U.S. gives China’s ZTE a reprieve
Telecom firm can get back in business after it pays $1.4 billion and changes management.
The U.S. reached a deal that will allow ZTE Corp. to get back in business after the Chinese telecommunications company pays a record fine and agrees to management changes, eliminating a key sticking point as the two countries try to avert a trade war.
“We still retain the power to shut them down again,” Commerce Secretary Wilbur Ross said Thursday in an interview on CNBC. He said the Commerce Department’s $1.4-billion fine brings U.S. penalties last year and this year to $2.3 billion.
The agreement signals that China is likely to quickly approve the $43-billion acquisition of NXP Semiconductors by Qualcomm Inc.
of San Diego, a deal that has been pending for 18 months. NXP shares closed up 4.8% to $120.07; Qualcomm rose 1.3% to $60.64.
The United States blocked ZTE’s access to U.S. suppliers in April, saying the company violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations. The company announced it was shutting down just weeks after the ban was announced.
Under the deal, the ban is suspended for 10 years and can be activated by the Commerce Department should the company commit additional violations during that decade-long “probationary period,” the department said in a statement announcing the agreement.
Ross said the U.S. would install its “own compliance people” to monitor the company, and shareholders will bring in a new board and management.
An agreement that would
allow the crippled company to reopen was seen as a key Chinese demand as the world’s two largest economies try to avoid a trade war that could undermine global growth. After a personal plea from Chinese President Xi Jinping to help the company get back into business, President Trump said last month that the initial fine on ZTE would lead to “too many jobs in China lost” and that he would direct Ross to “get it done.”
The U.S. also needs China’s help negotiating the denuclearization of North Korea ahead of a Tuesday summit between Trump and North Korea’s Kim Jong Un.
Trump has threatened to slap tariffs on at least $50 billion in Chinese imports after a final list of targets is published June 15. China has vowed to retaliate on such things as U.S. soybeans and airplanes, and said it would abandon its commitments if the U.S. follows through on its tariff threat.
Members of Congress from both parties said they were concerned about the deal’s national security implications, and some have threatened to block any ZTE deal through legislation that
could be part of the national defense spending bill.
“I assure you with 100% confidence that #ZTE is a much greater national security threat than steel from Argentina or Europe. #VeryBadDeal,” Sen. Marco Rubio (R-Fla.) said on Twitter after the administration’s announcement.
Senate Majority Whip John Cornyn (R-Texas) said national security was “front and center” of the ZTE deal, and added that replacing the board and requiring compliance officers “goes a long way to addressing some of my concerns about the national security implication.”
Sen. Ron Wyden (DOre.), ranking Democrat on the Senate Finance Committee with jurisdiction over trade, called the deal “a loser for American security and a loser for American workers.”
The U.S. government is also looking at limiting Chinese investment and will report by the end of this month how it plans to tighten scrutiny of that. Treasury Secretary Steven T. Mnuchin wants to rely on legislation to tighten controls, instead of an executive move imposing sweeping new limits, according to three people familiar with the matter.