Trade war: US reaches deal with China's phone maker ZTE Corp

Imposes Rs 2.3 billion penalty in agreement to end crippling sanctions

The US reached a deal to allow ZTE Corp to get back in business after the Chinese telecommunications company pays a record-large fine and agrees to management changes, eliminating a key sticking point as the two countries try to avert a trade war.

“We still retain the power to shut them down again,” Commerce Secretary Wilbur Ross said Thursday in an interview on CNBC. 

He said the Commerce Department’s $1.4 billion fine, including $400 million in escrow, brings US penalties between last year and this year to $2.3 billion.

The US blocked ZTE’s access to US 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.

Under the deal, the ban is suspended for 10 years and can be activated by Commerce should the company commit additional violations during that decade-long “probationary period,” the department said in a statement announcing the agreement.

Ross said the US will install its “own compliance people” to monitor the company, and shareholders will bring in new management and board.

 “These collectively are the most severe penalty” the US has ever imposed on a company, Commerce said in its statement.

Chinese demand
 

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 that could undermine global growth. 

After a personal plea from Chinese President Xi Jinping to help the company get back into business, President Donald Trump said last month that the initial fine on ZTE would lead to “too many jobs in China lost” and that he would direct his Commerce Secretary to “get it done.”

The US also needs China’s help negotiating the denuclearization of North Korea ahead of a June 12 summit between Trump and North Korea’s Kim Jong Un.

Qualcomm Deal

Shares in NXP Semiconductors NV rose 6.5 per cent to $121.98 in New York after news of the ZTE deal was announced. 

The agreement signals that China will be likely to quickly approve the $43 billion acquisition of NXP by Qualcomm Inc, a deal that has been pending for 18 months. Qualcomm rose 2 per cent.

Trump has threatened to slap tariffs on at least $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 soybeans to airplanes, and said it will abandon its commitments if the US follows through on its tariff threat.