China's ZTE Cheats Death After US Lifts Export Ban And Imposes $1B Fine

As part of the new agreement, which was signed off [again] by Secretary Ross, ZTE has been given 30 days to replace its entire board of directors and senior leadership. It also has to pay a $1 billion fine and hold another $400 million in escrow. These hefty monetary fines are in addition to the $892 million fine that ZTE already paid for its original transgressions, which involved violating U.S. sanctions by selling telecommunications equipment to Iran and North Korea. ZTE will have to welcome a team of "special compliance coordinators" for a period of 10 years to ensure that it is adhering to the terms of the new agreement.

In return, the U.S. is rescinding the seven-year ban on exporting components from U.S.-based companies in its continuing operations (primarily, producing smartphones). ZTE purchase key components from U.S.-based companies like Intel and Qualcomm.

“Today, [U.S. Commerce Department’s Bureau of Industry and Security] is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures,” said Secretary Ross. “We will closely monitor ZTE’s behavior. 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.”

This marks a dramatic change of viewpoint for Secretary Ross, who in April blasted ZTE and levied the original 7-year ban. “ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation,” said Secretary Ross at the time. “ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored."

Even China's State-owned Assets Supervision and Administration Commission had harsh words for ZTE, saying that the company was "stupid and passive" and that "[ZTE had] taken risks to engage in illegal operations numerous times.”

However, President Trump decided to step in and help save Chinese jobs and perhaps gain an upper hand in ongoing trade negations with China. This comes despite an across-the-board rebuke from U.S. intelligence agencies who see ZTE as a national security threat. In addition, lawmakers on both sides of the aisle have criticized bailing out ZTE. Senator Marco Rubio (R-FL), took to Twitter to criticize the deal, writing:

This “deal” with #ZTE may keep them from selling to Iran and North Korea. That’s good. But it will do nothing to keep us safe from corporate & national security espionage. That is dangerous. Now Congress will need to act to keep America safe from #China

— Marco Rubio (@marcorubio) June 7, 2018

I assure you with 100% confidence that #ZTE is a much greater national security threat than steel from Argentina or Europe. #VeryBadDeal

— Marco Rubio (@marcorubio) June 7, 2018

Likewise, Representative Adam Schiff (D-CA) didn't mince words when discussing the new arrangement with ZTE:

The President just caved on a deal with ZTE, a Chinese company that our intelligence professionals say poses a national security threat. Is the President so desperate for a deal — any deal — that he is willing to put Chinese jobs ahead of our national security? https://t.co/0AtvxUVNHc

— Adam Schiff (@RepAdamSchiff) June 7, 2018

Whatever the case, as long as ZTE can keep its nose clean and adhere to the terms of this newest deal with the U.S. government, it will be able to solider on as China's second-largest smartphone OEM.