Tech stocks gain as United States confirms ZTE deal

08 June, 2018, 04:35 | Author: Martin Tyler
  • China's ZTE said it ceased major operations last month due to the ban

Given ZTE's reliance on US-made parts, the sanctions effectively crippled the company and forced major operations to cease. But now, Reuters is reporting that ZTE has signed a preliminary deal that could allow ZTE to resume operations.

After having been found to have sold equipment to sanctioned countries such as Iran and North Korea, ZTE was previously fined $1.19 billion.

The ban amounted to a death sentence for the company, which relies on USA parts. The $400 million escrow likely includes those suspended funds, according to Doug Jacobson, a trade Washington, D.C., trade attorney.

ZTE shut down its operations at the beginning of May following Commerce's decision to ban it from purchasing equipment from USA companies.

Back in April, as punishment for continued violations of a previous export ban settlement with the US, the US Department of Commerce's Bureau of Industry and Security enacted a denial order against ZTE. "The strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls".

ZTE was fined Dollars 1.2 billion in March 2017, but in April, Washington banned the sale of crucial U.S. components to the firm after finding it had lied multiple times and failed to take action against employees responsible for sanctions violations.

Under the new agreement, ZTE must also retain a compliance team selected by the Commerce Department for 10 years. In addition, the company will accept USA compliance officers to monitor its activities, according to Ross. Post calculations of USA parts in the company's products would also have to be on a public website.

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Several US lawmakers have warned against easing sanctions on ZTE, citing national security concerns.

US intelligence agencies have concluded that ZTE poses a "significant" national security threat.

Finally, while no agreement has been officially inked, the sources in the Reuters article did say ZTE has finished all of its signatures and that the us just needs to finalize the deal.

Senate Majority Leader Charles E. Schumer called for Congress to reverse the decision, which is unlikely.

ZTE says it does business with telecom providers, governments and corporate network clients in more than 160 countries. "Export control and sanctions laws should not be negotiable, because fidelity to the rule of law is a key part of what distinguishes the US from a country like China that is ruled by a Communist dictatorship". FBI Director Chris Wray said the proliferation of ZTE phones in the US provides "the capacity to maliciously modify or steal information". That left a USA deficit of more than $375 billion.

Shenzhen-based ZTE has a subsidiary in Richardson, Texas.

"It doesn't really move the ball forward on the deeper structural issues in U.S".

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But last month, President Trump tweeted that "too many jobs in China" were being lost because of the US action and that he had instructed the Commerce Department to find a solution.

There are also some political ramifications to this deal - which are outside the scope of AnandTech's purview - but as the New York Times notes, many see this as part of a larger peace offering in ensuring a new trade deal between the USA and China. This compromise would allow the company to once again use USA -made components in their products-although at a large cost.

USA companies Qualcomm (QCOM) and Intel (INTC) account for 43 percent of the materials used in ZTE's Chinese-made handsets and networking equipment, according to tech research firm IDC. "The ZTE case was a thorn in the side for China ..."

The Chinese Commerce Ministry said Thursday that some progress was made in talks that ended last weekend.

Oclaro shares are up 1.1%.

The fine comes after Donald Trump stepped in to save the company after USA regulators barred it from doing business in the U.S., an effective death blow for the company.

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