U.S. Commerce Secretary Wilbur Ross on Thursday revealed the details of a deal with ZTE, a telecom equipment maker in China, reversing a 7-year ban on its buying technology components from U.S. suppliers.
ZTE earlier said the Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies.
As per the deal, ZTE will change its board and management within 30 days, pay a $1 billion fine and put $400 million in escrow. The government will suspend the 10-year ban but it can activate the ban if there are any violations.
“We will closely monitor ZTE’s behavior,” Ross said in a statement. “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 ceased major operations in April after a seven-year ban was imposed on the company for breaking a 2017 agreement that was reached after it was caught illegally shipping goods to Iran and North Korea.
ZTE is worried that a ban on sourcing tech components for its critical telecom equipments and smartphones will hamper its major business. US companies and ZTE suppliers that will be negatively impacted by the ban would be Qualcomm, Google, among others.
Reuters reported exclusively on Tuesday that ZTE had signed a preliminary agreement with the Commerce Department, along with the fine and other terms.
Ross said on Thursday the penalty is the largest the Commerce Department has ever levied. ZTE was assessed $2.29 billion in civil and criminal penalties by the Commerce Department and other U.S. agencies since last year.
Under the deal, ZTE must retain a compliance team selected by the Commerce Department for 10 years. The company already has a U.S. court-appointed monitor.
One of the U.S. companies caught in the crossfire is Qualcomm, whose products account for the lion’s share of chips inside ZTE smartphones. Qualcomm is trying to get approval from China for its pending $44 billion acquisition of NXP Semiconductors
Qualcomm CEO Steven Mollenkopf said he hoped the ZTE agreement would pave the way for the NXP approval.
Some of the ZTE suppliers include Oclaro and Acacia Communications. Oclaro got 18 percent of its business from ZTE last year, while 30 percent of Acacia’s total revenue was from ZTE.
Law makers to block ZTE deal
Reuters reported that Republican and Democratic U.S. senators introduced legislation on Thursday that would roll back an agreement President Donald Trump’s administration announced to ease sanctions on ZTE.
The Senate measure would restore penalties on ZTE for violating export controls and bar U.S. government agencies from purchasing or leasing equipment or services from ZTE or Huawei Technologies. It would also ban the U.S. government from using grants or loans to subsidize Huawei, ZTE or any subsidiaries or affiliates.
