The United States and China have reached a deal that allows the Chinese telecommunications giant ZTE Corp. to stay in business in exchange for paying an additional $1 billion in fines and agreeing to let U.S. regulators monitor its operations.
The fine comes on top of $892 million ZTE has already paid for having sold equipment to North Korea and Iran in violation of U.S. sanctions.
The Commerce Department said Thursday that ZTE must also put $400 million in escrow — a sum that it would forfeit if it violated Thursday’s agreement.
In addition, a compliance team chosen by the United States will be embedded at ZTE and the Chinese company must change its board and executive team.
“ZTE is essentially on probation,” said Amanda DeBusk, chair of the international trade and government regulation practice at Dechert LLP and a former Commerce official. “It’s unprecedented to have U.S. agents as monitors … It’s certainly a good precedent for this situation. ZTE is a repeat offender.”
In April, the Commerce Department barred ZTE from importing American components for seven years, having concluded that it deceived U.S. regulators after it settled charges last year of sanctions violations: Instead of disciplining all employees involved, Commerce said, ZTE had paid some of them full bonuses and then lied about it.
The decision amounted to a death sentence to ZTE, which relies on U.S. parts and which announced that it was halting operations. The ban also hurt American companies that supply ZTE.
President Donald Trump barged into the ZTE case last month by tweeting that he was working with President Xi Jinping to put ZTE “back in business, fast” and save tens of thousands of Chinese jobs. He later tweeted that the ZTE talks were “part of a larger trade deal” being negotiated with China.
Trump has drawn criticism from members of Congress for going easy on the Chinese company. Democratic Sen. Chuck Schumer of New York immediately responded to Thursday’s announcement: “Despite his tough talk, this deal with ZTE proves the president just shoots blanks.”
Still, the resolution of the ZTE case may clear the way for the United States to make progress in its trade talks with China. The two countries have threatened to impose tariffs on up to $200 billion worth of each other’s products in a dispute over China’s tactics to supplant U.S. technological supremacy, including demands that U.S. companies hand over trade secrets in exchange for access to the Chinese market.
Thursday’s agreement was “a prerequisite for making broader progress,” DeBusk said. “The ZTE case was a thorn in the side for China … For the U.S. to shut down one of China’s largest companies is a very dramatic type of move. It certainly got their attention.”