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US clinches deal with China to let ZTE back in business

June 08,2018 07:16

The U.S. reached a deal to allow ZTE to get back in business after the Chinese telecommunications company pays a record-large fine and agrees to management changes, eliminating a key sticking point as the two countries try to avert a trade war. “We ...

Under the deal, the ban is suspended for 10 years and can be activated by Commerce should the company commit additional violations during that decadelong “probationary period,” the department said.
The U.S. reached a deal to allow ZTE to get back in business after the Chinese telecommunications company pays a record-large 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, including $400 million in escrow, brings U.S. penalties between last year and this year to $2.3 billion.
The U.S. 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 Commerce should the company commit additional violations during that decadelong “probationary period,” the department said in a statement announcing the agreement.

Ross said the U.S. will install its “own compliance people” to monitor the company, and shareholders will bring in new management and board. “These collectively are the most severe penalty” the U.S. has ever imposed on a company, Commerce said in its statement.
An agreement that allows 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 Donald Trump said last month that the initial fine on ZTE would lead to “too many jobs in China lost” and that he would direct his Commerce Secretary to “get it done.”
The U.S. also needs China’s help negotiating the denuclearization of North Korea before a June 12 summit between Trump and North Korea’s Kim Jong Un.
Trump has threatened to slap tariffs on at least $50 billion in Chinese imports shortly after publishing a final list of targets on June 15. China has vowed to retaliate on everything from U.S. soybeans to airplanes, and said it will abandon its commitments if the U.S. follows through on its tariff threat.
“The Chinese are well aware there’s a new marshal in town,” Ross said. “His name is Donald Trump and he has a very good shot.”
Members of Congress from both major 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,” Republican Sen. Marco Rubio of Florida said on Twitter after the administration’s announcement. He was referring to the White House’s recent decision to impose metal tariffs on trade partners including the European Union.
Senate Majority Whip John Cornyn of 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 of Oregon, a Democrat and ranking member on the Finance Committee with jurisdiction over trade, and Senate Minority Leader Chuck Schumer of New York called on Congress to reverse the agreement.
Wyden called the deal “a loser for American security and a loser for American workers.”

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Trump argues that bilateral trade deficits reflect bad deals for the U.S. that need to be rewritten. U.S. goods exported to China last year totaled $130 billion while Chinese imports to the U.S. totaled $506 billion. That left a U.S. deficit of more than $375 billion.
Meanwhile, 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 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.

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