US Removes Ban on China’s ZTE, Imposes $1 Billion Fine 

Ban on exportation to ZTE

Commerce Secretary, Wilbur Ross, announced on Thursday that U.S. has finally reached an agreement with a Chinese company, ZTE, to remove the heavy sanction which was imposed on the telecom company earlier this year.

Wilbur Ross announces the lifting of the seven-year ban placed on ZTE from purchasing from U.S. companies

The sanction came after the company violated certain provisions of U.S. trade agreements prohibiting dealings with North Korea and Iran. In violation of the express provision, the telecom company had shipped equipment to the countries which are two of the countries listed by the State Department as aiders of terrorism. The company also subsequently lied to U.S. investigators about the existence of the dealings.

Pursuant to the above and due to the company’s failure to adequately reprimand the employees involved in the prohibited exportation, the U.S. Department of Commerce in April outrightly banned U.S. companies including Qualcomm, Google, and Corning from exporting parts to ZTE for seven years.

Ban lift costs ZTE $1.4billion

As a penalty, the deal requires ZTE to pay a billion dollars and an additional deposit of $400 million in escrow in case of a subsequent violation. Ross mentioned that in a case where the company subsequently violates any U.S. trade regulations, they would forfeit everything, including the 400 million dollars in escrow. He added that even after the loss of such huge amount, the U.S. will still retain the power to shut the company down.

A picture of the ZTE telecom company in China

In addition to the monetary penalty, the deal requires the company to change its board of directors and executive team within 30 days and have an in-house compliance team chosen by U.S.

Speaking on the operation and functions of the compliance team, Ross in an interview stated that the people to make up this department would have the function of monitoring the company’s activities as things progress. The Commerce Secretary further added that although the company will fully fund the department, the department will, however, report to the new chairman to be appointed.

Ross has acknowledged the settlement terms to be the strictest as well as the largest fine ever issued by the Commerce Department against any company who violated export controls.  It is worthy of mention that this deal is coming after Trump’s tweet last month that he was contemplating helping ZTE as a lot of jobs in China will otherwise be lost if something isn’t done about the penalty. ZTE is the first China’s local telecom company to go public and is currently listed on the Shenzhen and Hong Kong stock exchanges having made its first initial public offering on Shenzhen stock exchange in 1997 and another on the Hong Kong Stock exchange in December 2004.

Ban lift receives mixed reactions

Ross’ announcement of U.S.’ decision to remove the ban placed on ZTE has attracted different reactions from various quarters.  Marco Rubio in a tweet wrote that he was assured about ZTE posing a greater national security threat to U.S. than the steel from Europe and Argentina. Chuck Schumer, a Senate minority leader, also opined that the particular deal with ZTE was significant of the fact that Trump shoots blank despite his constant tough talk.

However, Carlos Guiterrez, a former U.S. Commerce Secretary is of the opinion that the change is a welcome development as the reversal of the penalty has the likelihood of averting a worsened relation between U.S. and China. He puts as his reason the fact that the initial seven years ban would have definitely made ZTE go out of business which would make the Chinese authorities take a retaliatory measures against a major U.S. company.

A former deputy assistant U.S. trade representative to China, Eric Altbach said that U.S’ sudden decision to lift the ban on ZTE might be in exchange for China’s approval of Qualcomm’s proposed acquisition of NXP Semiconductors. It will be recalled that the U.S. chipmaker, Qualcomm, has been trying to buy Netherlands’ NXP semiconductors but due to the global presence of the company, a lot of countries’ antitrust regulators, of which China is a part have to approve the deal given the company’s global reach, and China has been stalling in giving approval since the trade disputes between the country and U.S. increased.

With the lift of the ban on ZTE, the finalizing of the deal may be fast approaching

In the light of certain speculations that there is a connection between the ban lift and the current trade issues between U.S and China, Ross maintains that ZTE’s issue is distinct and has nothing to do with the trade issues. Trump, on the other hand, has said that the enforcement issue is one of U.S’ different attempts at an overhaul of its trade relationship with China.