United States reaches deal with China's ZTE

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The Trump administration has struck a "definitive" deal with Chinese tech giant ZTE, Commerce Secretary Wilbur Ross announced Thursday, over strong congressional objections.

The United States and China have reached a deal that allows the Chinese telecommunications giant ZTE to stay in business in exchange for paying an additional $1bn in fines and agreeing to let U.S. regulators monitor its operations.

The penalties are in addition to the $892 million in penalties ZTE already paid.

Problems started to pile up for ZTE as soon as the USA ruling highlighted how the company had violated a sanctions agreement involving illegal exports to Iran and North Korea. The Trump administration had previously announced that it was banning us companies from selling ZTE components for seven years, components critical to its entire product line. Since the original US penalty would have put ZTE out of business, Chinese authorities would have retaliated against a prominent USA company, he said. Trump pointed to the ongoing trade negotiations between the two countries, suggesting that the ZTE decision is a bargaining chip in the ongoing high-level trade talks.

ZTE will have to pay a $1 billion penalty, change its board and executive team within 30 days, and accept to embed a "compliance team" from the US government within its organization. In May, the Pentagon banned ZTE and Huawei products from being sold on military bases.

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Though some Trump administration officials attempted to frame the ZTE sanctions as a separate national security issue, the president himself appeared to pull the discussions into the broader talks over trade. "It's unprecedented to have United States agents as monitors ..." They raised national security concerns about ZTE, a view shared by United States intelligence agencies and other countries. As a company, the bulk of its profits are in network telecommunications devices, but smartphones are the majority of its consumer business.

Several U.S. chipmakers, including Qualcomm and Intel, count ZTE as a customer. To satisfy Trump's demand for a reduction in the $375 billion in goods US trade deficit with China, the government in Beijing has reportedly offered to buy up to $70 billion more each year in USA products. US officials reached a deal on June 7, 2018, to ease sanctions that threatened to cripple Chinese smartphone maker ZTE, Ross said.

David Dollar, a China expert at the Brookings Institution, said the ZTE deal was an unorthodox way to correct an overly harsh punishment.

Shares of Acacia and Oclaro extended their gains on Tuesday in heavy trading after news of the preliminary deal, ending up 1.7 percent and 1.8 percent, respectively.

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