an agreement that requires the Chinese smartphone maker to pay a $1 billion penalty.

The U.S. decision to end sanctions that had threatened to cripple ZTE’s operations follows the extraordinary intervention of President Donald Trump, who tweeted last month that he planned to help ZTE because “too many jobs in China” would otherwise be lost.

The Commerce Department imposed the seven-year ban, known as a “denial order,” on April 20, citing ZTE’s breach of a settlement of allegations it illegally shipped goods to Iran. Under the deal announced Thursday, ZTE will also deposit an additional $400 million in escrow as a hedge against future violations and fund a U.S.-chosen compliance team.

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“Today, BIS is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures,” Commerce Secretary Ross Wilbur Ross said in a news release.

“We will closely monitor ZTE’s behavior,” he added. “If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow.”

ZTE’s products, including smartphones, use such American parts as microprocessors from Qualcomm, glass made by Corning, and sound technology from Dolby. Shortly after the U.S. issued the denial order, the company said it had ceased “major operating activities.”

Experts had predicted the sanctions would be devastating to ZTE, the fourth-largest handset brand in the U.S.

Trump’s intervention in the dispute triggered criticism in Congress that it would undermine his campaign vow to change the balance of power in America’s trade relationship with China.

“When it comes to China, despite [Trump’s] tough talk, this deal with ZTE proves the president just shoots blanks,” Senate Minority Leader Chuck Schumer said Thursday in a statement.

But Ross told CNBC that the U.S. still has the power to shut down ZTE again and the settlement “should serve as a very good deterrent not only for them but for other potential bad actors.”